Community groups voice opposition to city’s bond debt deal with Goldman Sachs
on February 22, 2012
As soon as Reverend Daniel Buford took the podium in the council chambers at Oakland City Hall on Tuesday night, bright, hand-drawn, multi-colored signs with inscriptions like “Stop the Swap,” “Give the $ Back” and “Not another dollar to Goldman Sachs” popped up around the room.
Buford, a minister at Allen Temple Baptist Church on International Boulevard, began speaking about the city’s relationship with Goldman Sachs, and a rate-swap deal the city and the bank agreed to in 1997 relating to $187 million in city debt. The deal has already cost the city $26 million, and could cost up to $20 million more over the next 10 years as the debt is paid off.
“We implore you to get the City of Oakland out of this toxic relationship with Goldman Sachs,” Buford said to the city council during its meeting on Tuesday to rounds of applause.
Buford was speaking on behalf of a recently formed coalition of religious, labor, educational and activist leaders, including local SEIU and ILWU union members, as well as members of Oakland Community Organizations, Block by Block Organizing Network and the Decolonize Oakland Outreach Committee.
Buford said the coalition is demanding that the city end its relationship with Goldman Sachs and the bank pay back any money it has gained from the city since 2005.
“If Oakland has $5 million a year to throw into hole that is Goldman Sachs pocket, let’s use that money to build a clinic out in East Oakland, do job programs in West Oakland,” Buford said. “Let’s use that money for some constructive purpose, rather than to line the pockets of Goldman Sachs.”
Another speaker, Jemahl Amen, who was there on behalf of the Oakland chapter of the NAACP, added “It’s time to bail out the City of Oakland.”
More than 40 people got up to speak about the bond debt deal, though it wasn’t on the meeting’s agenda. Dwight McElroy, president of the SEIU 1021 Oakland chapter, said members of the coalition showed up to demand that the city council put the item on the agenda for a future meeting, and figure out a way to get out of the deal instead of just talking about it. McElroy said members of the coalition have been meeting at the church on Saturdays for about the last year and a half to discuss the deal, and how Oakland can get out of it.
“Instead of talking to us about talking to the banks, I’d like to see something in writing from them to Goldman Sachs,” McElroy said during an interview. “Putting political pressure, out in the public. There’s a lot of ways to get things done.”
Oakland City Councilmember Libby Schaaf (District 4) addressed the group at the end of open forum, saying “it’s exciting that people are excited about this.” She said she thinks the item will be put on the agenda soon. Schaaf said the city has been negotiating with Goldman Sachs, and Oakland officials asked the bank to waive an early termination fee. As Schaaf was saying “The City of Oakland has asked Goldman Sachs …” she was interrupted by shouting from the audience to “not ask the man.” Unperturbed, Schaaf continued, “I support agendizing it soon, and it’s exciting that people are learning about this issue and want to join us in this fight.”
In other business conducted on Tuesday, the council voted to change the name of the city’s Sunshine Ordinance, which prevents city boards from meeting in private and makes information about city business public, to the Sanjiv Handa Sunshine Ordinance, in honor of the longtime City Hall reporter and activist, who died in December at age 55.
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I’m pretty sure the person in the audience who interrupted Councilmember Schaaf said, “don’t ask–demand!” (rather than “don’t ask the man”).
Looks like the photographer caught me tweeting during the meeting in the front row there too…
Yes, what David said. The person shouted “Don’t ask! Demand!” and then Schaaf actually corrected herself and said “demand.”
[…] At issue is the 1997 deal between the city and the investment bank that included a rate-swap deal of $187 million in city debt. According to OaklandNorth.net, it has already cost the city $26 million with a potential $20 million more during the next decade as the debt is being paid down. […]
This is pretty hilarious. I hope GS tells the city to pound sand. A swap agreement is essentially a bet on interest rates. If you lose a bet, you can’t just “demand” that the winner pay you back. The city lost the bet, plain and simple. Anyone with even a basic sense of fairness should understand that when you make a bet you have to be willing to lose. If interest rates went the other way, would people be clamoring to return the city’s gains to Goldman? Of course not.
