Toodaloo San Berdoo
-by Sinclair Noe
DOW – 48 = 12,604
SPX - .02 = 1341
NAS – 14 = 2887
10YR YLD un = 1.50%
OIL + .18 = 85.99
GOLD + 10.10 = 1577.60
SILV +.33 = 27.24
PLAT + 6.00 = 1435.00
The city council of San Bernardino, California, voted last night to file for bankruptcy, marking the third time in recent weeks a California city is seeking bankruptcy protection. The decision followed a report by city staff that said the city faced an imminent financial crisis. The report said the city had exhausted its reserves and projected that spending would exceed revenue by $45 million in the current fiscal year which started on July 1.
The city attorney general James Penman said San Bernardino's city officials had been submitting false accounting documents for 13 of the last 16 years in an effort to hide the real financial situation of the city. That period covers the tenure of multiple city managers and sets of elected officials, but it predates the Acting City Manager.
San Bernardino will join the California communities of Stockton and Mammoth Lakes in bankruptcy court. Stockton failed on June 28th, after three months of talks with its creditors to obtain concessions to close its $26 million budget gap. Mammoth Lakes, a ski resort town of about 8,000 residents, last week filed for bankruptcy due to a nearly $43 million legal judgment against it.
San Bernardino has suffered from the housing crash and high unemployment. According to the report to its city council, the city "has reached a breaking point and faces the reality of deficient cash on hand to meet its contractual and debt obligations due in July 2012. The city has declared numerous fiscal emergencies based on fiscal circumstances and has negotiated and imposed concessions of $10 million per year and has reduced the workforce by 20 percent over the past four years."
The report also said:"The city is still facing the possibility of insolvency due to a variety of issues including accounting errors, deficit spending, lack of revenue growth, and increases in pension and debt costs."
Chapter 9 bankruptcy would give San Bernardino an opportunity to restructure its finances, A bankruptcy filing would reopen negotiations on employee contracts but would not invalidate its pension payments. The Chapter 9 BK process would likely start in about 30 days and take about a year to 18 months.
Interim City Manager Andrea Travis-Miller said San Bernardino is so broke it can’t make its August 15 payroll. City Attorney James Penman told the council before the vote: “If the employees are not paid on Aug. 15, on Aug. 16 there will be a mass exodus of city employees. People are not going to work when they don’t get paid. Most of our employees will not show up to work. That would include police, fire, refuse, everybody. The city will virtually shut down.”
Municipal bond investors pretty much shrugged off the San Bernardino bankruptcy filing. California muni funds have outperformed all municipal fund categories with the exception of high-yield munis. In the year to date, long California municipal funds have returned 6.61%. Muni national long funds have returned 5.69% over the same period, as have taxable multisector bond funds. The debt prices San Bernardino has to pay have held up fairly well after the vote to file for bankruptcy. The city’s lease-revenue bonds and special tax bonds are trading above 90 cents on the dollar.
That’s cheap compared to high quality bonds, but indicates the debt is far from collapsing and is still attracting a bid that’s nearly face value.
Meanwhile, unions representing civil servants in Scranton, Pa., filed suit yesterday after the mayor cut pay for police, firefighters, garbage collectors and other public workers to minimum wage, saying that was all the city could afford. Unions representing police, fire and public workers in the city of 76,000 filed three lawsuits after the city defied a judge's order and issued paychecks Friday that paid 398 city employees at the minimum wage of $7.25 an hour.
The lawsuits against Scranton Mayor Chris Doherty include one filed in federal court under the Fair Labor Standards Act accusing the city of failing to pay wages on time and failing to pay overtime. Another lawsuit seeks to hold the mayor in contempt for violating a judges order. Yet another alleges that benefits for disabled police and firefighters were cut without a hearing. For now, firefighters in Scranton will still rush into a burning building to save an elderly person or a child or you or me, and for that they will be paid less than the kid flipping burgers at McDonalds.
Meanwhile, the city of Oakland California in 1997 entered into the deal with Goldman Sachs to protect itself from potential interest rate spikes on city bonds used to fund police and firefighter pensions. Now, interest rates are low, and the city is paying the company an interest rate that is much higher than the prevailing rate Goldman pays Oakland. The city has paid Goldman about $32 million more than it has received so far on the deal, according to labor and other community leaders, and may lose another $20 million before the investment expires in 2021.
