Unions to Banks: Pay Up
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 pensions.
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 allies.
“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 numbers.”
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.”
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