Koch Bros Woo Judges to Cut Union Pensions

Koch Brothers, Major Corporations Sponsor Pension Reform Seminar for Judges

By Chris Young, Center for Public Integrity | Report

George Mason University, Arlington, VA, 2013 (Image: Ron Cogswell / Flickr)

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As state courts across the nation prepare to referee numerous public pension reform disputes, a gaggle of interested parties — from major corporations to the Koch brothers — will next week sponsor an expenses-paid conference on public pension reform for judges who may decide the cases' fates.
Conference funders, which include ExxonMobil, Google and Wal-Mart, could benefit from efforts to slash benefits for public employees. Alternative approaches to shore up state budgets would likely require higher corporate taxes, fewer corporate subsidies and reduced government services, all of which would be bad for business.
The three-day gathering in a Charleston, S.C., hotel is hosted by George Mason University's Law & Economics Center.
The "Judicial Symposium on the Economics and Law of Public Pension Reform," according to a George Mason event description, is intended to "comprehensively outline the underlying structure of pension systems, address the differences between public and private pensions and detail the unfunded liabilities and potential bankruptcy issues arising from this crisis."

In all, about three dozen corporations — Ford Motor Co., General Electric Co., ConocoPhillips, drug maker Pfizer and the Dow Chemical Company also among them — are sponsoring the conference. Other funders include trade associations such as the American Petroleum Institute and the U.S. Chamber of Commerce, and conservative foundations such as the John William Pope Foundation and the Charles G. Koch Charitable Foundation.
Dozens of individuals are also helping bankroll the gathering; some state and federal judges themselves are listed sponsors, including Utah Judge Samuel D. McVey and Harris L. Hartz of the 10th U.S. Circuit Court of Appeals.

It's unclear which judges — and how many of them — will be attending the conference, although George Mason's judicial seminars are traditionally open to both state and federal judges. George Mason does not publicly list conference attendees, and federal judges who attend privately funded educational seminars aren't required to publicly disclose which conference they attended until 30 days after it ends.
Henry Butler, executive director of the Law & Economics Center, did not respond to multiple requests for comment.
As the Center for Public Integrity reported last year, George Mason University's Law & Economics Center regularly organizes business-friendly judicial seminars.
The Washington Post recently reported that conference funders provide more than just financial support — they also help coordinate who attends the influential seminars.
Conference agenda
What is clear from the conference's agenda is that attending judges will spend most of their time inside Charleston, S.C.'s Francis Marion Hotel listening to lectures and panel discussions led mainly by advocates of public pension reform. Bill Lurye, general counsel of the American Federation of State, County and Municipal Employees, stands out as one of the only panelists offering a union perspective on the pension debate.
Two of the conference's featured lecturers — Todd Zywicki, a George Mason University law professor, and Eileen Norcross, a senior research fellow at George Mason University's conservative Mercatus Center — co-wrote a 2010 op-ed headlined "How public worker pensions are too rich for New York's — and America's — blood." 

 The column decried unions' efforts to thwart pension reform efforts.
"No one begrudges a secure retirement for police officers, firefighters and other public servants," the authors wrote. "But unless states act now by closing insolvent plans to new hires and reducing the rate of benefit accrual for current employees, they won't be able to shore up enough to guarantee at least some of what's been promised."

Norcross will lead an hour-long afternoon session on Monday titled "Pension Reform Options." In 2011, Norcross testified before the U.S. House Committee on Oversight and Government Reform, where she recommended that states "[f]reeze or reduce the Cost of Living Adjustment, increase the retirement age, increase contributions from workers, and, importantly close the defined benefit plan to new hires."
Zywicki did not respond to requests for comment. Mercatus Center spokesman Kyle Precourt told the Center for Public Integrity in an email that Norcross is "entrenched in research now and not available for media."
For a session on "Legal Questions Raised by Pension Reform," judges will listen to Amy Monahan, a University of Minnesota law professor. Monahan, who did not respond to requests for comment, has published research disputing court rulings that state statutes establishing a pension contract between states and employees cannot legally be broken.

She wrote in a 2012 paper that "changes to future pension accruals should be legally permissible absent clear and unambiguous evidence that the legislature intended to create a contract."
Peter Kiernan, a New York attorney who co-wrote a recent report on public pensions, says arguments like these are exactly what judges will have to grapple with as pension reforms face legal challenges. In some states and cities, reforms have already reached the courts.

