Unions to Banks: Pay Up
Source Dave Anderson
Date 13/05/12/10:00
Unions to Banks: Pay Up

Instead of raising taxes, labor leaders in collective-bargaining talks
have a new proposal for closing state budget gaps: Go after the
financial institutions that ripped off governments.

Rebecca Sandoval hasn't had a raise for six years.

She and other home-care workers who work for the state of Oregon and
are represented by Local 503 of the Service Employees International
Union (SEIU) make $10.20 an hour to assist people with disabilities
and senior citizens, like the 99-year-old woman Sandoval cares for.
The state froze wages at 2007 levels to help offset a yawning $855
million budget shortfall caused by the financial crisis. Almost every
year since then, Sandoval says, it has further cut back hours, leaving
workers with the choice to leave some of their clients' needs unmet or
to work for free. “You can't rush a 99-year-old woman with any aspect
of her daily living,” she says.

Members of Local 503 in different professions have seen similar wage
freezes and cutbacks. James Jacobson got a layoff notice after 16
years as an office worker at the University of Oregon's college of
education; budget cuts, it explained. He's one of the lucky
ones—because he had seniority, he was able to get another position,
this one in the campus maintenance operations office. Others haven't
been so lucky.“It's been affecting a lot of people, these budget cuts,
and of course I know students that are really suffering because
education isn't being funded.”

Child-welfare case managers are working at 67 percent staffing, two
doing the work of three. And public service workers see the impact of
the financial crisis everywhere they look. Oregon, like most states,
has yet to really recover from the recession. Because tax revenues are
still too low to cover the cost of public services, it faces a $3.5
billion budget gap for 2013-2015. In instances like these, we know the
options: The state can cut services or increase taxes to bridge the
gap (unlike the federal government, states cannot run a deficit).
Because Republicans have successfully killed a plan to raise taxes on
corporations and the wealthy in April, now public employees are
looking at nearly half a billion dollars being cut from their

But there’s another option: Go after the big banks to get back the
money the state lost through financial chicanery.

This is the proposal representatives for the 48,000 members of Local
503 currently in collective-bargaining talks are making. Last Friday,
they unveiled their plan to demand the banks in their negotiations
with the state at a press conference, with the support of the state
AFL-CIO, AFSCME, the other major public-sector union, the Oregon
Students Association, the Working Families Party, and other community

“Traditionally, unions' argument has been 'We need to raise taxes.'
But if you think about the bank deals as an unfair tax on the public,
then the union is simultaneously saying, 'We need to stop banks from
taxing the public,'” says Stephen Lerner, a longtime union organizer
and adviser to Local 503's campaign.

The local’s demands include that the governor and state treasurer sue
the banks over illegal activities on behalf of Oregon's public
employees—they've calculated $110 million in losses to LIBOR rigging
alone. They also want to see a task force established that would
include workers struggling with debt and foreclosure to investigate
the ways the state has been ripped off by Wall Street. “We do intend
to go to the mat on these issues, we think that they're vital in terms
of putting the state on the right track for the future,” Heather
Conroy, executive director of Local 503, says.

Local 503’s demands are part of a wider effort among labor groups to
redirect people's anger back where it belongs: big banks that rigged
interest rates, pushed governments into costly derivatives deals, and
kicked families out of their homes through often illegal foreclosures.

Public workers have been scapegoated for years for state and municipal
funding crunches. Their pay and pensions are often blamed for funding
problems that were actually, as economist Dean Baker points out,
caused by the financial crisis. New Jersey governor Chris Christie
took time onstage at the Republican National Convention to take credit
for “reforming” the pensions of public workers whom he'd previously
denounced as “thugs.” And Oregon state representative Dennis
Richardson claims that the public-employee pension fund, is “draining
an outrageous amount of revenue from every school, city, county and
state agency, and can no longer be tolerated.”

But Rebecca Sandoval and her union aren't having it.“The problem isn't
greedy public workers or greedy poor people who need some kind of
help,” she says. “The problem is that the people at the top end are
sucking all the profit out of the economy and making the rest of us
fight for what's left.”

The banks have systematically figured out how to rip off the
government,” Lerner says.

Part of that ripoff was the LIBOR scandal, which had a “massive
consequence on everything,” according to Wallace Turbeville, a former
Goldman Sachs employee and current senior fellow at nonpartisan think
tank Demos (editor’s note: Demos was formerly the Prospect’s
publishing partner).

