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The Debt We Share

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Indebted - Debt and Race in America
Indebted - Debt and Race in America
The Debt We Share

While municipalities in America don’t leverage debt in quite the same way an individual or family does (i.e. they can’t put it all on a credit card or step into a payday lending office), they still find themselves needing to spend on long-term projects they can’t afford through standard taxation. Enter municipal bonds, a type of loan that in ideal circumstances provides stable interest rates and payment schedules for the city and a secure investment for a diverse group of institutional lenders like banks and pension funds. A simplified explanation can make it sound like an easy win-win for all sides. But this isn’t always the case.

In this episode, Maurice explains the struggles Puerto Rico, Chicago, and Detroit have in common when it comes to municipal bonds and urban racial inequity. Joining him to further elaborate and help listeners better understand a purposefully complicated system is Saqib Bhatti. Along with Maurice, Saqib co-founded the Action Center on Race and the Economy (ACRE) and currently acts as co-executive director.

ACRE’s research reports cited in this episode can be found on their website here.

Support this show and others like it by becoming a Patreon supporter at

[00:00:00] Maurice BP-Weeks: Have you ever thought about how much the things around your city cost? I do. A lot. It’s one of my weird tics after years of doing economic justice organizing. You see a bridge, I see a cool 250 million. You see a park, I see, oh, I don’t know. 70 million, give or take, depending on how many features. It’s expensive.

[00:00:23] In fact, all of those things usually cost more than any of our cities can pay at once. [00:00:30] So, similar to what individuals do, when we don’t have enough money to cover our expenses, cities often go into debt. Now, as we’ve seen throughout this season, when debt happens, bad things tend to occur. But surely, that couldn’t be true for a big city, right?

[00:00:48] I mean Big cities have taxpayers and businesses and reputations, right? Maurice, you are not saying that cities face some of the same problems with debt as the people we’ve been talking about all [00:01:00] season, are you? Well, yes. Yes, I am.

[00:01:17] Welcome to episode eight of Indebted, a podcast about debt and race in America. I’m your host, Maurice BP Weeks, a lifelong economic and racial justice organizer. Each episode we tackle a different [00:01:30] aspect of debt, exploring how it works and why it spells bad news for black people and our entire economy.

[00:01:36] Today we’re going to dive into city finances. I promise it won’t be boring though. Let’s get into it.

[00:01:48] City debt isn’t exactly like individual debt. Cities can’t put it on a credit card or go to a payday lender. So to make up the gap, the city issues municipal bonds. [00:02:00] Issuing a municipal bond is basically taking out a loan from a lot of different people at one time. Let’s say I’m a city and I need to raise a thousand dollars for a project.

[00:02:10] I might advertise to everyone, Hey, if you give me a hundred dollars, I promise I’ll pay you back five bucks a year, and also pay you back your hundred dollars in five years. So let’s say I get ten people to agree to this. Boom. There’s my thousand dollars, and I can start my project. Of course, I’ll need to pay out that five bucks a year to each of my [00:02:30] investors, usually institutions like pension funds or banks, but that’s a small price to pay for my project.

[00:02:36] In the end, the deal will cost me more than a thousand dollars, but it’s spread out over time. And I have the ability to meet an immediate need. On the other side of the coin, if you’re one of the investors, you just made some money in a really stable way, doing absolutely nothing. Win win for everyone, right?

[00:02:56] Well, not exactly. What do [00:03:00] Puerto Rico, Chicago, and Detroit all have in common? Each of these municipalities has faced massive problems caused by bonds in the recent past. Let’s start in Puerto Rico. 

[00:03:13] Sound on Tape: The largest U. S. territory is now officially in default. Puerto Rico didn’t pay 58 million in debts. This is a bill that we’re going to drop tomorrow.

[00:03:23] We’re going to put in a control board that, uh, will, uh, partner with the island to get the finances and the budget under control. Number [00:03:30] one, Puerto Rico’s government 

[00:03:31] owes 118 billion in bonds and an unfunded pension liabilities. It has already defaulted on much of it. Things are only going to get worse.

[00:03:41] Right now, Puerto 

[00:03:42] Rico is spending about. Third of its tax revenue on debt payments are more than anywhere else in America. This bill also includes something else, a temporary system of oversight to help implement needed reforms and ensure 

[00:03:55] transparency.

[00:03:56] Maurice BP-Weeks: That’s a CNN news clip, former Wisconsin [00:04:00] Congressman Sean Duffy.

[00:04:01] Former Speaker of the House, Paul Ryan, and of course, former President Obama on Puerto Rico’s debt crisis, and the passage of something called the Puerto Rico Oversight Management and Economic Stability Act or Pro Mesa. We won’t go into the history of Puerto Rico as a US colony, but let’s just say it has been on unequal financial footing from the beginning due to laws that make it difficult for the all to get affordable goods and a constitution, which requires them to pay back bond [00:04:30] holders before they use their funds for anything else.

[00:04:33] Puerto Rico is really at the mercy of debt more than most places. They also are, by law, banned from accessing much of the assistance that other places can. Puerto Rico can’t even file for bankruptcy. It’s just not allowed. So, after a contentious and undemocratic process, the PROMESA board was put in place.