Illinois, for example, passed legislation in late 2013 that cut retirement benefits for public employees. Unions have since filed several lawsuits, claiming that the pension changes violate the Illinois Constitution, which explicitly states that contractual pension benefits "shall not be diminished or impaired."

Now the fate of Illinois' pension reform efforts rests in the hands of the courts. How they rule could have nationwide implications.

"If the Illinois Supreme Court says that what the Illinois legislature did is constitutional and legal, then the logjam has been broken," Kiernan said, stressing that judges will be "enormously important" in resolving the pension reform dispute. "And you're going to see all of those states attempt reforms with respect to current employees."
Corporate push for public pension reform
To be sure: Public pensions across the nation are in rotten shape. Depending on who is making the calculations — and how those calculations are being made — state and local pensions nationwide are underfunded by anywhere from nearly $1 trillion to as much as $4 trillion.
Some states and cities are worse off than others. Illinois and New Jersey, two of the worst, are drowning in pension debt. Detroit and other cities, meanwhile, have even filed for bankruptcy in part because their pension shortfalls are so severe.
"Reform is necessary because it is creating an unsustainable burden on taxpayers," said Todd Maisch, executive vice president of the Illinois Chamber of Commerce.
In Illinois, "I don't think you fix the mess without pension reform," he said.

Government officials find themselves left with difficult choices: Raise taxes and cut services to help increase their annual contributions to beleaguered pension funds, change the terms of public employee pensions to help lower the burden on state and local budgets, or do a little of both.

Reform advocates contend that public employees are enjoying lavish retirement benefits that are handcuffing states and bankrupting cities. They argue that states and municipalities should cut pensions for current and future employees. In some cases, that means shifting workers from employee-friendly defined-benefit plans to plans that more closely resemble private-sector 401(k) plans.
Public workers and their unions, too, have cried foul, arguing that their retirement benefits are far from extravagant and that attempts to change the terms of their pensions violate agreements they previously reached with state and local governments.

David Sirota, a liberal writer and commentator, wrote a 2013 report called "The Plot against Pensions," which argued that "conservative activists are manufacturing the perception of a public pension crisis in order to slash modest retiree benefits and preserve expensive corporate subsidies and tax breaks."

While public pensions face a $46 billion annual shortfall, the report found, it is "dwarfed by the $80 billion a year states and cities spend on corporate subsidies."

"We are having a debate over pension shortfalls, calling them an emergency, when in fact they are in aggregate far smaller than what is spent each year on subsidies to business," Sirota told the Center for Public Integrity. "And business likes that imbalance."

Critics of pension reform worry that corporations and conservative lawmakers are winning a public relations battle intended to demonize public pensions while ignoring the broader scope of budget shortfalls.
Hank Kim, executive director of the National Conference on Public Employee Retirement Systems, said he's tired of pension reform advocates claiming that state and local municipalities can only overcome their fiscal problems on the backs of public workers.

"If it's really about 'shared sacrifice,' which is the terminology folks have been using since the Great Recession, it occurs to us that the groups that aren't sharing the sacrifice are the wealthy and the corporations because they're still getting the tax breaks," he said. "You can't be crying poverty when you are still giving away the shop to corporations."

But a combination of higher taxes and poorer services could prompt businesses to move, said Patrick McGuinn, a political science professor at Drew University and author of a February report about the politics of pension reform.
"When you're cutting things like education or health care or investment in transportation or technology, those are things that, to varying degrees, are going to affect corporations," he said.
With so much at stake for businesses, some worry what kind of influence a corporate-funded conference might have on judges whose rulings could resolve the pension debate.
Sirota, for one, said the conference hosted by George Mason's Law & Economics Center is "an effort to lobby judges."

"It's crossing a line that's not supposed to be crossed," he said. "What's next? Is a company going to be able to hire a lobbyist to go lobby a judge in chambers?"
Probably not.

But what's next for judges certainly includes another conference on public pension reform hosted by George Mason's Law & Economics Center. It's scheduled for September in San Francisco.