City negotiators have been meeting Goldman for six months about reducing the estimated $15 million cost to terminate the agreement but have had no success. So, the Oakland City Council voted unanimously this week to stop doing business with Goldman Sachs if the company does not agree to cancel an investment deal that is costing the city $4 million this year.
At the heart of the matter is an interest rate swap deal that the city entered with Goldman back in 1997. In its most basic form an interest rate swap involves two counterparties; one party is concerned that the interest rate will go up and the other is worried it will go down. To protect themselves the parties engage in a contract where, in effect, they cover each others’ risk; in this case, Oakland wanted to protect against higher interest rates so it locked in a fixed rate of 5.6% that it would pay to Goldman. In exchange, Goldman would pay the city a variable rate tied to Libor.
Yes, Libor, the interest rate that was manipulated by various banks including Barclays. Yes, Libor, the rate at which banks borrow from one another, is one of the most important rates of the last decade and is the basis for roughly $800 trillion worth of loans and financial instruments and derivatives and interest rate swaps. And yes, if banks are manipulating Libor rates lower then they themselves are borrowing money for less while their counterparties in interest rate swap contracts are stuck paying them much higher rates.
Back when Oakland first entered the deal at 5.6% on $187 million in bonds it was deemed a safe bet because it shielded the city from a potential hike in future rates. It worked out well for the city until the financial crisis hit and interest rates hit rock bottom.
The deal backfired as interest rates have dropped to record levels near 0% in the aftermath of the financial crisis when the Fed pushed rates down. So, now, Oakland pays 5.6% while Goldman Sachs pays right at zero percent; a little lopsided. Earlier, the swap was a positive for the city. No word on how positive it was or remains to be for Goldman. Of course Goldman has been operating at greater advantage than Oakland or other municipalities. You may recall that the financial crisis resulted in big banks receiving bailouts; including Goldman Sachs. The federal government took Goldman's “troubled assets” off their hands and loaned them billions of dollars for free — even though it was the greed of the big banks that caused the crisis. Cities like Oakland haven’t been bailed out. Instead, Oakland is forced to hold toxic assets like rate swaps and hand over even more money to the banks.
The deal is costing Oakland about $4 million annually and could end up costing the city $20 million by 2021. So, the city council passed a resolution that authorizes the City Administrator to negotiate the termination of a swap agreement with Goldman. And the City Council says if Goldman refuses to terminate the deal (and waive all the termination fees) then the city of Oakland will never do business with the bank again in any capacity. It goes as far as to say that a refusal by Goldman to terminate will force it to use all good faith efforts. So far, Goldman seems unwilling to terminate the deal, or reducing the $15 million dollar cost of terminating the deal. There is no particular precedent that I've heard of. I don't know how they can completely boycott Goldman. If Goldman wants to buy Oakland municipal bonds in the open market, could the city stop that action?
It's not just a problem with Oakland. Some estimates figure banks are making more than $2.5 billion a year form municipalities and public agencies.
Last year, Jefferson County, Alabama filed what was at the time, the largest municipal bankruptcy in American history. Why did they go broke? Because they signed a bad deal with JP Morgan Chase - and some other banks including Goldman Sachs and a handful of elected officials were corrupted; there is no other explanation for why they entered into such a rotten financial deal. The city needed a new sewer system - which was estimated to cost $250 million, but with interest rate swaps, the cost of the project was pumped up to more than$3 billion. The bank sold the county a loan for the sewer that came with one of adjustable interest rates. The county would pay a low interest rate that it could afford for a few years and then the rates were adjusted and they were adjusted higher. And the city couldn't afford the payments on the loan, and so the banks tacked on fees, and pretty soon Jefferson County was busted. So after furloughing city workers in Birmingham and they reduced the police force and they turned off some of the traffic lights, and they raised the water rates and some people can't afford water, and Jefferson County eventually filed for bankruptcy.
Last year more than 35,000 taxpayers making more than $200,000 a year paid no federal income tax and 61 percent of those avoided tax for the same reason: their income consisted largely of interest on tax-exempt municipal bonds.
The Congressional Budget Office estimates that issuers receive about 80 percent of the value of the tax preference. Still, that means about 20 percent of the muni bond subsidy -- about $36 billion over the next five years -- is being captured by bondholders.
Nearly all of those bondholders are either for-profit corporations or individuals with high incomes. The higher your tax bracket, the greater the value of the tax preference, so it only makes sense to buy tax-free munis if you are in, or close to, the 35 percent federal tax bracket. You also need to be subject to US income taxes to make it worth your while. There's no reason for nonprofits or foreign individuals or corporations to buy tax-free munis.