[00:04:55] The board gave some relief from bondholders, but mostly put [00:05:00] into place massive austerity measures. It lowered the minimum wage for some people to 4. 25, that’s 3 lower than the federal rate. Even though the cost of living in Puerto Rico is about 13 percent higher than the US average. It sold the public power utility company.

[00:05:19] It called for almost 13 billion in spending cuts, it closed schools, hospitals, cut pensions, cut worker protections, and more. The board is [00:05:30] entirely unaccountable, and I don’t mean unaccountable in the way that you might think of any old politician. They literally were not elected. They were appointed by the White House, empowered to make these sweeping decisions, and impose any austerity measures they choose to solve Puerto Rico’s debt crisis.

[00:05:46] Of course, these solutions hit the poorest local Puerto Ricans worst at the expense of bondholders. Much of the money Puerto Rico is paying back is simply interest. And the austerity worsened with the impact of Hurricane [00:06:00] Maria has caused massive emigration from the island. It’s also caused corporations and the wealthy to descend on the island and scoop up land that was once owned by black and brown Puerto Ricans.

[00:06:12] Now to Chicago. 

[00:06:13] Sound on Tape: The debate over the city of Chicago’s plan to close dozens of public schools intensified today. Public school officials cited a billion dollar deficit and under enrollment as the driving factors behind the move. The Chicago Public Schools proposal would close 54 underutilized [00:06:30] schools, forcing the relocation of approximately 30, 000 students.

[00:06:35] The district says the move would save 560 million over the next decade. Our structural deficit is not the way it was when I got into office. It used to be 660 million, 670 million. It’s below 200 million, and I’ve laid us out on a strategy 

[00:06:52] of getting it structurally balanced where we spend what we take in.

[00:06:58] Once the, you know, education [00:07:00] system starts getting impacted, that’s when people who otherwise might not pay attention to state government realize, you know, how serious the financial position 

[00:07:07] is. 

[00:07:07] A

[00:07:13] Maurice BP-Weeks: few news clips there from the horrible Rahm Emanuel. If you don’t remember it, 10 years ago, Chicago took the unprecedented step of shuttering more than 50 public schools. Even saying that aloud right now, I can’t believe that it happened. [00:07:30] It’s almost impossible to comprehend what was lost in closing that many schools.

[00:07:34] Kids and parents social lives were disrupted, teachers and staff out of work, increased violence by forcing kids to cross neighborhood lines. It may come as no surprise that the schools the plan referred to as underutilized and therefore eligible for closure were predominantly in black neighborhoods.

[00:07:54] And all of this shuttering was due to bad deals the city made which favored Wall Street over the people of [00:08:00] Chicago. Chicago had many bonds that were tied to bank deals called interest rate swaps. It’s a predatory Wall Street idea that was popular before the 2008 crash, which was supposed to control the amount of interest a city was paying out, but didn’t.

[00:08:16] These deals are extremely difficult to get out of. Not only do you owe the bondholders their principal and interest, you owe the bank fees, you could even owe money to the bank for an early termination clause. At one point, the city was shipping [00:08:30] out millions of dollars to banks per month in these deals alone.

[00:08:34] This is in addition to all the other bond payments the city had. And on top of all of this, ratings agencies, which are sort of like the credit bureaus of municipalities, threatened to downgrade Chicago’s bonds, which made the cost to the city rise even more. Now, lots of groups, like Grassroots Collaborative and the Chicago Teachers Union, Action Now and Refund America, proposed different [00:09:00] solutions to this problem that would have put the pressure back on to banks.

[00:09:05] Rahm being Rahm, decided to close 50 schools as part of his quote, cut and invest strategy. Not sure we ever got to see what the invest side of that strategy was. And finally, my home city, Detroit. We turn next to a big 

[00:09:20] Sound on Tape: headline tonight out of America’s iconic motor city, Detroit, waving the white flag, the city filing for bankruptcy.

[00:09:28] But since the 1970s, it’s [00:09:30] been in decline, and last night It became the biggest U. S. city so far to file for bankruptcy. So should 

[00:09:36] a bankrupt Detroit sell its treasure trove of art to pay off its debts? That question has put the Detroit Institute of Art and the tens of thousands of artworks within its walls at the center of the city’s bankruptcy debate.

[00:09:49] Lillingtown paid a visit to the iconic museum to see what is at stake. 

[00:09:54] Maurice BP-Weeks: That was the breaking news 10 years ago. In 2013, Detroit very [00:10:00] famously became the largest city to file for bankruptcy under the direction of an unelected emergency manager appointed by Republican Governor Rick Snyder. The bankruptcy put everything in the city at risk, from pensions to schools to basic city services in some neighborhoods.

[00:10:17] And yes, there was even a discussion of selling the absolutely beautiful artwork in the Detroit Institute of Art piece by piece. to help pay off bondholders. The wounds of the [00:10:30] bankruptcy are still visible and palpable in the city. Saying the words, Emergency Manager, makes most residents of this black city incredibly angry.

[00:10:38] Many can draw a direct line between the bankruptcy and the problems that are still here ten years later. The narrative of the bankruptcy was that it was the result of, quote, years of mismanagement. A common tag that conservatives slap on black run cities. The reality, however, could better be described as years of disinvestment.[00:11:00] 

[00:11:00] There was very little investment in the city’s main industries. That led to population decline. Fewer people means less tax revenue and more strain on services. The city needed more money, so they issued more and more bonds. Over many years, this all added up, creating a cash flow and repayment problem.