THERE SHOULD BE A PROTEST AT THE CONFERENCE

New Law Suit for War Crimes vs Bush & Blair

President George W. Bush, right, and British Prime Minister Tony Blair arrive for a joint news conference in the East Room at the White House on Tuesday, June 7, 2005. (Photo: Doug Mills / The New York Times)
This is part II of a series on Dahr Jamail's trip to the Iraq Commission conference in Brussels. Also see Part I: International Lawyers Seek Justice for Iraqis
Narmeen Saleh and her husband Shawki were detained by US military forces during a violent 2004 raid of their home in Baghdad.
Saleh spent 16 days in prison, where "the interrogations didn't stop for one minute." She was beaten, electrocuted and threatened with rape if she didn't "confess."
"They [US soldiers] tortured and beat me a lot, and when they found out that I was pregnant they told me they would kill the baby in my womb," she was quoted, as her testimony was read at the Iraq Commission conference in Brussels recently. "They then concentrated their beating and electricity on my abdomen area."
Her daughter, who is now 8 years old, has cerebral palsy, and her husband remains in custody of the government of Iraqi Prime Minister Nouri al-Maliki for the bogus charge of "illegally entering Iraq."
This shocking testimony was provided to international lawyers, journalists , and activists converged at a conference titled, "The Iraq Commission," held in Brussels, Belgium, April 16 and 17, with the primary aim of bringing to justice government officials who are guilty of war crimes in Iraq.
The conference represented the most powerful and most current organized movement in the world to hold accountable those responsible for the catastrophic invasion and occupation in Iraq, including UK Prime Minister Tony Blair and former US President George W. Bush, along with others in their administrations.
War Crimes in Iraq
Nawal al-Obaidi, an Iraqi academic and founding trustee of the International Action for Iraqi Refugees NGO, provided somber testimony about how her brother was killed by US forces.
Hazim al-Obaidi left his wife and four children at their home in Mosul to go to work at his grocery store one morning in January 2005.
That same evening, his wife became worried when Hazim had not returned home and began a search.
"The whole family could not sleep that night, wondering what had happened to Hazim and why he did not return back home," his sister Nawal told the audience. "As the curfew was in place, no one could leave the house until the next morning."
The next morning, family members searched the morgues of the main hospital, but to no avail. Two days later, they learned of his burned car.
Eyewitnesses informed the family of the car being attacked by US forces, who "started shooting at him and at his car, until the car exploded." What was left of the severely burned body was removed by family members, then, "to the bewilderment of his family, US troops stopped them after they had collected the body, uncovered it and took photos."
"Hazim was not a "terrorist" or a "Saddamist," al-Obeidi explained. "He was a cheerful family man who was wounded in the Iran-Iraq war and survived the harshness of the sanctions years by selling groceries. Who is going to investigate his killing, compensate his family, and help his children to make sense of their tragedy? Will it be the Iraqi government, or the US-led occupation? Judging by the human rights records of both, the answer is that neither of them will investigate Hazim's killing, or any other. [Hundreds of] thousands of civilians have been killed for no reason. One of them was my brother."
This writer, too, provided testimony: I spoke of several war crimes I witnessed during my reportage from Iraq during the US-led occupation.
In May 2004, I interviewed a man who had just been released from Abu Ghraib prison. Like so many I interviewed from various US military detention facilities who'd been tortured horrifically, he still managed to maintain his sense of humor.
He began laughing when telling of how US soldiers made him beat other prisoners. He laughed because he told me he had been beaten himself prior to this and was so tired that all he could do to beat other detained Iraqis was to lift his arm and let it drop on the other men.
Later in the same interview, when telling of another story, he laughed again and said, "The Americans brought electricity to my ass before they brought it to my house."
Another story I reported to the international lawyers was that of 55-year-old Sadiq Zoman, who was tortured horrifically by US military personnel. I shared documentation of US military doctors, nurses and medics being complicit with that torture.
Sadiq Zoman was detained from his home shortly after the US occupation of Iraq began, but not charged with any crime. (Photo: Dahr Jamail)
Zoman was detained from his home in Kirkuk in a raid by US soldiers that produced no weapons. He was taken to a police office in Kirkuk, the Kirkuk Airport Detention Center, the Tikrit Airport Detention Center and then the 28th Combat Support Hospital, where he was treated by Dr. Michael Hodges, a lieutenant colonel.
Hodges' medical report listed the primary diagnoses of Zoman's condition as hypoxic brain injury (brain damage caused by lack of oxygen) "with persistent vegetative state," myocardial infraction (heart attack) and heat stroke.
After one month in custody, Zoman was dropped off in a coma at the General Hospital in Tikrit by US soldiers.