Is there a better way? Maybe.
We can reform subsidies for municipal borrowing so that 100 percent of them actually go to municipalities, and so that municipal issuers have access to a broader bond market than one consisting of domestic corporations and wealthy individuals. We should also question whether we should subsidize municipal borrowing as much as we do.
There is a ready model for reform. For 2009 and 2010, states and municipalities were allowed to issue Build America Bonds. These bonds were taxable, but the federal government made 35% of the interest payments. These bonds can be sold to individuals, and investors who can’t take advantage of a tax preference, such as pension funds and foreign entities.
That program gave municipal governments access to a deeper and more liquid bond market. Because essentially any bond-market participant can purchase them, the limited set of buyers who benefit from tax preferences can't use their special position to claim a portion of the subsidy. Why limit the field to wealthy Americans? Why not make a good deal for smaller investors who want to invest in their hometown?
In 2011, Congress let the Build America Bonds program expire but kept traditional tax-free munis. Under both traditional muni bonds and Build America Bonds, subsidies are linked to the interest rate. That means issuers who must pay higher interest rates get more valuable subsidies. Perversely, the worse a municipality’s credit, the greater incentive it is given to borrow more money.
Instead of setting the subsidy as a percentage of interest, it should be a percentage of bond principal. There should also be a cap on bond yields at the time they are issued, so that issuers who can only borrow at high interest rates don’t get subsidized. If the markets are judging an issuer to be highly risky, we don’t want to encourage it to borrow more.
Congress could also further restrict the projects that can be financed with subsidized debt. Congress should target specific categories of investment that produce regional and national benefits. And it should especially tighten restrictions so that states can't use subsidized bonds to finance for-profit enterprises, as many places have done in recent years.
The size of the subsidy should also be evaluated. The level of the Build America Bonds subsidy was chosen to match the top income tax rate, but that’s an arbitrary amount, and because some municipal bond buyers aren’t in the top bracket, it meant a bigger subsidy than for traditional munis. Given the long-term budget gap in Washington, a smaller subsidy is called for.
I don't know if Build America Bonds are the solution but its probably a good idea to start a discussion. The current system of financing municipalities is a mess. It is subject to corruption. I can't see any reason why the city of Oakland or Jefferson County needs to be involved in municipal finance. If we could eliminate the debt service, we could put a lot more money to practical purpose. The Fed has handed out hundreds of billions to banks, which turn around and scalp the municipalities – which is to say, the taxpayers. There has to be a better way.
Bank-o-Meter.com
Showing posts with label Oakland. Show all posts
Showing posts with label Oakland. Show all posts
Wednesday, July 11, 2012
Tuesday, July 10, 2012
Tuesday, July 10, 2012 - Starting to Detect a Pattern
Starting to Detect a Pattern
- by Sinclair Noe
DOW – 83 = 12,653
SPX – 10 = 1341
NAS – 29 = 2902
10 YR YLD -.02 = 1.50%
OIL +.23 = 84.14
GOLD – 20.80 = 1567.50
SILV - .53 = 26.91
PLAT – 20.00 = 1429.00
Did you ever write a note to yourself, maybe you even wrote it down on your calendar, something that required your attention, and even with the reminder, you never got around to it. Treasury Secretary Turbo Tim Geithner pulls out one of the old calendars, and there it is, plain as day, a little memo to himself from back in 2008, when he was heading up the Federal Reserve Bank of New York. The memo says: Fixing Libor. That's what it says right there after lunch on a Thursday, just before an appointment with his accountant. Fixing Libor. And then there were all those emails, and phone calls, and Bear Stearns collapse, and there was the money market thing, and well, you know how it is.
Meanwhile, legislators on Capitol Hill have signaled they are interested in learning more about what Fed officials knew with regards to allegations of Libor manipulation.
Rep. Randy Neugebauer, chairman of a subcommittee of the House Financial Services Committee, sent a letter to the New York Fed asking for transcripts of any "communications with Barclays regarding the setting of interbank offered rates from August 2007 to November 2008."
Tim Johnson, who chairs the Senate Banking Committee, said today he was concerned by the allegations of the potential "widespread manipulation" of Libor and had directed his staff to schedule briefings on the issue. Johnson also said the committee planned to ask Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke about the allegations at hearings later this month. Well, I'm sure that will resolve absolutely nothing.