[00:11:22] Adding insult to injury, the Detroit based Big Three automakers had recently been bailed out by the federal government in [00:11:30] 2008 to the tune of 17. 5 billion. But when the city of Detroit needed the same kind of support, Not a dime. The bankruptcy got rid of some debt and reduced other obligations, but it also resulted in years of a strong, austere emergency management for the city.

[00:11:50] To put the concept of municipal debt and its relation to race into full perspective, I went to one of the people who really introduced me to this topic. Who happens to be my [00:12:00] former co founder over at the Action Center on Race and the Economy, or ACRE. I’m Saqib 

[00:12:04] Saqqib Bhatti: Bhatti. I’m the co executive director of the Action Center on Race and the Economy.

[00:12:10] Maurice BP-Weeks: Cool. Uh, great to have you on, Saqib. This is weird for many reasons, but one of which is that there was a probably six year period of time where we talked to each other multiple times every single, every single day. And now we don’t do that as much, but we’re talking in this weirdly public [00:12:30] format, but it’s always great to, great to chat with you and yeah, thanks for agreeing to do this.

[00:12:35] Of course. Happy to be here. Yeah. Sockup, I’m wondering if you could, this is a really funny question to ask you because I’ve been on so many calls with you when other people have asked us this question, but can you talk a little bit about what Acre is and 

[00:12:48] Saqqib Bhatti: what Acre does? Of course, uh, I mean, of course, you know this as one of the co founders of Peeker.

[00:12:55] We work, uh, with local community organizations and [00:13:00] unions across the country to help them really understand the role of the finance sector and the tech sectors, really corporations more broadly, in harming communities of color with an explicit analysis around Race and corporate power. One of the ways in which we do that is by writing reports, doing research and writing reports, and really trying to figure out how to make ideas and concepts that are intentionally vague and mysterious [00:13:30] accessible.

[00:13:30] And so we really are, our research is aimed at being something that everyone can understand. Uh, and we really take pride in sort of playing this role of translating. Complicated things and breaking them down. In fact, our medium page is called breaking down the system, uh, for, of course, the pun there. We want to break down the system.

[00:13:51] We also want to break it down. So folks understand, uh, some of these concepts and how racial capitalism 

[00:13:57] Maurice BP-Weeks: impacts them. Yeah, just shifting [00:14:00] into into plug mode. If you’re wondering, you know, details about how the banking industry screws over renters or. Uh, how corporations like Vanguard or, uh, or BlackRock or others work, or we’re going to talk about interest rate swaps and different types of bonds, all of those things.

[00:14:23] I would highly recommend going to the Acre website, acrecampaigns. org and clicking on the research [00:14:30] and you can find, uh, reports that really, uh, break those down in super accessible ways. Yeah. So we said earlier in the show, like you were really one of the first people who introduced me, uh, to this topic of municipal debt and really thinking about how municipal finance works.

[00:14:50] Um, And I remember being, uh, an organizer at, uh, in California at ACE and someone saying, yeah, there’s this person [00:15:00] Sakibati, he works at SEIU and he’s, there’s something about interest rate swaps. I don’t know what he does, but I think he can help you with housing organizing. Um, and yeah, little did I know that we’d be launching an organization together, uh, you know, a few years after that.

[00:15:15] Um, but yeah, brought you on for your expertise on municipal finance. So I’m wondering if you could. Just explain, you know, how municipal bonds or, like, funding our government, our municipal governments works, [00:15:30] um, and, like, how, how it works when it works well, basically. 

[00:15:35] Saqqib Bhatti: Yeah, I mean, you know, you know, on the one hand, that can be a normal, healthy part of how, How, uh, government functions, uh, how a, even how a family, you know, how a household functions, how a corporation functions, because there just are certain expenses that make sense to, uh, space out over the course of a longer period of time.

[00:15:55] Like if you’re going to buy a house, It doesn’t really make sense to, like, cough up [00:16:00] 300, 000, I mean, I guess. Right. 300, 000, I’m being optimistic in today’s day and age about the cost of a house. 

[00:16:08] Maurice BP-Weeks: Right, yeah, 

[00:16:09] Saqqib Bhatti: yeah. But yeah, and so similarly for governments, uh, there’s this thing that if you want to actually, like, say you want to build schools, well, schools have a long lifespan, right?

[00:16:19] Like, if you want to actually build a school, like, you don’t want to have to actually pay For the construction all up front because that can cost a lot of money and [00:16:30] You know that the way you’re going to pay this off is actually over You know tax revenues that come in over many years because this is actually going to serve the district for many years And so you borrow for long term borrowing For a long term for projects that we use long term, right?

[00:16:45] What we generally want to do is match the The term of the borrowing, uh, you know, how long the loan is for, for with how long you actually expect, uh, the thing you’re borrowing to pay for it to be used. So you wouldn’t want to take out [00:17:00] a 30 year bond to pay for, you know, say iPads, which a school district actually did, but a 30 year bond to, to pay for new buildings.

