Bank of America and the Detroit Financial Crisis

Abayomi Azikiwe, editor of the Pan-African News Wire, addressing the National Conference for a Moratorium on Foreclosures in Detroit March 31, 2012. Azikiwe outlined the economic crisis that has evolved over the last four decades. (Photo: Bryan Pfeifer), a photo by Pan-African News Wire File Photos on Flickr.

Bank of America and the Detroit Financial Crisis

State treasurer exposes the role of the banks in the economic meltdown

By Abayomi Azikiwe
Editor, Pan-African News Wire

DETROIT—A series of corporate media reports indicate that if a legal challenge to the so-called “Financial Stability Agreement” (FSA) is not dropped by the City of Detroit’s Law Department, the State Treasurer’s Office says it will withhold $28 million in revenue-sharing funds and give them directly to the Bank of America, a trustee of public monies earmarked for the distressed municipality. (Detroit News, June 29)

Under conditions of duress, the FSA was passed in a narrow 5-4 majority on April 4. The agreement has no legal basis and is merely designed to ensure that the banks get paid and that people in Detroit are muzzled in their opposition to the corporate takeover of the city.

The Bank of America is the second largest holder of municipal debt in the United States. Second only to JPMorgan Chase, both financial institutions along with other banks have devastated Detroit and cities and suburbs throughout the country through servicing predatory lending resulting in millions of foreclosures and the precipitous drop in tax revenues.

Rating agencies have lowered Detroit’s bonds to junk status making it even more expensive to borrow money and to pay back existing loans.

A state-appointed “Financial Review Panel” last spring indicated that Detroit debt obligations were over $16 billion and rising.

For the fiscal year of 2010, the City of Detroit paid $597 million in debt-service to the banks driving the majority African American municipality into financial ruin that leaves the local government with almost no resources to pay salaries and maintain services. A budget passed by the City Council in June called for the reduction of Detroit’s budget by $250 million that could bring about the lay-off of 2,500 employees and the deepening erosion of basic services such as fire, public lighting and transportation.

Corporation Counsel Used as Scapegoat for More Looting

City of Detroit Corporation Counsel Krystal Crittendon filed a lawsuit in June requesting a declaratory judgment on the legality of the FSA. The State of Michigan owes the City of Detroit over $224 million in revenue-sharing in addition to monies for a failed land deal at the State Fairgrounds as well as unpaid municipal citations.

The lawsuit challenged the ability of the state to place the city under supervision based upon hundreds of millions of dollars being owed and the fact that the FSA is not based on any existing enabling statute be it the draconian Public Act 4 or Public Act 72, which ostensibly mandates the imposition of emergency management by the state if cities are under financial distress. The City of Detroit charter provides the authority to the Law Department to pursue debts owed to the municipality and such legal action can be taken at the request members of City Council.

A hearing on the lawsuit held in Ingham County by Judge William Collette in June resulted in the lawsuit being dismissed before even hearing the substance of the arguments. Corporate-backed Mayor Dave Bing hired a million-dollar law firm to file a motion for dismissal against a case filed by the city’s own chief lawyer.

Bing sought to have Crittendon fired but under the City Charter does not have the authority to do so without approval of six members of the City Council. When Bing went to the City Council to request a vote on Crittendon’s dismissal on June 22, he walked out of the meeting realizing that he did not have any support for such a move.

Although the Corporation Counsel is being utilized as a punching bag by the corporate media, the real issue is whether the people of Detroit have a right to determine their own political destiny. The appointment of a putative “Financial Advisory Board” staffed by capitalist agents now have control over the city’s economic direction and will work to squeeze whatever resources they can out of Detroit which has one of the highest unemployment and poverty rates in the country.

Exposing the role of the banks in the current situation, Mlive.com reported on June 29 that “The state is expected to wire one of those payments--$28.5 million sum—to the trustee later today. While the trustee is legally obligated to send those funds to the bondholder, Dillon (the state treasurer) said the state is working with Bank of America on a deadline extension that would ensure the city receives those funds.” (Mlive.com, June 29)

Dillon said that “This is not the state’s decision. This is a contractual arrangement that has been set out. We’ll send the money out and the trustee will decide what to do.”

Call for Moratorium on Debt Service

The Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shut-offs has been waging a campaign against the banks for over four years related to home foreclosures and in recent months, demanding that the city refuse to pay debt service in order to halt lay-offs, program eliminations that service the working class and poor, and to stop the evisceration of municipal services.

Demonstrations were held in the financial district in May and June raising this demand. The Coalition has raised the moratorium on debt service demand at public meetings of the City Council and one organized by Mayor Bing on June 27.

In its weekly meeting on July 2, the Moratorium NOW! Coalition planned further actions aimed at shedding light on the real culprits behind the city’s economic crisis. The crisis in Detroit is taking place amid the bankruptcy filings in Stockton, California and other financial problems for a host of cities throughout the U.S. including Harrisburg, Pennsylvania, Birmingham, Alabama and Providence, Rhode Island.

The crisis of the U.S. capitalist system is being passed down to the states who in turn are imposing austerity on the cities and suburbs through large-scale cut backs in public spending resulting in the elimination of hundreds of thousands of jobs in the areas of public service and education.

Since the advent of the economic crisis in 2007-2008, it is estimated that 600,000-800,000 public sector jobs have been lost throughout the country. These developments clearly illustrate that the U.S. is not in any real recovery.

The banks and corporations are being bailed out by the federal government, the states and municipalities while workers and the poor are paying the price. In Detroit and other cities throughout Michigan with majority African American populations, the question of self-determination is a major focus since these efforts represent a violation of civil rights and voting rights gains which were won through decades of struggle against racism and national oppression.