A comatose Zoman was dropped off by US military personnel at the main hospital in Tikrit. (Photo: Dahr Jamail)
Zoman's last name was listed as his first name on the report, despite the fact that all of his identification papers were taken during the raid on his home. Because of this, it took his family weeks to locate him in the hospital.
The medical report given by the US military medic did not mention the trauma on the back of Zoman's head. (Photo: Dahr Jamail)
Hodges' medical report did not mention the fact that the back of Zoman's head was bashed in, nor that he had electrical burn marks on the bottoms of his feet and genitals, or why he had lash marks across his back and chest.
Zoman's feet had point-burn marks from electrical shocks on the bottoms of his feet and genitals. (Photo: Dahr Jamail)
Zoman remains in a coma, and there has been no compensation provided to his now-impoverished family for what was done to him.
Zoman's family has yet to receive any compensation for what US forces did to him. (Photo: Dahr Jamail)
Bringing Justice
Inder Comar, who testified at the commission, is the legal director at Comar Law in San Francisco, California.
"On March 13, 2013, my client, an Iraqi single mother and refugee now living in Jordan, filed a class action lawsuit against George W. Bush, Richard Cheney, Colin Powell, Condoleezza Rice, Donald Rumsfeld and Paul Wolfowitz in a federal court in California," Comar has written about his case.
"She alleges that these six defendants planned and waged the Iraq War in violation of international law by waging a 'war of aggression,' as defined by the International Military Tribunal at Nuremberg, more than sixty years ago," Comar added. (The current complaint can be found here).
Comar's client, Sundus Shaker Saleh, is alleging "crime of aggression" in the San Francisco Federal Court against the aforementioned. "Crime of aggression" emanates from the Nuremberg Trials following World War II and is what Comar is arguing was committed in the Iraq War.
The lawsuit includes all Iraqis who have suffered harm as a result of the war, and Comar's firm is representing Saleh pro bono.
"This could be precedent setting," Comar told the commission. "And this is the first time a US court is looking at a crime of aggression since Nuremberg, since 1945. We're very curious to see how this judge will decide this issue."
Inder Comar is representing an Iraqi woman, who is charging Bush administration officials with "crime of aggression." (Photo: Dahr Jamail)
US courts have immunized many of the members of the Bush Administration, but Comar thinks his case is different and will not be subject to the same kind of immunity.
"The crime of aggression is part of international law, so we are arguing with good precedent that international law is part of federal law," he said.
Comar's case against Bush is based on the conduct of members of his administration prior to their coming into office, as well as conduct taking place during and after the events of September 11, 2001.
Evidence of premeditation abounds.
Years before their appointment to the Bush administration, Dick Cheney, Donald Rumsfeld and Paul Wolfowitz were vocal advocates of a militant neoconservative ideology that called for the United States to use its armed forces in the Middle East and elsewhere.
They openly chronicled their desire for aggressive wars through a nonprofit called The Project for the New American Century (PNAC). In 1998, Rumsfeld and Wolfowitz personally signed a letter to then-President Clinton urging him to implement a "strategy for removing Saddam's regime from power," which included a "willingness to undertake military action as diplomacy is clearly failing."
On September 11, 2001, Rumsfeld and Wolfowitz openly pressed for the United States to invade Iraq, even though intelligence at the time confirmed that Saddam Hussein was in no way responsible. Richard Clarke, former national coordinator for security, infrastructure protection and counterterrorism, famously told President Bush that attacking Iraq for 9/11 "would be like invading Mexico after Pearl Harbor."
Comar's case states: "Defendants planned the war against Iraq as early as 1998; manipulated the United States' public to support the war by scaring them with images of 'mushroom clouds' and conflating the Hussein regime with al-Qaeda; and broke international law by commencing the invasion without proper legal authorization."
By comparison, more than 60 years ago, American prosecutors in Nuremberg, Germany, convicted Nazi leaders of the crimes of conspiring and waging wars of aggression. They found the Nazis guilty of planning and waging wars that had no basis in law and which killed millions of innocents.
The plaintiff in the case, Saleh, is thus seeking justice under the Nuremberg principles, as well as US law, for damages she and others like her suffered because of the defendants' premeditated plan to invade Iraq.
Comar detailed to the commission how the premeditation was obvious, showing slides from an article titled "Saddam Must Go," penned by Wolfowitz and Zalmay Khalilzad, as well as others titled, "Overthrow Him," "How to Attack Iraq" and "Bombing Iraq is not enough."
"When we talk about these war criminals, we need to employ the language of pirates in order to engage the basis of universal jurisdiction," Comar added. "Because when pirates go anywhere they have no safe haven from being held accountable for their actions."