You’ve got to be kidding. Goldman Sachs is benefiting from the financial crisis THEY created. Tell me how this is fair. This is not a fair bet by any stretch of the imagination.
It’s not so simple. When Goldman Sachs made bets and lost, helping to cripple the entire economy, they got bailed out by taxpayers, and the Fed took drastic steps to lower interest rates—then GS gets to use those lowered interest rates to collect on the bet they made with Oakland. Does that really seem right or fair?
Oakland has made plenty of moronic financial decisions, and should be accountable for them, but when our financial system and government bend over backwards to bail out the Goldman Sachses of the world while allowing Goldman Sachs to continue profiting from its own bad bets, something is seriously out of whack. I won’t claim to have easy solutions, but it’s clear that the system is basically rigged to protect the interests of people like Lloyd Blankfein at the expense of the poor and middle class.
1) Oakland is not the federal government. To conflate the two is silly.
2) The “bailout” of GS netted the federal government a 23% return: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6pS.2Pr7bdQ
When Oakland County screws up they also get bailed out by the taxpayer 😉
A swap isn’t a “bet” or a “gamble” anyway — it’s an insurance contract. They insured themselves against interest rates going up and they lost. Do you demand to get your car insurance premiums back every time you go a year without an accident? No! That’s how insurance works. Are you “betting” that you’re going to get in a wreck by buying insurance? No! You hope you don’t, but have a Plan B if you do. A swap works the same way.
This is clearly about the Unions trying to do everything they can to make the big Wall Street banks look bad (and therefore make themselves look good? “Protect the common man!” I guess). Nowhere in this article does it say anything about what the banks did “wrong” — just that any payments that somehow go to them is just “bad.” The self-evidency of their claims is absurd.
You morons, GS doesn’t profit on this. Oakland locks in an interest rate by buying a contract. If rates go up, GS pays Oakland. If rates go down Oakland pays GS. Once the contract is entered into, GS likley enters into an offsetting trade in the market so they are neutral. GS makes a small amount on the trade with Oakland…an amount equal to the preceived “credit risk” of Oakland over that amount of time. If Oakland goes under and can’t pay, GS is out one side of the trade and is exposed to rate risk. They deserve to make something for taking risk. The problem today is that everybody wants to blame someone…mostly banks…but 90% of the people are clueless about the things that come out of their mouths. Buying rate protection for a long term debt instrument when rates are at historical lows is actually wise..the liklihood is that rates will increase.
Completely agree with “Banker” – it’s easy to scapegoat Wall Street when things go south.
Believe me – Wall Street is definitely guilty of a lot of things. However, Goldman Sachs has done nothing wrong in this situation. They have served their fiduciary duty with Oakland, and so as far as I’m concerned, most of these comments stem from (1) ignorance and (2) misdirected anger. Please understand the underlying finance before you make blind accusations about Goldman Sachs.
Finally – while it would be fun to hold Goldman Sachs responsible, Oakland chose Goldman Sachs because they are truly good at what they do; they’re the best. The same thing (or worse) would have happened had they hired anybody else. It’s not Goldman’s fault that the markets went the other way! Goldman doesn’t stand to profit (monetarily OR from a public relations standpoint) if the markets don’t go the right way.
Do you really think that Goldman Sachs hoped for this situation? Please stop being ignorant and try to understand what is going on here.
[…] bank pay back any money it has gained from the city since 2005,” according to Oakland North. Read more »TagsGoldman Sachs, Oakland, Rate Swaps Related ArticlesFrom DealBookAmid Takeover Talks, London […]
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As commenters we don’t know the details of how this transaction was set up back in 1997.
1) Was GS the only swap provider? Were there others that were considered who were cheaper for the City?