Regulators, including the New York Fed, had a responsibility to force greater integrity and cooperation, and it had clearly reviewed the situation and had the resources to investigate; the problems with Libor were clearly within their jurisdiction. Barclays had US operations. Of course the Federal Reserve is a regulator that doesn't much believe in regulation; kind of like a Pope that doesn't believe in religion.
It's not like the Fed did nothing. Officials with the New York Fed talked to authorities in Britain about problems with the calculation of Libor and also heard from market participants about whether an alternative could be found for Libor. In early 2008, questions about whether Libor reflected banks' true borrowing costs became more public. The Bank for International Settlements published a paper raising the issue in March of that year, and an April 16 story in the Wall Street Journal cast doubts on whether banks were reporting accurate rates. Barclays said it met with Fed officials twice in March-April 2008 to discuss Libor. And that was that.
Meanwhile, British lawmakers are continuing their investigation of Barclays role in the rate rigging, and it looks like Barclays former chief executive Bob Diamond may have been lying in his testimony last week, when he claimed he didn't remember anything about a letter from regulators warning about problems and questioning the banks behavior and culture. The letter read: "The cumulative effect ... has been to leave us with an impression that Barclays has a tendency continually to seek advantage from complex structures or favorable regulatory interpretations," in other words a pattern of bad behavior.
Remember MF Global? Sure, the brokerage firm that made a few bad bets with clients' funds, Jon Corzine played fast and loose, stupid enough to leave some of the money with JPMorgan, and next thing you know, whooosh, the money ($1.6 billion) had just vaporized. It happened again; this time to Peregrine Financial Group, which did business as PFGBest. The National Futures Association froze the funds of the Iowa-based brokerage after discovering an estimated $220 million shortfall in PFGBest's customer accounts. Russell Wasendorf, the sole owner and chairman of the brokerage may have falsified banking records for the past couple of years. Wasendorf is in a coma after an apparent suicide attempt. The scheme apparently began to unravel after the NFA began to press Wasendorf to confirm balances electronically and directly with the bank. PFGBest's customer money was held in an account with JPMorgan Chase. Nobody can find the money. Apparently it just – whooosh – vaporized.
I'm not certain, but I think I'm starting to detect a pattern here.
JPMorgan has been busy lately. They've had to deal with the $2 billion dollar, or maybe $3 billion dollar loss, which might be as big as a $9 billion dollar loss on bad credit-derivatives trades with customer deposits by a London trader known as "the London Whale." The bank is expected to reveal details of its losses on Friday, when it's due to report quarterly earnings. Then last week brought a New York Times story that the bank had pushed mutual fund customers into its own high-fee funds. Meanwhile, the Federal Energy Regulatory Commission is investigating charges that the bank manipulated power markets in California and the Midwest. And JPMorgan is one of the many banks reportedly under investigation in the ever-growing Libor scandal.
Yes sir, it's almost like there is a pattern of behavior here. Maybe we can get the Federal Reserve to look into it, maybe they'll put the issue on their calendar of things to do.
The Jobs Act, which President Obama signed into law in April, affects companies that generate less than $1 billion in annual revenue. Proponents for the act have said it will help companies raise capital to grow, while critics have said it loosens protections designed to protect investors. One of the rules in the Jobs Act allows companies to file their drafts of their registration statements confidentially with the U.S. Securities and Exchange Commission. Its kind of a quick and easy, short-form version of an IPO.
According to the study by accounting and consulting firm BDO, a majority of bankers believe the Jobs Act may open the door to accounting scandals by loosening regulation on smaller companies. About 55 percent of capital markets professionals surveyed at investment banks think the rollback in regulations increases the risk of scandals, and they should know.
A new research paper from the International Monetary Fund finds that a strong banking industry can help a society expand economically, but the researchers say that only remains true up to a point. Eventually, they claim, you reach a threshold of diminishing returns. Once a country's financial sector swells above a certain size, it becomes associated with "a negative effect on economic growth."
The research suggests that there are several countries that would probably be better off with a smaller financial sector. The researchers say the tipping point between positive and negative is when the financial sector extends an amount of credit to private industry that's between 80 and 100 percent of the national gross domestic product. The World Bank estimates that the US financial sector provides a chunk of credit to private businesses and investors that's worth about 165 percent of the national GDP. The report finds that when banks get too big they tend to devote their time and efforts to pumping up their own profits, betting against markets, misleading clients, and basically wasting hundreds of billions of dollars a year simply by doing nothing that adds value to the economy of the country. One of the dangers of an overly large financial sector is – according to the report – the increased probability of large economic crashes.
