Maybe the interest rate swap will become the 21st Century equivalent of the waterworks–an institutional marriage of private interests and municipal authority around a (political) understanding of a public interest that fundamentally shapes the social and physical infrastructure of cities through its terms. But probably not for the better, and probably even in the direction of speeding the destruction of the public infrastructure of prior periods of city building. A report just out from the Saqib Bhatti at the Roosevelt Institute looks at municipal finance and suggests deep problems with the way that banks structure municipal credit. He discusses it at Salon here touching on some issues I’ve written about:
For example, the Detroit Water Department in 2012 had to pay $547 million in penalties to terminate interest rate swaps. Now more than 40 percent of the water bill that people pay in Detroit actually goes towards paying off that termination fee, and it’s hit the Water Department hard so now the Water Department is actually shutting off the water of Detroiters who have missed just a couple of payments on their bill. In the meantime, they’re actually paying out $547 million in fees to banks on these deals.
There is strong reason to believe that if the Detroit Water Department pursued legal claims against the deals that they could have recovered some of that money, but instead of trying to recover the $547 million they’re turning off the water on low-income, working-class people of color who are already struggling to get by.