Comar told Truthout that he decided to take this case because he was inspired by the Nuremberg judgment.
"That and my client's bravery to want to do this and be committed to her case," he explained. "In law school, I was fascinated by Nuremberg and the trail of facts."
Comar believes strongly in the morality behind the case.
"We have to use every avenue the law provides us to try to do something, and it's amazing that it took a single mother refugee from Iraq to press for justice for a war our leaders continue to want to ignore," he said. "What I'm doing can have a ripple, it might inspire other lawyers, it might cause people to start asking questions about the Bush administration."
According to Comar, his case represents the first time a US judge will hear about a crime of aggression since 1946, "So this case will be looked at internationally. We have to set the stage for other countries to start working to conform to principles of peace."
Comar added that his case in California serves as a template that could be used in every other US state.
Planning for Prosecutions
Sabah al-Mukhtar, the president of the Arab Lawyers Association, chaired the final session of the Iraq commission. The session investigated what the next steps should be toward bringing those responsible for the Iraq invasion and occupation to justice.
(Right to Left) Dirk Adriaensens, cofounder of the Iraq Commission and Brussels Tribunal, Sabah al-Mukhtar, chair of the Iraq Commission, and Michel Chossudovsky, Canadian economist at University of Ottawa. (Photo: Dahr Jamail)
"The delegitimization of major war criminals is complete in terms of the understanding around the world that these successive wars that have been waged are in complete opposition to international law," Dr. Niloufer Bhagwat, professor of comparative constitutional law at the University of Mumbai and vice president of the Indian Lawyers Association in Mumbai testified.
She addressed the fact that there have been no reparations, the sanctions crimes need to be addressed, including the fact that the US government knowingly killed more than 500,000 Iraqi children via malnourishment and disease, and added, "The work we've done here has to be carried from country to country so the political formations adopt our viewpoint, that these wars of aggression can only come to an end when we have an overturning of the political and economic systems."
Professor Gurdial Singh Nijar, a senior practicing lawyer and lead prosecutor of the Kuala Lumpur War Crimes Tribunals on Iraq, believes that the people's tribunals that have been held on Iraq "are becoming an increasingly important tool for recapturing the lost space and jurisprudence over war crimes. We've had three war crimes tribunals and we intend to have more and to introduce this thinking into law schools like the one in which I teach."
He believes the next step toward justice is for countries to exercise universal jurisdiction as a means of charging war criminals.
"Three quarters of UN states have authorized their courts to exercise universal jurisdiction over war crimes, so the stage is actually set," he said. "The challenge then is how to get these countries to institute charges against these war criminals on the basis of credible trials that have been conducted and ended up in convictions, either by peoples' tribunals or otherwise. The next step is to go country to country and begin to file charges in each of these jurisdictions."
Dr. Curtis F. J. Doebbler, an international lawyer who practices law before the International Court of Justice, shared an instance where there has already been some success.
"We suggested, for Syria, and I was in the room with the negotiators, that [US Secretary of State John] Kerry be advised that the use of force could lead to violations of international law, and there could be war crimes," he said. "So I think we're making some inroads."
Lindsey German, the convener of the British antiwar organization Stop the War Coalition, stated in her concluding remarks that Bush and Blair are "by far the most responsible persons for the Iraq war."
She added, "Blair is still the envoy for peace in the Middle East, of all things, for which they obviously didn't check his CV. We have to stress the connections between the wars and the political and economic systems under which we live. We can't have economic justice without bringing justice to the war criminals."
Comar addressed the "banality of militarism" in the United States, said he hopes that the work he is doing "is creating a vaccine for that" and stressed the need for confidence in international law.
"We in the US can work to take power back from the federal system on a state system and begin to incorporate international law into our own laws," he said. "Or maybe we can do this on a city level to criminalize this wrongdoing in a lawful manner so that we have more control. I look forward to sharing my court complaint with any other lawyer. We need to work together to help get people reparations from this war and to prevent the next war."
Dirk Adriaensens, a long-time Iraq activist and cofounder of the Iraq Commission, concluded the commission by calling for concrete proposals that will lead to global court cases regarding Iraq.
"If Inder Comar says that his court case can be replicated in all other 49 US states," he said, "then we can replicate this in every country around the world."