[00:17:12] would make sense, uh, or to pay for like, you know, expanding your facilities or upgrading your HVAC system, right? Like, that could all make sense. Uh, and so the way the bonds work generally is when, uh, so yeah, when cities and states, they’re city, state, school districts, government agencies are trying [00:17:30] to, uh, pay for projects and for theoretically for long term projects, they can Take out bonds.

[00:17:36] Basically, uh, a bond is a loan, but instead of it just being from one, like instead of you going to, you know, a bank saying, hey, give me money, they basically go to a bank or a group of banks and say, hey, can you find investors who can lend us the money? And so they’ll take the loan. And basically, they can sell off pieces of the loan so that lots of different investors end up owning pieces of [00:18:00] it.

[00:18:00] And that’s where you can raise a lot of money. A bank itself may not want to issue a 300 million loan to one, you know, one place, but if they can find a bunch of different investors who do, then they can spread out, uh, you know, spread out the, uh, the loan. the loan and cover it. 

[00:18:17] Maurice BP-Weeks: Okay. So I think that makes sense for sure.

[00:18:19] Like, you know, if you’re, if you’re building a bridge or something like that, that costs millions of dollars, like why would you make the current taxpayers pay for [00:18:30] all of it when it’s something that’s going to benefit? The city municipality, whatever, for the next 30, 40, 50 years. So that, that seems to make sense.

[00:18:39] Um, and then somewhere in all of this, we get to the point where these and other municipal finance instruments start really harming. Black and brown communities. I’m wondering if you could talk about how that happens. Cause it seems that this would be a totally reasonable thing for municipalities to do.

[00:18:59] Saqqib Bhatti: Yeah. I [00:19:00] mean, you know, a lot of, of course, uh, you can trace back to white flight, right? Where you basically have is white folks, uh, you know, leaving cities, um, Moving to the suburbs, um, and basically not contributing to the tax bases of, you know, major metropolitan, of major cities. And those cities, cities like Detroit, that saw 60 percent of its population leave, well, the city is still just as big as it was when it was fully populated, but now there’s only 40 percent of the [00:19:30] people there to support services in this large, spread out city.

[00:19:33] And so what we started happening, what we started seeing is, uh, in a lot of cities across the country, Uh, this hollowing out of the tax base, uh, and poor black and brown folks being the ones who actually still live in the city being forced to, you know, uh, pick up the bags there, right? And so what, you know, banks, of course, saw an opportunity here, which is, okay, on the one hand, uh, you know, banks, credit rating agencies, the entire, [00:20:00] sort of, all of Wall Street.

[00:20:01] On the one hand, they actually slapped, uh, you know, cities with low credit ratings. The credit rating is similar to a credit score, right? We have credit scores on a scale of, like, you know, like, Uh, you know, we have credit scores and there’s, you know, the higher the credit score, the better interest rates you get.

[00:20:18] Similarly, cities, states, school districts, they have credit ratings, uh, which is just their version of a credit score. Uh, and so the truth is that most cities, like, more than half of the [00:20:30] states, uh, roughly half the states right now still actually guarantee You know that their city the state that their cities will pay all their debt that they actually can’t they can’t file bankruptcy They can’t default states The country are legally not allowed to actually, you know, go bankrupt.

[00:20:50] And so the truth is that there’s actually no risk whatsoever to the bondholders of those places of nonpayment and yet, and yet, [00:21:00] uh, cities and States get hit with really low credit scores, right? Low credit ratings, uh, then drive up the cost of the cost of borrowing. And then particularly we’ve seen there’s a study, uh, that actually acre put out.

[00:21:13] com. If you write as we were launching Acre actually, uh, you know, a few years ago that looks at the fact that cities with larger, um, you know, predominantly black and brown cities are more likely to get hit with lower credit ratings, even when you control for other factors. [00:21:30] The other thing, of course, is that in much the same way that banks decided to take, you know, what was, you know, with homeowners.

[00:21:38] They took what was a conventional 30 year mortgage plain vanilla product and decided they could make more money if they made it a little bit riskier and advertised it as, you know, opening up more access. It did a similar thing with cities and states where they basically, uh, decided that plain vanilla municipal finance didn’t make enough money.

[00:21:57] And so they introduced all [00:22:00] sorts of, you know, complicated deals. I called it financial engineering, financial innovation, uh, in an area that really didn’t need engineering or innovation. It was actually working pretty well, except that it didn’t make that much money for wall street. Right. Right. And so they introduced all sorts of risky, complex products.

[00:22:18] Uh, and then on the one hand, there were sell you a risky product and they’re more likely to sell predominantly black and brown cities risky products by saying, Hey, look, your credit rating is low. This will help you out. And then they would [00:22:30] sell you additional products to mitigate that risk. 

[00:22:34] Maurice BP-Weeks: Right? So this is where interest rate swaps come in.

[00:22:38] And I’m, I’m wondering if you can describe what, what’s the simplest way to define an interest rate swap. 

[00:22:47] Saqqib Bhatti: So, um, when you borrow, you can take out a fixed rate or an adjustable rate, right? Similar to, similar to the deal with mortgages, right? Right. Uh, and of course, if [00:23:00] you’re taking an adjustable rate, or as they call it in municipal finance, a variable rate, you could get a lower rate up front, but there’s always the risk that rates could shoot up later on.

