Academic journal article The Journal of Law in Society

Dirty Deals: How Wall Street's Predatory Deals Hurt Taxpayers and What We Can Do about It

Academic journal article The Journal of Law in Society

Dirty Deals: How Wall Street's Predatory Deals Hurt Taxpayers and What We Can Do about It

Article excerpt

Table of Contents    I. Introduction  II. The Financialization of Our Economy III. Predatory Municipal Finance      A. Deals That Were Designed to Fail      B. High-Risk Deals      C. High-Cost Deals      D. Predatory Fees  IV. The Impact of Predatory Municipal Finance.   V. Making Our Money Work For Us      A. Transparency      B. Accountability      C. Reducing Fees      D. Collective Bargaining with Wall Street      E. Creating Public Options for Financial Services      F. Establishing Public Banks  VI. Conclusion. 

Abstract

The financialization of the United States economy has distorted our social, economic, and political priorities. Cities and states across the country are forced to cut essential community services because they are trapped in predatory municipal finance deals that cost them millions of dollars every year. Wall Street and other big corporations are engaged in a systematic effort to suppress taxes, making it difficult for cities and states to advance progressive revenue solutions to properly fund public services. Banks take advantage of this crisis that they helped create by targeting state and local governments with predatory municipal finance deals, just like they targeted cash-strapped homeowners with predatory mortgages during the housing boom. Predatory financing deals are deals that prey upon the weaknesses of borrowers. They are characterized by high costs and high risks, are typically overly complex, and are often designed to fail.

Every dollar that cities and states send to Wall Street is a dollar that does not go towards essential community services. The primary goal of government is to provide residents with the services they need, not to provide bankers with the profits they seek. We need to renegotiate our communities' relationships with Wall Street. We can do this by implementing common sense reforms to safeguard our public dollars, make our public finance system more efficient, and ensure that our money is used to provide fully-funded services to our communities.

I. Introduction

There is a saying that a budget is a moral document. If that is true, then cities like Detroit are bankrupt in more ways than one. Across the country, elected officials in financially distressed cities and states are cutting essential community services like mental health clinics and public schools in order to address budget crises, but they are faithfully paying Wall Street for predatory financial deals. In public budgeting parlance, funding for services is called discretionary spending but payments to Wall Street are considered mandatory.

Most people would agree that the most important debt that a school system owes is to students, to provide them with a decent education. In reality though, school districts like Philadelphia's are routinely forced to increase class sizes, lay off teachers and guidance counselors, and close schools to pay predatory debts to Wall Street. (1) The financialization of the United States economy over the last 35 years has distorted our social, economic, and political priorities. The primary function of government is to provide services to residents (e.g., streets, schools, fire protection, national defense), not to provide a profit to Wall Street. However, in the financialized economy, Wall Street profits trump all other priorities.

The financial crash of 2008 ushered in the largest economic downturn in the United States in 80 years and exposed the fundamental problems that underpin the American economy. Millions of families that had worked hard to earn a middle class lifestyle found themselves facing foreclosure, unemployment, and bankruptcy. Moreover, at the very moment that they most needed to rely on the social safety net, they found that their elected officials were slashing essential public services to close revenue shortfalls, even as they spent trillions of dollars on taxpayer bailouts for Wall Street.

We need to renegotiate our communities' relationships with Wall Street so that we can provide residents with the services they deserve. …

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