The conspiracy among banks like Barclay's, J.P. Morgan, and Bank of
America to manipulate the London Interbank Offered Rate (LIBOR)—a key
rate that is used to determine other interest rates, like mortgages
and securities, including contracts by some 75 percent of major
municipalities—raised the costs of raising capital for things like
building bridges and schools. “The drain goes directly from, in this
case, governments into the pockets of the big banks, which are the
only ones that can really manipulate LIBOR to their advantage,”
Turbeville explains. “That's a big problem, and there's no solution
that people have come up with yet.”

Local 503's research team has calculated Oregon's hit as just over
$110 million in direct LIBOR losses from various state funds, and
estimates that because the statute of limitations prevents the
recovery of money lost on violations dating back more than five years,
the state could be losing $4 million a month for each month it doesn't
act.11. As part of the roll-out of their plan, Local 503 unveiled a
website that explains the LIBOR scandal and calculates how much money
the state is losing by waiting to sue. The site also includes a
petition that Oregonians can sign on in support of the union's
campaign, adding the weight of public opinion to the pressure brought
in collective bargaining. Later this month, on May 19, they'll hold a
“Fair for a Fair Economy” in downtown Portland with activities
highlighting the banks' wrongdoing. Yet it's been hard for state and
municipal governments to sue banks over LIBOR rigging because,
Turbeville says, the legal system has a hard time with the idea that
the banks screwed up the system itself rather than stole money from an
individual entity.

Another problem, he notes, is that government officials in many cases
have little incentive to admit that they made a bad deal in the first
place. Derivatives—financial instruments whose value is “derived” from
something else, like a commodity, stock, currency or interest rate—can
be used to hedge existing risks, or to speculate or bet. When state
and local governments use derivatives such as interest-rate swaps to
finance infrastructure projects and more, banks are in a strong
position to make the case to other state and local governments that
there's an advantage to the derivative as a hedge against risk.
They're the ones with all the information, and are very good at
presenting it in a way that makes it seem like the complicated
financial instrument is a better bet. There is an advantage, of
course—it's just an advantage for the bank. “If you just fixed the
rate straightforwardly, there are consequences to that that the bank
can price, or they can do it via derivative and price the derivative,”
Turbeville explains, “If they do it via derivative the cost to the
municipality is roughly ten times more than if you just did it
straightforwardly, but the municipality has no idea what the cost is.”

“What the banks do is they try very hard to ingratiate themselves,”
Turbeville explains. “That was my job; I was an ingratiator. And then
I brought in a derivatives salesman and just hammered them. They had
all the numbers, but the problem is they didn't know how to do all the

Government financial directors make the mistake of treating a bank as
an adviser, rather than a party with a financial stake in the game.
Pension funds, too, have been depleted because bankers convinced
government officials that they were helping them out, rather than
acting in their own interest. And no one wants to admit, in the end,
that they got conned.

Enter the union.

“I feel like the financial industry has created this illusion, this
feeling that it's far too complicated for anyone to ever understand,”
Conroy says. “They make it feel more complex than it actually is to
intimidate people from taking them on.”

Local 503 has been involved in statewide fights ranging from payday
lending to the minimum wage to the battle, two years ago, to reduce
fees on the cards that distributed unemployment and child-support
benefits. Union workers were involved in events pressuring the state
treasurer to renegotiate the deal with U.S. Bank, which issued the
cards. “We held it up as an example of what you'd find if you
scrutinized banks' contracts the way you scrutinize public employee
contracts,” Conroy says.

That campaign was successful, but the union wasn't satisfied. “We
wanted to take it up a notch,” Conroy says, to figure out how they
could really bring to bear the power of collective bargaining for the
common good. Bringing the fight against the banks to the bargaining
table is an evolution in tactics for Local 503 that Conroy sees as
related to the crisis in the labor movement. “It's really about
figuring out how we as unions can be fighting for everyone in a
meaningful way.”

She stresses that this idea came up organically from the membership,
many of whom have education debt, foreclosures, or layoffs in the
family. In meetings with member committees, union officials discussed
different ideas and came to the decision that all five bargaining
units currently in negotiations would put forward the demands around
banks in their contract negotiations this spring.