[00:23:09] And so, an interest rate swap was sold essentially as an insurance policy. to taxpayers to city, state, school districts saying, well, if interest rates go up, you’re protected, 

[00:23:21] right? 

[00:23:22] Maurice BP-Weeks: Um, so if you have a variable rate and let’s say the rate is 3 percent at one, when you took it out, but then the [00:23:30] rates go up to 10%, your interest rate swap deal could be, Hey, like, we’ll just lock you in at 5%, like indefinitely.

[00:23:38] And that’s how much you pay. Seems like a good idea. What could possibly be wrong with that, 

[00:23:44] Saqqib Bhatti: Sakib? I mean, the way that they structured this, it was sold as insurance policy, but it was actually just a bet on interest rates. And. In 2008, when the banks crashed the economy, uh, we had an [00:24:00] index of Federal Reserve as part of the bank bailout slash rates to near zero.

[00:24:05] And that meant that this bet went sideways for cities and states because of the bank’s own actions. Because the banks crashed the economy, suddenly they were raking in millions of dollars a year from cities and states. Uh, it turns out, I mean, you know, the city of Chicago was paying about 70 million a year.

[00:24:25] These numbers were just huge for how much folks were having to pay as [00:24:30] a direct result of banks crashing the economy. And here’s the kicker. They had, uh, you couldn’t get out of the deals because there were these pre penalty payments that were Put in there saying that basically if you wanted to get out you had to pay All of the future the net present value of all future payments on the deal right now.

[00:24:51] Maurice BP-Weeks: Oh my god. Oh my god And 

[00:24:53] Saqqib Bhatti: not only was it that um that that wasn’t only if you wanted to get out of the deal There are also [00:25:00] several termination triggers that were built in Uh, and you know, for example, one of the triggers was That the bank that you, um, do the deal with goes under. And so, in an ironic twist, when Lehman Brothers crashed, cities and states across the country owed Lehman Brothers money, because Lehman Brothers went under.

[00:25:23] Maurice BP-Weeks: Wow. Okay. Well, that is, uh I would say probably infuriating [00:25:30] for most people who are hearing it for the first time. I am hearing it for maybe the hundredth time, and it’s still infuriating to me.

[00:25:41] Saqqib Bhatti: Hi, this is Kayden, the publisher of Convergence magazine. There are a lot of places that you can put your hard earned money in support of our movements, but if you’re enjoying this show, I hope you’ll consider subscribing to Convergence on Patreon. We’re a small independent operation and rely heavily on our readers and listeners like you to support our work.

[00:25:58] You can join us at [00:26:00] patreon. com slash convergence mag subscriptions are pay what you can, but at 10 bucks a month, you’ll get goodies as well as knowing you’re helping to build a better media system, one that supports people’s movements and fights fascism. And if you can’t afford it right now, don’t worry, all our shows will be free for you to enjoy.

[00:26:16] You can also help by leaving us a positive review or sharing this episode with a comrade. Thank you so much for listening.

[00:26:25] Maurice BP-Weeks: This is such a hidden piece of the [00:26:30] economy and. I wonder why you think that is. I mean, like, when I learned about how, how governments funded themselves when I was in school, it was like, okay, like, you get A tax bill, and everyone pays their taxes, and then your city uses that money to do everything. Um, and then once you peel back the layer, it’s extremely complicated.

[00:26:54] Um, what, like, why is it hidden like this? Why aren’t, why aren’t, why isn’t this a [00:27:00] more prominent point of people’s knowledge or the public discourse? 

[00:27:05] Saqqib Bhatti: I mean, it’s intentionally obscured. Uh, by the industry, by government officials who don’t want to shine a light on this little area, right? I mean, the truth is, the reason why our system is so broken is that we’re not just borrowing to pay long term expenses.

[00:27:23] We’re borrowing in many cases because we’re not raising enough money. And it’s hard to raise [00:27:30] taxes, to raise progressive taxes in particular, to make the wealthy, uh, major corporations pay their fair share. And instead of making them pay their fair share, we’re borrowing the money from them instead.

[00:27:40] Because of course, the investors, the lenders in municipal bond, in municipal finance, are actually typically wealthy individuals. Uh, because who, who invest in municipal, municipal bonds as a tax shelter. And so instead of making them pay their fair share of taxes. Pay what they owe in taxes. Where instead, [00:28:00] borrowing that money from them instead and paying them back with interest.

[00:28:03] And they basically rigged the system so that it benefits them. And they try to hide behind the idea that this is too complex. They purposely try to say, this is, you know, like you mere peons can’t understand what’s going on with this. Uh, you know, don’t, you know, like there’s broader market forces at work, but of course what they’re hiding is that they are controlling the market.

[00:28:28] They are making the market, they’re [00:28:30] manipulating the market. Everything that they sort of say, well, this is just the market. Every piece of that is rigged by Wall Street and wealthy folks. Um, and one big issues that we see is that. Very often, the finance staff at cities, states, and government agencies are essentially held captive by these folks, right?

