Los Angeles Cuts off Wells Fargo, Pays $3.14B in Debt Service

A protester wearing a Guy Fawkes mask carries an Occupy Wall Street placard in front of the Reichstag building during an Occupy Berlin protest denouncing current banking and financial industry practices in Berlin

Looking back over these long six years to the heady days of Occupy Wall Street can cause a little whiplash.

I remember standing in front of Los Angeles city hall with a crowd of weekend warriors watching Tom Morello sing ‘This Land is Your Land’ arm-in-arm with Danny Glover and feeling like maybe a grassroots anti-finance movement could truly take hold.

I also remember standing in that same spot, a few weeks later, as police beat my journalist friend in the face while telling him to stop fighting. And I remember the drunken man in the tree, vomiting onto the park below while the police ordered the rest of us to disperse. Like so many citizen occupations, Occupy possessed the seed of rebellion and about three months of sustenance. After that, it withered. Defined as it was against the financial and political nexus that controls all the meaningful levers of power in our society, it had little to offer those who came each Saturday with their djembes and their pamphlets, hungry to build to something new. Criticisms of Occupy that center its messy, unwieldy direct democracy, or its unfocused or non-existent demands rarely diagnose the real problem with Occupy’s failure to effectively challenge the 1%:

They should have occupied a bank.

The rhetorical case against “Wall Street” is an easy one to make. It was even easier just three years after massive taxpayer bailouts of banks and insurance funds stopped the global economy from grinding to a halt in the middle of a US presidential election. The first Occupiers didn’t call themselves “Occupy New York,” after all.

But Zuccotti Park was not a chokepoint in the supply chain. It wasn’t a locus of power of any kind. It was effectively a media space, visible enough to garner attention but out of the way enough to make no difference at all. The police didn’t break it up immediately because it was no threat. Likewise for Los Angeles – the city was friendly to us until the very end, when they crushed the gathering in a single night and arrested dozens because health and safety conditions at the site provided enough justification to get the kids of their lawn.

Since then, politics has changed, but the names of those in power has largely stayed the same. Glass-Steagall remains repealed. Congress is rolling back consumer protections on bankruptcy and arbitration, and granting contracts to fraudulent and incompetent financial institutions. The 1% grow richer. Influence over elected officials remains hoarded by by wealthy donors. A former Exxon CEO is Secretary of State. Same as it ever was.

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Activists born from this era have learned lessons about the purpose and effectiveness of protest.

The recent election of a racist corpse to the presidency lights a dark fire under all of us. And while mainstream parties and politicians have bet their hopes on a sweeping conspiracy to bring down an ineffectual administration, this new generation has been focused on specific measures to reduce the power of banks and the harm they cause without relying on national politics. Revelations about Wells Fargo’s widespread fraud have given them ammunition to indict the financial system at large, and this time, they’re winning. Divestment movements have made gains everywhere. States are passing laws to prevent criticism, divestment and boycott of the Israeli state to try and slow the advance of these tactics. These tools are being recognized for the power they bestow by the powerful people who once laughed at the hippies in Zuccotti Park.

This weekend in Los Angeles, the divestment movement achieved a mostly quiet, but major, victory.

On Friday, the city released its request for proposals to service the city’s banking needs. The RFP lays out the various needs that a large city like Los Angeles has when managing cash, purchasing, merchant transactions and lines of credit. But one tidbit, which went mostly unnoticed by the press, rings loudly in the ears of divestment groups and banks alike.

“In order to be considered for this RFP, Respondents must have a current “Satisfactory” or higher overall CRA rating, both nationally and in the State of California, if applicable.”

The Community Reinvestment Act was passed by Congress in 1977 to try and compel banks to more directly benefit the communities from which they drew their customers, and to stop them from benefiting from government contracts if they fail to be “good corporate citizens.” It has had essentially no effect on the behavior of commercial banks, except perhaps to force them into awkward patronage of generic charities to meet their donation quota. But banks must also maintain their CRA Rating, a measure of the corporate stewardship and a warning light for banks which egregiously defraud the public. Usually this amounts to how well they follow compliance rules which their lawyers spend holidays away from their kids trying to get around.

In 2016, Wells Fargo was sued by the Attorneys General of multiple states for managing a nationwide scheme to open fake accounts in their customers names to boost their short term sales objectives. For this, Wells Fargo was granted a low CRA Rating, one that would disqualify them from doing business with the City of Los Angeles. (This requirement is not present in the Responsible Banking Ordinance which governs the collateral requirements and operational details of banking for the city. It only appears in this RFP, as far as I can tell.)

Now the city is seeking new bids on its banking services, and with this requirement in place, Wells Fargo is disqualified from consideration. It’s uncertain from this and other records exactly how much of LA’s cash and services are managed by Wells Fargo, but they currently manage all commercial banking services, a bond guarantee program for city contractors, and all merchant processing for the city and utilities. Considering that the city processed more than 15 million merchant transactions last year, this is a BIG contract for Wells that they are about to lose.

This is a great victory for DivestLA and the environmental and indigenous rights groups that put the pressure on city hall to do something about Wells Fargo’s anti-social behaviour.

It also gives those of us pushing for the founding of a public bank as a permanent solution to the city’s entanglements with commercial banks some key information in one, simple report.

Take, for example, the payments made by the city for debt service in 2016. Debt service is the cost to borrow money, mainly in the form of interest payments on bonds and lines of credit. According to this document, Los Angeles made approximately $3,141,586,000 in debt service payments in the last year. The vast majority of this is interest paid on municipal bonds, the price we pay as citizens for the right to borrow money from the people who have all the money. Infrastructure is built with bonds, and the interest paid on what are effectively loans from the wealthiest people and institutions makes up more than 50% of the cost of any new bridge, power plant, or water project. This, despite the city’s more than $12 Billion in the bank.

The city paid $3.1415 billion to banks and investors for the privilege of building new bridges and schools for the city.  By founding a public bank, we can cut that pi in half.

And by seizing the instruments of debt and interest on behalf of regular people, we can finally erode the foundations of a financial system that is rigged against regular people, which extracts value from our public institutions for private gain, and we can finally move the protest into the bank, and into board room, where it can actually force a change.

 

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