2) Was undertaking a swap the best option back then? What were the choices faced by the city and why did it choose this?
3) Key: How was the City faring in 1997 and what got it here?
The admin officials and the residents could be even more guilty if the above was true. I’m sure money was thrown around at a lot of things (not just the swap). The swap alone couldn’t have brought the City down to where it is.
Fixing the rates of the city’s debt effectively allowed them to budget more accurately. If they know what it costs to finance themselves, then theorectically they they should have been better able to figure out how to pay for everything. What would have happened if they didn’t and rates shot up like the 80’s?? They would have pumped every dollar into interest payments. There are tens of thousands of companies out there that have swap contracts “out of the money”…they don’t do it to make money, they do it to forecast future expenses and take interest rate volatility out of their equation. “Demanding Goldman Sachs and the bank pay back any money it has gained from the city since 2005…” That cracks me up.
Sounds as though GS provided a service, namely risk-reduction. They should get paid like any other vendor. Many of these comments are just inchoate anger based on financial ignorance.
banker/junior banker
Goldman Sachs borrows at a very low rate due to its ‘Too Big To Fail’ perception and govt backing. It also has few reserve requirements so it’s highly leveraged-essentially it played with free money. You both know that but are conveniently not mentioning it.
GS made 1.8 billion in profit in a single quarter after they got 10 billion in TARP money,which was repaid early because they didn’t like the string attached – lower bonus money.
GS borrows at a low rate because of their credit rating. Just like every other highly rated borrower, corporation or individual. Risk vs Reward. You take more risk, you get more return. You take less, you get less. Simple concept.
Jeffrey Gross-seriously? GS providing a needed service? Possibly in the same manner a crack dealer provides services, in the sense that an unregulated predatory financial investment entity can structure a derivatives contract so that all the benefits accrue to themselves at the expense of the counterparty.
Should Oakland have steered clear of the deal? Absolutely.But you are assuming a level playing field which was not the case. GS didn’t use the TARP for recapitalization, the intended purpose.Neither was this a case of forbearance. They continue as an insolvent institution,continue high bonuses and shareholder dividends. The converse is keeping schools and libraries open, and local people employed. Your putting bonuses to CEO’s ahead of social services is shameful.
“in the sense that an unregulated predatory financial investment entity can structure a derivatives contract so that all the benefits accrue to themselves at the expense of the counterparty”…if interest rates were at 7% or 8% GS would be paying Oakland every quarter. You have no idea what you are talking about.
Oakland’s swap and GS taking TARP money have nothing to do with one another, but you mix and mingle the two in an effort to preach about the inequities of life. Drives me nuts to listen to people like you.
GS repaid principal to the government AND 23% interest ($1.8bn). Why do you care if the people there get bonuses? They paid their dues to the government. GS is a publicly traded firm with shareholders of their own, they can pay whomever they want whatever they want. The federal government offered loans to banks; the government did pretty well in their dealing with GS.
Of the $245 billion in TARP money handed to U.S. and foreign banks, over $169 billion has been paid back…AIG is considered “on track” to pay back $51 billion. So the total cost of the bailout is about $20bn. $60-$70 a person in the US…not as big a deal in those terms.
Plus, you have other institutions that will pay eventually (Citibank, GM, etc, etc), and then you have what the government made on the whole thing. Which most seem to conveniently forget.
To a large extent the economic and contract law arguments are irrelevant here. The city is in desperate financial straits.
If political pressure can be brought to bear on Goldman to write off a big chunk of the obligation directly or via discounting financing say a reasonable Army Base development, then we have to do it.
SEIU and BBON wouldn’t like the same done unto the muni union labor contracts with the city, but those completely legally enforceable, good faith obligations for city employee retirement benefits and wages are truly sinking this city’s ship much faster and surer than the 17Mill to GS or even that other loser, the 10Mill to the Raiders.
Len Raphael, Temescal
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