[00:28:51] They actually often rely on, like, their biggest, in many cases, their main advisors are actually [00:29:00] the banks themselves who are actually making money off of them. Yeah, yeah. Um, even though officially, legally, Those banks are not required to put the interest of taxpayers first. 

[00:29:11] Maurice BP-Weeks: Yeah, yeah. I remember working on, on this at some point and realizing that not only do they rely on, on these institutions, but a lot of the folks who are in decision making, uh, uh, or like analytic positions within our cities come from [00:29:30] these very institutions.

[00:29:31] So cities will often be like, well. Of course you get this job as finance manager. You come from Bank of America or J. P. Morgan. Like that’s a plus on your, on your resume. So I’m sure that adds to it as well. 

[00:29:44] Saqqib Bhatti: Yeah, either you come from there or you’re looking for a job there, right? revolving door So either you if you’re, you know high enough In the city, you know, maybe they brought you on as

[00:29:58] And if you’re low enough down the totem pole, [00:30:00] you’re looking for a job where you can make a lot more money, uh, working for the firms themselves. Yeah. 

[00:30:05] Maurice BP-Weeks: Yeah, yeah, yeah. Okay. So we’ve laid out something that I imagine at least at some level is, is, is, uh, an issue in most municipalities. And I’m wondering, like, you know, for, for folks listening, like, let’s say there’s someone who’s listening in Detroit or Dallas or something like that.

[00:30:24] And they. Um, see the racial inequality in their city and they want [00:30:30] to Basically figure out what they can do to change it. What, how does municipal finance play in it? Like what, what is the solution that they should be fighting for? You mentioned raising taxes. Is that the fix? Just raising taxes so much that we don’t need this anymore.

[00:30:48] I mean, the 

[00:30:48] Saqqib Bhatti: two biggest things I would say are, yeah, we much more progressive taxes. It’s not just raising taxes. It’s raising taxes on the wealthy and the corporations who don’t pay what they owe. In most [00:31:00] cases, the truth is that. You know, poor folks, uh, black and brown folks are actually paying more than their fair share.

[00:31:06] Uh, but it’s, you know, wealthy, the wealthy who are getting a free pass. And so it is raising taxes, raising progressive taxes. You know, the other piece of it is really building out our own public infrastructure, our own public finance infrastructure. Whether it’s through public banks, so that we can, you know, cities can self underwrite their own bonds without having to go to the private markets.

[00:31:26] Uh, whether it’s pushing for the Federal Reserve. to [00:31:30] provide interest free loans to all cities, states, school districts across the country. You know, they provide very low interest rate loans to banks, but they don’t pass that on to The taxpayers and they could, they actually could do that, but they choose not to.

[00:31:46] And so, you know, we need to figure out how we’re actually cutting wall street out. But in the meantime, until we get there, we also need to be holding campaigns to hold banks and investors accountable for the predatory deals [00:32:00] they’re selling us. That means when there’s wrongdoing, when we know that they’ve broken the law, we need to actually sue them.

[00:32:09] And. Take them to trial, force them to actually turn over all the different ways, uh, in which, you know, they rigged the system, uh, and force them to return what they owe. Right now, the pattern is that when banks steal from taxpayers, and I use the word steal deliberately, uh, they end up [00:32:30] settling for pennies on the dollar, which means that they actually Get to keep most of what they stole right only pay it back a small portion of what they took So it’s actually just the cost of doing business They make money by stealing and paying a small portion for back in a settlement But what if cities across the country said we’re not settling with you, we’re going to take you to trial and make you pay what you owe, in some cases where there’s anti, you know, anti, uh, trust laws that are at play, which often is the case actually with banks because there’s [00:33:00] only, you know, there’s only a few of them and they’re sort of talking to each other all the time and colluding, you can even get triple damages or treble damages as they call it, right?

[00:33:07] Like, um, instead of getting paid five cents on the dollar, get paid You know, 3 on the dollar and that’s a real deterrent. Um, but of course the other piece is sometimes a lot of what banks are doing is predatory, but it’s not illegal. And in those cases, we still need to really push our public officials to put pressure on these banks where [00:33:30] refuse to do business with banks that won’t deal fairly with us develop alternatives.

[00:33:35] Uh, like public banks, uh, and, you know, really push for plain vanilla municipal finance. These more complicated deals, the more complicated the deal, the more ways there are for banks to rip us off. Yeah. And we need to go back to traditional plain vanilla 

[00:33:52] Maurice BP-Weeks: municipal finance. Right. Right. It wasn’t broke. So why did we try to fix it and make it way more complicated in the process?

[00:33:59] I 

[00:33:59] Saqqib Bhatti: [00:34:00] mean, to be fair, as with everything else in You know, racial capitalism, it was broke, uh, always broke and was never working for black and brown folks, but it wasn’t broke in the ways that they tried to solve for by creating all sorts of exotic 

[00:34:14] Maurice BP-Weeks: products, right? Okay, so modern times, let’s fast forward through history to right now.

[00:34:22] So cities just got a huge influx of cash, actually, from federal programs. And some cities even [00:34:30] are saying that they have surpluses, um, which seems really, really great. Does that change the outlook of what municipal finance is going to look like over the next, like, few years? Like, does that mean? Folks will be borrowing less, or is the industry just like so powerful that kind of no matter what cash comes or goes from the federal government, it’s going to keep cranking along?