California Jury Sues Wall Street

Wall Street Greed: Not Too Big for a California Jury

Posted on April 23, 2014 by Ellen Brown

Sixteen of the world’s largest banks have been caught colluding to rig global interest rates.  Why are we doing business with a corrupt global banking cartel?
United States Attorney General Eric Holder has declared that the too-big-to-fail Wall Street banks are too big to prosecute.  But an outraged California jury might have different ideas. As noted in the California legal newspaper The Daily Journal:

California juries are not bashful – they have been known to render massive punitive damages awards that dwarf the award of compensatory (actual) damages.For example, in one securities fraud case jurors awarded $5.7 million in compensatory damages and $165 million in punitive damages. . . . And in a tobacco case with $5.5 million in compensatory damages, the jury awarded $3 billion in punitive damages . . . .

The question, then, is how to get Wall Street banks before a California jury. How about charging them with common law fraud and breach of contract?  That’s what the FDIC just did in its massive 24-count civil suit for damages for LIBOR manipulation, filed in March 2014 against sixteen of the world’s largest banks, including the three largest US banks – JP Morgan Chase, Bank of America and Citigroup.   
LIBOR (the London Interbank Offering Rate) is the benchmark rate at which banks themselves can borrow. It is a crucial rate involved in over $400 trillion in derivatives called interest-rate swaps, and it is set by the sixteen private megabanks behind closed doors.
The biggest victims of interest-rate swaps have been local governments, universities, pension funds, and other public entities. The banks have made renegotiating these deals prohibitively expensive, and renegotiation itself is an inadequate remedy. It is the equivalent of the grocer giving you an extra potato when you catch him cheating on the scales. A legal action for fraud is a more fitting and effective remedy. Fraud is grounds both for rescission (calling off the deal) as well as restitution (damages), and in appropriate cases punitive damages.
Trapped in a Fraud
Nationally, municipalities and other large non-profits are thought to have as much as $300 billion in outstanding swap contracts based on LIBOR, deals in which they are trapped due to prohibitive termination fees. According to a 2010 report by the SEIU (Service Employees International Union):

The overall effect is staggering. Banks are estimated to have collected as much as $28 billion in termination fees alone from state and local governments over the past two years. This does not even begin to account for the outsized net payments that state and local governments are now making to the banks. . . .
While the press have reported numerous stories of cities like Detroit, caught with high termination payments, the reality is there are hundreds (maybe even thousands) more cities, counties, utility districts, school districts and state governments with swap agreements [that] are causing cash strapped local and city governments to pay millions of dollars in unneeded fees directly to Wall Street.

All of these entities could have damage claims for fraud, breach of contract and rescission; and that is true whether or not they negotiated directly with one of the LIBOR-rigging banks.
To understand why, it is necessary to understand how swaps work. As explained in my last article here, interest-rate swaps are sold to parties who have taken out loans at variable interest rates, as insurance against rising rates. The most common swap is one where counterparty A (a university, municipal government, etc.) pays a fixed rate to counterparty B (the bank), while receiving from B a floating rate indexed to a reference rate such as LIBOR. If interest rates go up, the municipality gets paid more on the swap contract, offsetting its rising borrowing costs. If interest rates go down, the municipality owes money to the bank on the swap, but that extra charge is offset by the falling interest rate on its variable rate loan. The result is to fix borrowing costs at the lower variable rate.
At least, that is how they are supposed to work. The catch is that the swap is a separate financial agreement – essentially an ongoing bet on interest rates. The borrower owes both the interest onits variable rate loan and what it must pay on its separate swap deal. And the benchmarks for the two rates don’t necessarily track each other. The rate owed on the debt is based on something called the SIFMA municipal bond index.  The rate owed by the bank is based on the privately-fixed LIBOR rate.
As noted by Stephen Gandel on CNNMoney, when the rate-setting banks started manipulating LIBOR, the two rates decoupled, sometimes radically. Public entities wound up paying substantially more than the fixed rate they had bargained for – a failure of consideration constituting breach of contract. Breach of contract is grounds for rescission and damages.
Pain and Suffering in California
The SEIU report noted that no one has yet completely categorized all the outstanding swap deals entered into by local and state governments.  But in a sampling of swaps within California, involving ten cities and counties (San Francisco, Corcoran, Los Angeles, Menlo Park, Oakland, Oxnard, Pittsburgh, Richmond, Riverside, and Sacramento), one community college district, one utility district, one transportation authority, and the state itself, the collective tab was $365 million in swap payments annually, with total termination fees exceeding $1 billion.
Omitted from the sample was the University of California system, which alone is reported to have lost tens of millions of dollars on interest-rate swaps. According to an article in the Orange County Register on February 24, 2014, the swaps now cost the university system an estimated $6 million a year. University accountants estimate that the 10-campus system will lose as much as $136 million over the next 34 years if it remains locked into the deals, losses that would be reduced only if interest rates started to rise. According to the article:

