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New Document
More Evidence of How the British Looted Detroit to Death
July 27, 2013 • 8:40AM

The Financial Times on Friday provided an inside look at how some of the biggest financial institutions in the Anglo-Dutch empire looted Detroit to death, beginning in 2005 at the exact moment that LaRouche was calling for a Federal capital investment to retool the excess auto production for such vital infrastructure programs as high-speed rail, locks and dams, and nuclear power plant construction. As the result of the failure of Congress to act on LaRouche's Economic Recovery Act of 2005, more than a third of the productive jobs in the auto sector, including the vital machine-tool design component, were wiped out, leaving Detroit without the tax revenue base to survive.

According to the Financial Times account, Detroit attempted to cover shortfalls in the pension fund reserves by borrowing $1.4 billion in the form of IOUs called Pension Obligation Certificates of Participation. Those instruments were marketed around the world, with German regional banks and the Franco-Belgian Dexia Bank all participating. Because it was cheaper to issue the IOUs at floating rates than higher fixed rates, the City also purchased interest rate swaps from Merrill Lynch and UBS, to avoid a disastrous spike in interest rates. Those swap contracts had deadly termination fees — and, of course, were a central part of the LIBOR-rigging scandal run out of London. When Detroit's bond ratings were downgraded in 2009, this triggered a mandatory pay-out of the swap contracts, which Detroit was unable to do. Facing a $400 million termination penalty fee, the City renegotiated the swap contracts, giving Merrill Lynch and UBS secured creditor status, by pledging casino revenues to guarantee payments of the new swap deal. By this time, the $1.4 billion loan had already cost Detroit $2.7 billion, and the debt was still outstanding!

While the City of Detroit averted paying the termination penalty through an even nastier deal with UBS and Merrill (now a subsidiary of Bank of America), the Detroit Water and Sewage Department was forced to pay a $536 million termination fee to Wall Street banks to unwind the contract. To make that payment, the DWSD had to borrow and, as the result, the annual debt payments come to 40 percent of the revenues. According to news reports in Oct. 2012, the DWSD has implemented austerity measures that will result in an 80-percent reduction in workforce over the next four years. The new loan to cover the termination penalty was arranged by JP Morgan Chase, which got the lion's share of $7.8 million in transaction fees on the loan. And JP Morgan Chase was one of the participants in the interest rate swaps and got a share of the $536 million in termination fees.


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