[00:34:56] Saqqib Bhatti: I mean, most places will borrow. And I mean, [00:35:00] truthfully, like getting a huge influx of cash doesn’t mean even like Like I think a great way to use the new cash that’s coming in is to Start investments in some long term capital projects that would really, you know improve our communities. Yeah, and for that the mind even The whole lot of money has come in.

[00:35:21] There’s so much need in our communities that that’s not nearly enough. It’s enough for down payment. Right. And so that’s where like long term responsible borrowing could still [00:35:30] make sense. Uh, what I think we’re likely to see, because this is just what happens when, you know, in the way that our system works is that.

[00:35:39] We’ll, you know, have corporations, privatizers, you know, find ways to, like, take, you know, eat away at this money, uh, and in the end we’re still having to, you know, the money all disappears pretty quickly, and we’re in no better a place where we haven’t made long term infrastructure investments, and we’re still having to [00:36:00] borrow to fill gaps.

[00:36:01] Um, or, you know, like maybe what we do is we take the money that comes in and give people tax breaks. I mean, they’re just all sorts of like bad ways to spend this money. Uh, in fact, you know, as you know, you were still at acre when we launched this campaign that was called no cops, no banks, which is that as federal money comes down, we need to ensure that it’s going towards actually improving.

[00:36:23] Communities, making, keeping black and brown communities, under invested communities safe, making them [00:36:30] healthy, letting them thrive, instead of just going towards increasing money for policing or paying to Wall Street. And of course, that’s exactly how a large portion of money has been spent, is increasing money towards policing or making payments to, you know, on, on predatory debt deals.

[00:36:50] Maurice BP-Weeks: Oh, lots of, lots of, uh, areas to organize and lots of ways to go, um, on this, to fight for cities that, uh, [00:37:00] are world class to fight for our world class cities, to use another acre report title. I should say, I’ll, I’ll tell all of the listeners, we’ll link to some of the reports and the show notes. Um, and one of Sokob’s many skills is, uh,

[00:37:21] credit ratings for cities, which I believe that report was called Outlook Negative. Is that right? Is that that 

[00:37:28] Saqqib Bhatti: one? It was, although I did not name that one. [00:37:30] 

[00:37:30] Sound on Tape: Oh, really? Oh, wow. But the other, the, you know, there’s several others. One is a world class city that really is a, um, you know, talks about Chicago in particular, but how, how to build a city that has a, Financial system that actually works for black and brown folks in the, in the whole city.

[00:37:47] So, we’ll, we’ll link to a couple of those in the, in the show notes. Our, our 

[00:37:50] Saqqib Bhatti: 2000, our 2023 update to that. First we get the money, uh oh, which is the, the 2023 version of, of financial [00:38:00] plan for Chicago World Class, which is 2019. 

[00:38:03] Maurice BP-Weeks: So, so, so good. Okay. This has been so informative. I’m wondering if, uh, you know, I’m sure that we have some listeners here who are like, I want to actually look this up.

[00:38:15] Like, I don’t want this to be obscure anymore. Um, how easy is it to do that? Like, where should people, where should people go? Um, like, can they just like get online and find something or should they [00:38:30] call Acre and just have them? Look it up. 

[00:38:34] Saqqib Bhatti: So, you know, cities, states, school districts, they put out annual financial reports, um, that will list a lot of the information if you know what to look for.

[00:38:43] And that’s the key issue, is that a lot of the issues that we point to, a lot of what’s problematic about municipal finance deals. It’s actually the way it’s supposed to work. Yeah. Right? Like, it’s the way it’s supposed to work is rigged from [00:39:00] the get go. And so, uh, you know, we have a couple of reports that you can find on the ACRE website.

[00:39:05] One is from, I believe, 2014 called Dirty Deals, that sort of talks about, uh, you know, here’s a framework for understanding what kinds of debt deals are bad and problematic. We have, uh, a whole series from Puerto Rico. Broken Promises is The sort of the capsule and report on that, but the individual reports, there were six or seven of them talk about different types of deals that are problematic, uh, the Puerto Rico [00:39:30] got into, which, you know, it’s basically, that’s in some ways a good comprehensive summary because all the bad stuff that’s out there, turns out banks like paddled all of that to Puerto Rico because of the situation that Puerto Rico was in and they took advantage of it.

[00:39:48] Um, yeah. So you can look there, we have a report about Chicago called Our Kind of Town, we have a report Turned Around that looks at state level deals, uh, so yeah, so we have, and then the other one that I [00:40:00] really do want to name is Police Brutality Bonds, Uh, which of course, I know you worked a lot on, um, the, you know, the campaign around that, which really is about, uh, the fact that municipal bonds are often what’s used to pay police brutality settlements, and when that happens, Uh, you have a dollar roughly of profit for investors and banks for every dollar that the family of the victim gets, uh, and that can often itself lead to more cuts because you have to cut services in order [00:40:30] to pay for the profit.

[00:40:31] Uh, but so yes, I would say on our website, if you go to the research section, our various reports will give a framework for how to actually think about debt deals. Uh, we have some webinars, uh, as well and resources. Uh, on our website, uh, but yeah, the annual financial reports, the official statements of bonds, which you can get off this website, emma.

