Deposits will be needed to balance a $1 billion loan portfolio, but Los Angeles easily has them -- now sitting in Wall Street banks having no fiduciary obligation to reinvest them in Los Angeles. The city's latest Comprehensive Annual Financial Report shows a Government Net Position of over $8 billion in Cash and Investments (liquid assets), plus proprietary, fiduciary and other liquid funds. According to a 2014 study published by the Fix LA Coalition:
Together, the City of Los Angeles, its airport, seaport, utilities and pension funds control $106 billion that flows through financial institutions in the form of assets, payments and debt issuance. Wall Street profits from each of these flows of money not only through the multiple fees it charges, but also by lending or leveraging the city's deposited funds and by structuring deals in unnecessarily complex ways that generate significant commissions.
Despite having slashed spending in the wake of revenue losses from the Wall Street-engineered financial crisis, Los Angeles is still being crushed by Wall Street financial fees, to the tune of nearly $300 million just in 2014. The savings in fees alone from cutting out Wall Street middlemen could thus be considerable, and substantially more could be saved in interest payments. These savings could then be applied to other city needs, including for affordable housing, transportation, schools, and other infrastructure.
In 2017, Los Angeles paid $1.1 billion in interest to bondholders, constituting the wealthiest 5% of the population. Refinancing that debt at just 1% below its current rate could save up to 25% on the cost of infrastructure, half the cost of which is typically financing. Consider, for example, Proposition 68, a water bond passed by California voters last summer. Although it was billed as a $4 billion bond, the total outlay over 40 years at 4 percent will actually be $8 billion. Refinancing the bond at 3 percent (the below-market rate charged by the California Infrastructure and Development Bank) would save taxpayers nearly $2 billion on the overall cost of the bond.
Finding the Political Will
The numbers are there to support the case for a city-owned bank, but a critical ingredient in effecting revolutionary change is finding the political will. Being first in any innovation is always the hardest. Reasons can easily be found for saying "no." What is visionary and revolutionary is to say, "Yes, we can do this."
As California goes, so goes the nation, and legislators around the country are watching to see how it goes in Los Angeles. Rather than criticism, Council President Wesson deserves high praise, for stepping forth in the face of predictable pushback and daunting legal hurdles to lead the country in breaking free from our centuries-old subjugation to Wall Street exploitation.
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First posted on Truthdig.com.
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