Unions representing civil servants in Scranton, Pa., filed suit today after the mayor cut pay for police, firefighters, garbage collectors and other public workers to minimum wage, saying that was all the city could afford. Unions representing police, fire and public workers in the city of 76,000 filed three lawsuits after the city defied a judge's order and issued paychecks Friday that paid 398 city employees at the minimum wage of $7.25 an hour.
The lawsuits against Mayor Chris Doherty include one filed in federal court under the Fair Labor Standards Act accusing the city of failing to pay wages on time and failing to pay overtime. Another lawsuit seeks to hold the mayor in contempt for violating a judges order. Yet another alleges that benefits for disabled police and firefighters were cut without a hearing.
The city of Oakland California in 1998 entered into the deal with Goldman Sachs to protect itself from potential interest rate spikes on city bonds used to fund police and firefighter pensions. But interest rates have remained low, and the city is paying the company an interest rate that is much higher than the prevailing rate Goldman pays Oakland. The city has paid Goldman about $32 million more than it has received so far on the deal, according to labor and other community leaders, and may lose another $20 million before the investment expires in 2021.
City negotiators have been meeting Goldman for six months about reducing the estimated $15 million cost to terminate the agreement but have had no success. So, the Oakland City Council voted unanimously this week to stop doing business with Goldman Sachs if the company does not agree to cancel an investment deal that is costing the city $4 million this year. We'll see how it works out
- by Sinclair Noe
DOW – 83 = 12,653
SPX – 10 = 1341
NAS – 29 = 2902
10 YR YLD -.02 = 1.50%
OIL +.23 = 84.14
GOLD – 20.80 = 1567.50
SILV - .53 = 26.91
PLAT – 20.00 = 1429.00
Did you ever write a note to yourself, maybe you even wrote it down on your calendar, something that required your attention, and even with the reminder, you never got around to it. Treasury Secretary Turbo Tim Geithner pulls out one of the old calendars, and there it is, plain as day, a little memo to himself from back in 2008, when he was heading up the Federal Reserve Bank of New York. The memo says: Fixing Libor. That's what it says right there after lunch on a Thursday, just before an appointment with his accountant. Fixing Libor. And then there were all those emails, and phone calls, and Bear Stearns collapse, and there was the money market thing, and well, you know how it is.
Meanwhile, legislators on Capitol Hill have signaled they are interested in learning more about what Fed officials knew with regards to allegations of Libor manipulation.
Rep. Randy Neugebauer, chairman of a subcommittee of the House Financial Services Committee, sent a letter to the New York Fed asking for transcripts of any "communications with Barclays regarding the setting of interbank offered rates from August 2007 to November 2008."
Tim Johnson, who chairs the Senate Banking Committee, said today he was concerned by the allegations of the potential "widespread manipulation" of Libor and had directed his staff to schedule briefings on the issue. Johnson also said the committee planned to ask Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke about the allegations at hearings later this month. Well, I'm sure that will resolve absolutely nothing.
Regulators, including the New York Fed, had a responsibility to force greater integrity and cooperation, and it had clearly reviewed the situation and had the resources to investigate; the problems with Libor were clearly within their jurisdiction. Barclays had US operations. Of course the Federal Reserve is a regulator that doesn't much believe in regulation; kind of like a Pope that doesn't believe in religion.
It's not like the Fed did nothing. Officials with the New York Fed talked to authorities in Britain about problems with the calculation of Libor and also heard from market participants about whether an alternative could be found for Libor. In early 2008, questions about whether Libor reflected banks' true borrowing costs became more public. The Bank for International Settlements published a paper raising the issue in March of that year, and an April 16 story in the Wall Street Journal cast doubts on whether banks were reporting accurate rates. Barclays said it met with Fed officials twice in March-April 2008 to discuss Libor. And that was that.
Meanwhile, British lawmakers are continuing their investigation of Barclays role in the rate rigging, and it looks like Barclays former chief executive Bob Diamond may have been lying in his testimony last week, when he claimed he didn't remember anything about a letter from regulators warning about problems and questioning the banks behavior and culture. The letter read: "The cumulative effect ... has been to leave us with an impression that Barclays has a tendency continually to seek advantage from complex structures or favorable regulatory interpretations," in other words a pattern of bad behavior.