“This is a core idea, it's not sort of an add-on rhetorically, it's
actually part of how they address why there's no money, how they're
relating to community groups, this idea of shortage of money to fund
the things that everybody needs,” Lerner says, pointing out that
instead of the typical union action asking where the money is, Local
503 held an action this spring with workers dressed as bankers,
explaining where the money had gone.

As for the demands, it's not as if no state or local government has
sued to get its money back from banks. But, Turbeville notes, that
doesn't happen unless there's a major crisis. “Unless it's a disaster
that on its own becomes a story, there's a lot of inertia to just
ignore it and not own up to the fact that, ‘yeah, this is a bad deal
and by the way I voted for it.’”

Along with litigation, there have been attempts to demand that banks
renegotiate deals—Lerner points to the move by the San Francisco
government and the Bay Area's Asian Art Museum to get out of a pricey
interest-rate swap with J.P. Morgan. But the union's effort to put
pressure on politicians directly using collective bargaining hasn't
been tried before.

“What this means for labor is a radical redefinition of the purpose of
collective bargaining,” Lerner says. “One of the great tricks or
sleights of hand that was played on unions over the last 50 years was
the idea that we should only bargain narrowly on what affects workers
on the worksite.”

Over the past few years, as attacks on public workers have
intensified, there've been increasing attempts to drive a wedge
between unions and the rest of the public. Politicians like Scott
Walker in Wisconsin and John Kasich in Ohio have passed bills that
took away public employees' collective bargaining rights, though
Ohio's was overturned by ballot initiative, and other copycat bills
are circling.

But if those unions make a clear stand to bring issues that affect the
broader public to the bargaining table, it makes those attacks a whole
lot less convincing. Other unions have pushed to include common-good
issues in their struggles: Chicago's teachers made school conditions a
central issue in their strike last fall and are now teaming up with
community members to fight school closings, and National Nurses United
have been behind a multi-year push for a financial transactions tax on
the banks, with the money to go toward health care.

If there's going to be political will to save collective bargaining,
Conroy says, that will have to come from non-union workers having the
experience that it can help them too. Rather than seeing unionized
public employees as having too much power, too much privilege, they'll
see unions as institutions that help all working people.

There are other possibilities for such common-good collective
bargaining. Lerner notes that unions working on student debt are
talking about inserting language into university contracts about
tuition costs and student loans. If the idea spreads, it would be
possible for different unions to come up with unique ways to put their
community's interest in their contracts.

“The labor movement is one of the last resourced, organized entities
out there to be able to lead this fight, so it's our responsibility to
do so,” Conroy says. “What makes us different from the majority of
working class folks in this country is that we have the power of
collective bargaining, so let's use it on behalf of the working and
middle class. It's a path to winning for all of us and to building a
stronger labor movement.”

As long as the finance industry remains ultra-powerful, Lerner says,
unions will have to find ways to take them on, as they're ones who
really have the power. By challenging the big banks, unions can start
to engage their membership and community allies around the bigger
question of how we fund government, of what kind of government and
economy we want to have.

“I believe that the extraction of value by the financial sector from
the economy when it becomes disproportionate as it has that damages
many things, and it's reflected in income disparity,” Turbeville says.
“The unions would be very well served from just a purely policy
standpoint to make one of their focuses getting the financial sector
fixed. What we're talking about is one element of it but it's much
broader: the more bankers make, the less workers make.”

The union doesn't plan to give up, Conroy says, even if they don't
succeed in getting their demands into the workers' contracts. The
members are committed, she says, to fighting for something that really
matters, to taking on the root cause of the lousy economy, even if it
doesn't mean an immediate pay raise or the restoration of benefits
right away.

“It's completely unacceptable that bank accountability feels too big
for anybody in power to do something about,” she says. “We hear that
from the U.S. Senate, the governor, they say 'It's a problem that's
too big for us.' We say that's completely unacceptable. We have to
start somewhere.”

1. As part of the roll-out of their plan, Local 503 unveiled a website
that explains the LIBOR scandal and calculates how much money the
state is losing by waiting to sue. The site also includes a petition
that Oregonians can sign on in support of the union's campaign, adding
the weight of public opinion to the pressure brought in collective
bargaining. Later this month, on May 19, they'll hold a “Fair for a
Fair Economy” in downtown Portland with activities highlighting the
banks' wrongdoing.

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