[00:40:50] msrb. org municipal securities rulemaking board, MSRB. You can get the information from there, but it’s just knowing what to look for. Yeah. [00:41:00] 

[00:41:00] Maurice BP-Weeks: Yeah. Okay, we’ll link to Emma in the show notes as well, just in case anyone wants to poke around. If you do, please let us know because we’ll send you a nerdy award for really being one of our nerdiest listeners.

[00:41:15] The last thing I want to ask you, Saqib, is you know, we talked about really three key places Detroit, Puerto Rico, and Chicago. And it of course strikes me that all of those places [00:41:30] are You know, if not majority people of color really coded as, uh, you know, majority people of color, Detroit’s a black city, Chicago’s like very black and brown city, Puerto Rico, of course, is a colony.

[00:41:43] And I’m just wondering, like, is this currently a problem that exists in only those types of places or are those types of places kind of the canary in the coal mine for the rest of the country? [00:42:00] I 

[00:42:01] Saqqib Bhatti: mean, the truth is municipal finance, like I said, the rules of municipal finance are rigged against taxpayers.

[00:42:08] And so, we see problematic deals everywhere. Uh, not just in black and brown cities, but, you know, cities across the board, states, school districts. But what is, what is true is that There’s more opportunity to sell predatory deals, more complex deals that are problematic, charge higher interest rates to places that are desperate [00:42:30] because they have major financial issues, major financial, uh, you know, shortfalls, revenue shortfalls.

[00:42:36] And primarily black and brown communities tend to fall into that category because of the history of dis enough, right? Uh, of white flight and dis disinvestment in those cities. And so for that reason, um, we see. A lot of these deals showing up much more in those types of places. The other thing is that there’s also that when it’s [00:43:00] those places, when it’s black and brown places that end up having debt crises there, the solution that gets proposed is much more likely to be.

[00:43:11] You know, take away local democracy, whether it’s putting an emergency manager in place in Detroit, putting a fiscal control board in place in Puerto Rico, in Illinois, they try to change the law to allow a state takeover of Chicago schools in Pennsylvania, in Philadelphia, the state of Pennsylvania actually took over, you know, [00:43:30] uh, schools.

[00:43:31] So what we see is that the solution. When it’s black and brown communities that are affected, folks tend to pathologize and say, well, this is because black and brown folks are responsible, and we can’t trust them to handle their money, and so let’s take it over. Um, and that’s, I think, a piece that is, uh, yeah, just, we can’t ignore that piece.

[00:43:53] Maurice BP-Weeks: Yeah. Well, um, Thank you so much for walking us through all of this in a, in a [00:44:00] super, uh, you know, simple and concise way and yeah. And just illuminating that, you know, this is. Really intentionally made this obscure and it’s something that we can that we can change as well Um, so yeah, I always appreciate chatting with you likewise and Yeah, I really appreciate you coming on[00:44:30] 

[00:44:31] I love socket for so many reasons, but one is the ability to make this issue so accessible I mean really it’s not a complicated thing Over and over when we’ve dealt with problems of debt. We found the solution to be just give people what they need It’s an overall value change, but one that we have to believe is possible.

[00:44:51] We can guarantee that we have functioning schools and bridges and everything else that bonds and tax dollars pay for. It [00:45:00] may mean that we can’t give endless money to billionaires and big corporations, but hey, it’s definitely possible. It means doing things in a responsible and a racially just way.

[00:45:11] There’s a whole crew of activists and organizers in Puerto Rico, Chicago, and Detroit. We’re going to continue to push for this, and I hope that you’ll push alongside us. Today I authorize the emergency manager for the city of Detroit to seek federal bankruptcy protection. 

[00:45:28] Saqqib Bhatti: Why did I do this? 

[00:45:29] Maurice BP-Weeks: [00:45:30] What’s the rationale and what’s the impact for both the city of Detroit and the state of Michigan?

[00:45:34] From a financial point of view, let me be 

[00:45:35] Saqqib Bhatti: blunt, the trait’s broke.

[00:45:43] Maurice BP-Weeks: I thanks again to Saki Bti for joining me. This episode, indebted is produced and published by Convergence, a magazine for radical insights. You can help support this show and others like it by becoming a Patreon member of Convergence for as low as $2 per month. at patreon. com [00:46:00] slash ConvergenceMag.

[00:46:02] You’ll find a direct link in the show notes. Folks, next week is the last show of this first season of Indebted. I really hope you’ve enjoyed listening to this first set of episodes as much as I’ve enjoyed recording them. It would help us out if you could head over to Apple or Spotify or wherever you get your podcasts and rate the show.

[00:46:21] And if you have any ideas about the future of the show or any comments, You can email me directly at indebted at [00:46:30] mauricebpweeks. com. For our season finale next week, we have a very special guest. If you’re gonna hand me a magic wand, first place I’m gonna 

[00:46:39] Elizabeth Warren: wave it is I’m gonna cancel 

[00:46:41] all the student loan debt.

[00:46:42] Maurice BP-Weeks: Can’t wait. This show is produced by Josh Elstro. It’s written and hosted by me, Maurice B. P. Weeks. Until next time, let’s keep fighting for the world we all deserve.[00:47:00] 

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