Remember MF Global? Sure, the brokerage firm that made a few bad bets with clients' funds, Jon Corzine played fast and loose, stupid enough to leave some of the money with JPMorgan, and next thing you know, whooosh, the money ($1.6 billion) had just vaporized. It happened again; this time to Peregrine Financial Group, which did business as PFGBest. The National Futures Association froze the funds of the Iowa-based brokerage after discovering an estimated $220 million shortfall in PFGBest's customer accounts. Russell Wasendorf, the sole owner and chairman of the brokerage may have falsified banking records for the past couple of years. Wasendorf is in a coma after an apparent suicide attempt. The scheme apparently began to unravel after the NFA began to press Wasendorf to confirm balances electronically and directly with the bank. PFGBest's customer money was held in an account with JPMorgan Chase. Nobody can find the money. Apparently it just – whooosh – vaporized.
I'm not certain, but I think I'm starting to detect a pattern here.
JPMorgan has been busy lately. They've had to deal with the $2 billion dollar, or maybe $3 billion dollar loss, which might be as big as a $9 billion dollar loss on bad credit-derivatives trades with customer deposits by a London trader known as "the London Whale." The bank is expected to reveal details of its losses on Friday, when it's due to report quarterly earnings. Then last week brought a New York Times story that the bank had pushed mutual fund customers into its own high-fee funds. Meanwhile, the Federal Energy Regulatory Commission is investigating charges that the bank manipulated power markets in California and the Midwest. And JPMorgan is one of the many banks reportedly under investigation in the ever-growing Libor scandal.
Yes sir, it's almost like there is a pattern of behavior here. Maybe we can get the Federal Reserve to look into it, maybe they'll put the issue on their calendar of things to do.
The Jobs Act, which President Obama signed into law in April, affects companies that generate less than $1 billion in annual revenue. Proponents for the act have said it will help companies raise capital to grow, while critics have said it loosens protections designed to protect investors. One of the rules in the Jobs Act allows companies to file their drafts of their registration statements confidentially with the U.S. Securities and Exchange Commission. Its kind of a quick and easy, short-form version of an IPO.
According to the study by accounting and consulting firm BDO, a majority of bankers believe the Jobs Act may open the door to accounting scandals by loosening regulation on smaller companies. About 55 percent of capital markets professionals surveyed at investment banks think the rollback in regulations increases the risk of scandals, and they should know.
A new research paper from the International Monetary Fund finds that a strong banking industry can help a society expand economically, but the researchers say that only remains true up to a point. Eventually, they claim, you reach a threshold of diminishing returns. Once a country's financial sector swells above a certain size, it becomes associated with "a negative effect on economic growth."
The research suggests that there are several countries that would probably be better off with a smaller financial sector. The researchers say the tipping point between positive and negative is when the financial sector extends an amount of credit to private industry that's between 80 and 100 percent of the national gross domestic product. The World Bank estimates that the US financial sector provides a chunk of credit to private businesses and investors that's worth about 165 percent of the national GDP. The report finds that when banks get too big they tend to devote their time and efforts to pumping up their own profits, betting against markets, misleading clients, and basically wasting hundreds of billions of dollars a year simply by doing nothing that adds value to the economy of the country. One of the dangers of an overly large financial sector is – according to the report – the increased probability of large economic crashes.
Unions representing civil servants in Scranton, Pa., filed suit today after the mayor cut pay for police, firefighters, garbage collectors and other public workers to minimum wage, saying that was all the city could afford. Unions representing police, fire and public workers in the city of 76,000 filed three lawsuits after the city defied a judge's order and issued paychecks Friday that paid 398 city employees at the minimum wage of $7.25 an hour.
The lawsuits against Mayor Chris Doherty include one filed in federal court under the Fair Labor Standards Act accusing the city of failing to pay wages on time and failing to pay overtime. Another lawsuit seeks to hold the mayor in contempt for violating a judges order. Yet another alleges that benefits for disabled police and firefighters were cut without a hearing.
The city of Oakland California in 1998 entered into the deal with Goldman Sachs to protect itself from potential interest rate spikes on city bonds used to fund police and firefighter pensions. But interest rates have remained low, and the city is paying the company an interest rate that is much higher than the prevailing rate Goldman pays Oakland. The city has paid Goldman about $32 million more than it has received so far on the deal, according to labor and other community leaders, and may lose another $20 million before the investment expires in 2021.
City negotiators have been meeting Goldman for six months about reducing the estimated $15 million cost to terminate the agreement but have had no success. So, the Oakland City Council voted unanimously this week to stop doing business with Goldman Sachs if the company does not agree to cancel an investment deal that is costing the city $4 million this year. We'll see how it works out
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