Already officials have been forced to unwind a contract at UC Davis, requiring the university to pay $9 million in termination fees and other costs to several banks. That sum would have covered the tuition and fees of 682 undergraduates for a year.
The university is facing the losses at a time when it is under tremendous financial stress. Administrators have tripled the cost of tuition and fees in the past 10 years, but still can’t cover escalating expenses. Class sizes have increased. Families have been angered by the rising price of attending the university, which has left students in deeper debt.

Peter Taylor, the university’s Chief Financial Officer, defended the swaps, saying he was confident that interest rates would rise in coming years, reversing what the deals have lost. But for that to be true, rates would have to rise by multiples that would drive interest on the soaring federal debt to prohibitive levels, something the Federal Reserve is not likely to allow.
The Revolving Door
The UC’s dilemma is explored in a report titled “Swapping Our Future: How Students and Taxpayers Are Funding Risky UC Borrowing and Wall Street Profits.” The authors, a group called Public Sociologists of Berkeley, say that two factors were responsible for the precipitous decline in interest rates that drove up UC’s relative borrowing costs. One was the move by the Federal Reserve to push interest rates to record lows in order to stabilize the largest banks. The other was the illegal effort by major banks to manipulate LIBOR, which indexes interest rates on most bonds issued by UC.
Why, asked the authors, has UC’s management not tried to renegotiate the deals? They pointed to the revolving door between management and Wall Street. Unlike in earlier years, current and former business and finance executives now play a prominent role on the UC Board of Regents.
They include Chief Financial Officer Taylor, who walked through the revolving door from Lehman Brothers, where he was a top banker in Lehman’s municipal finance business in 2007. That was when the bank sold the university a swap related to debt at UCLA that has now become the source of its biggest swap losses. The university hired Taylor for his $400,000-a-year position in 2009, and he has continued to sign contracts for swaps on its behalf since.
Investigative reporter Peter Byrne notes that the UC regent’s investment committee controls $53 billion in Wall Street investments, and that historically it has been plagued by self-dealing. Byrne writes:

Several very wealthy, politically powerful men are fixtures on the regent’s investment committee, including Richard C. Blum (Wall Streeter, war contractor, and husband of U.S. Senator Dianne Feinstein), and Paul Wachter (Gov. Arnold Schwarzenegger’s long-time business partner and financial advisor). The probability of conflicts of interest inside this committee—as it moves billions of dollars between public and private companies and investment banks—is enormous.

Blum’s firm Blum Capital is also an adviser to CalPERS, the California Public Employees’ Retirement System, which also got caught in the LIBOR-rigging scandal. “Once again,” said CalPERS Chief Investment Officer Joseph Dear of the LIBOR-rigging, “the financial services industry demonstrated that it cannot be trusted to make decisions in the long-term interests of investors.” If the financial services industry cannot be trusted, it needs to be replaced with something that can be.
Remedies
The Public Sociologists of Berkeley recommend renegotiation of the onerous interest rate swaps, which could save up to $200 million for the UC system; and evaluation of the university’s legal options concerning the manipulation of LIBOR. As demonstrated in the new FDIC suit, those options include not just renegotiating on better terms but rescission and damages for fraud and breach of contract. These are remedies that could be sought by local governments and public entities across the state and the nation.
The larger question is why our state and local governments continue to do business with a corrupt global banking cartel. There is an alternative. They could set up their own publicly-owned banks, on the model of the state-owned Bank of North Dakota. Fraud could be avoided, profits could be recaptured, and interest could become a much-needed source of public revenue. Credit could become a public utility, dispensed as needed to benefit local residents and local economies.
__________________
Ellen Brown is an attorney, founder of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books, including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.