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Oakland residents ask Goldman Sachs CEO for a way out of rate swap deal

on May 29, 2012

For months, some Oakland residents and policy makers have seethed about what they consider an unfair interest rate swap between the city and the investment bank Goldman Sachs. Last Thursday, three people from Oakland flew across the country to attend Goldman Sachs’ annual shareholders’ meeting and see what CEO Lloyd Blankfein had to say about the deal.

In 1997, Oakland and Goldman Sachs agreed to a rate-swap deal relating to $187 million in city debt. The deal allowed the city to convert floating interest rates on the debt into a fixed rate of 5.6 percent. But that deal proved costly after the market collapsed in 2008 and interest rates dropped to below 2 percent and the city is now paying a comparably high interest rate. The city has already paid out $26 million more than it owed on its original debt and is currently paying $5 million annually.

Since October, a group called The Coalition to Stop Goldman Sachs, which includes community groups like Block by Block Organizing Networks, Oakland Community Organizations, Roots (formerly “Occupy/Decolonize the Hood”) and Allen Temple Baptist Church has been meeting on Saturday afternoons to discuss the deal, and what the city can do to get out of it. Three representatives of the coalition attended Thursday’s shareholders’ meeting in Jersey City, New Jersey—Kurt Kuhwald, a professor at the Graduate Theological Union, Felipe Cuevas, a heavy equipment mechanic with the city, and Gary Jimenez, the vice president of SEIU Local 1021.

Kuhwald, Cuevas and Jimenez took a red eye flight and by the time they reached the meeting Thursday, the meeting was full and they were directed to an overflow room according to Kuhwald. According to Kuhwald, the group wanted to ask Blankfein to “rethink” the city’s deal with Goldman Sachs and tell him that it is “immoral” to ask the city to continue to pay when doing so is “inflicting harm on the community.”

Since only those present in the meeting room could ask questions of Blankfein, Kuhwald texted a question to Josh Kellerman of the Alliance for a Greater New York, a nonprofit that supports workers’ rights. Kellerman said he asked Blankfein “on behalf of Oakland citizens to cancel or renegotiate the deal.”

Blankfein responded that renegotiating the deal wouldn’t be in the best interest of the bank’s shareholders. “Everybody in the world, we are at the lowest level of interest rates today. That means every fixed loan that happened before this would be advantageous to the borrower to borrow today when interest rates are lower,” Blankfein said according to Goldman Sachs. “That’s not how the financial system could work, and were we to do that, we would, frankly, be impairing the interest of our shareholders and the operations of our company. I don’t think it’s a fair thing to ask.”

Kuhwald said the three members of the coalition were disappointed with Blankfein’s response. He said the group was not asking for that the city be allowed a lower rate, but rather that it should be able to get out of the deal immediately without a penalty.

“He weighed our assessment of the harm [the deal] is doing and the fact that it was immoral over what he considered to be the shareholders’ financial profit they should receive,” Kuhwald said. “He’s very clearly standing in the position saying, ‘The profit of these investors and this company is more important than the people of Oakland’s services and whether it’s doing harm to them.’”

Regardless of Blankfein’s response, Kuhwald said the three members of the coalition still had a good trip and “learned some important things about the way the company operates and learned some things about the CEO.” He said he was happy the group was able to make face-to-face connections with groups with similar agendas, like the Alliance for a Greater New York. And Kuhwald said the group now knows Blankfein’s position on the swap—“it’s the shareholders’ profits over everything.”

Now, he said the next step is to take this information back to the coalition, and continue to put pressure on the city council to find a way out of the deal. He’s hopeful that can still happen.

“I think there’s a possibility [Goldman Sachs] can be convinced to do it differently,” Kuhwald said. “But it’s going to take our city standing up and saying, ‘This is what we expect.’ And I think we have some good movement on the city council to go down that street.”


  1. Haggie on May 29, 2012 at 1:27 pm

    Real simple solution: City council proposes an Oakland ordinance that would ban any city agency from working with Goldman Sachs for any future work with the City of Oakland, directly or indirectly.

  2. Chris on May 29, 2012 at 1:50 pm

    Why can’t the city refinance with a different lender to pay off the Goldman Sachs debt?

  3. Allan on May 29, 2012 at 5:56 pm

    I’m glad the group had a nice trip to New York. I certainly agree it would be better for Oakland residents if we did not have to pay our obligation to Goldman Sachs. I’m sure if interest rates had gone the other way, and our gamble had paid off, we would have been happy to let GS out of the deal.

    I agree with the idea that we not deal with GS or any other Wall Street company in the future. Whoever made the deal for City of Oakland no doubt thought they were outsmarting GS – but they wew WRONG and always will be

    • Len Raphael on May 29, 2012 at 9:52 pm

      When the City Council and the Mayor push thru their plan to refi the PFRS pension obligation bonds in the next month, they will certainly be cutting deals with one or another big investment banking firm that will greatly affect residents for many many years to come.

      Our officials wants us to ignore the POB’s and focus on the Goldman swap so they can slide the refi thru without any discussion of the consequences.

      We are not going to see SEIU criticizing shifting the burden of repaying the hundreds of millions POB’s to younger and future residents because the alternative is to find ways to start repaying those pension obligations now. That mostly comes down to paying city employees less. It means making non-profits competitively bid for city grants.

      Keep the pressure on the rate swap participants, but don’t take your eye off the Pension Obligation Bond shell game.

      Len Raphael, Temescal

      • Allan on June 6, 2012 at 11:09 am

        Good point! I’m afraid we will see the usual, borrow a lot of cash – invest in the hope of making a good return, end up losing our collective shirts.

        An idea – borrow the money, rather than invest it, offer pensioners a fair but not generous all cash value of their pension. Those who take it – pay them off. Pensioners would have a choice – but I’d imagine quite a few would rather have the cash than trust the city to pay them. Let them take the investment risk, nor the city.

  4. livegreen on May 30, 2012 at 1:58 pm

    To Everyone,

    FRONTLINE’s recent series on Wall St. includes a section on Municipal Interest Rate Swaps. Specifically, some municipalities have already sued some of the large banks over these deals and won. Link:

    Why not Oakland & other CA cities? Is there a difference? The City Attorney & State Attorney General need to look into this.

    • livegreen on May 30, 2012 at 3:45 pm

      Clarification after listening again to the program:

      JP Morgan settled with the SEC for $25 million, & was ordered to forgive Jefferson County fees totaling $697 million.

      There was a similar deal in Philly (the program doesn’t go into).

      Several financial officials went to jail for corruption & misleading recommendations…

  5. Leila Gough on June 4, 2012 at 4:13 pm

    In 1997 I was part of a very loud group of citizens begging the city council not to do this deal. I even had one on one appointments. The council had no idea what they were doing… And now we citizens pay….

  6. […] Sachs in 1998. The resolution stipulates in part that “if Goldman Sachs refuses to terminate the swap agreement without termination fees or penalty within 60 days, then they will be excluded from any future […]

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