Wall Street Doesn’t Have to Rule Our Cities
Municipal bonds once allowed cities to quickly fundraise for important infrastructure and public housing projects. We should organize against today’s system of bondholder supremacy, which enables investors to extract tax-free profits from communities.
A sign for Wall Street in Manhattan, New York. (Vlad Lazarenko / Wikimedia Commons)
- Interview by
- Astra Taylor
When cities raise money through bonds, they become indebted to bondholders. In the late nineteenth century, cities had the upper hand over their creditors; by the New Deal era, bondholders had become more powerful. But some investors still valued the interests of communities, funding a massive expansion of schools, infrastructure, and public housing.
Today, bondholders reign supreme. Through ratings agencies and high interest rates, they have found ways to profit off hollowed-out housing projects, white flight, and even the riots that swept segregated cities during the 1960s.
The historian Destin Jenkins wants us to see that this situation is not natural: a small “fraternity” of financiers worked to insulate the bond market from public input and appoint themselves its technocratic overlords. Jenkins historicizes bondholder supremacy in The Bonds of Inequality: Debt and the Making of the American City. His book focuses on San Francisco, a city that built a progressive political culture and avoided the ravages of deindustrialization — yet nevertheless became incredibly segregated and unequal, in part because of the bond market.
This April, Astra Taylor interviewed Jenkins for the Dig, a podcast from Jacobin. Taylor is a cofounder of the Debt Collective, a debtor’s union which works to free debtors from student loans, medical bills, payday loans, and other predatory sources of debt. In their conversation, which has been edited for clarity and length, Jenkins and Taylor discuss how the municipal bond market became an engine of inequality, and how the NAACP, the Congress of Racial Equality (CORE), and black pensioners fought against it during the 1960s. Reclaiming public finance “is a challenge that folks have engaged in the past,” Jenkins says, “and we would be wise to revisit those forms of financial activism.” You can listen to the episode here.
Your book The Bonds of Inequality puts municipal bond financing at the center of a broader discussion about inequality, capitalism, neoliberalism, financialization, and racism. To start simply, what is a bond, why do our cities have to issue them, and how do they do that?
The first way I think folks should understand a bond is basically as a loan issued, in the case of the United States, by states and other political subdivisions, which could be cities, counties, or specially created authorities. Especially after World War II, there was a proliferation of these political entities with borrowing powers. They issue a bond, which is basically a loan, by borrowing from wealthy individuals who are looking to secure tax-exempt interest income. That’s the primary draw: not so much the yield, because folks could chase higher yields through other kinds of investments, but the promise of being able to shield one’s capital from the high federal marginal tax rate that existed after World War II. That’s what draws wealthy individuals and also conservative institutional investors, such as insurance companies.
When a municipality issues a bond, it borrows a chunk of funds, most commonly to finance infrastructure projects. These include sewage systems, water systems, parks, recreational facilities, public housing projects, and public schools. Basically, they fund what we call “the public” through the private bond market, and we can talk more about the public-private distinction there. Even our most sacred public goods, as my colleague John Robinson has described, are tied to private financial arrangements.
Bonds are issued so as to spread the costs of these major capital improvement projects over, say, ten, fifteen, or twenty years. Because municipalities don’t really have a treasure chest of funds from which to finance these large-scale projects, they want to spread the costs of a project over ten or twenty years, depending on the temporality or the timing of the bond issue. The point is to spread debt-service payments out over time, usually to sync them with tax collections and other times when the state can collect revenue and pay back bondholders.
How this is done is a great and layered question. In some cases, bond issues are put before local voters who approve an issue and say, “Yes, we want to be indebted for X amount of time to fund this project or some other project.” In some cases, the bond is issued without voter approval at all to fund the same kinds of projects. And in the end the bond might be held, so to speak, in the investment portfolios of someone who is far removed from the city itself.
In between you have financial institutions that underwrite the bond. You have municipal bond attorneys who validate that the bond is a legal obligation. You have credit-rating analysts who survey and evaluate the city’s finances and the likelihood that the bondholders will be repaid on time. So there are a whole set of actors who are middlemen, brokers, and underwriters but who ultimately help facilitate the raising of the capital, allowing a municipality to fund its critical infrastructure.
Bonds fund our schools, our sewage, and all the stuff of daily life. Even if you’re not personally indebted, your community is. I’ve heard you say that your interest in this topic was shaped by the 2008 mortgage crisis; that’s my origin story as well, with getting involved in the politics of debt.
In the wake of the crisis, the right wing still dominated the terms of the political debate. During the federal debt ceiling crisis after 2008, the Right argued that the national deficit is the problem and it’s spurred by entitlements. They pushed a misleading analogy between household indebtedness and public indebtedness at the federal level; of course, the individual household is nothing like the federal government, because we don’t have the power to print money the way the federal government does.
But when you look at lower levels of government, the analogy is actually more accurate, because our municipalities can’t print dollars. They do face these financial constraints, though those constraints are really political and problematic.
Could you speak about that phony conservative morality around debt — the rhetoric of belt-tightening, which pins problems on the debtors? This ideological framing is more contested than it was after the financial crisis, but it still rears its head.
The discourse of “belt-tightening” is less salient in this particular context. Over the last ten years or so, there’s not been much else to tighten. The muscle or fat has been cut to the bone, in the context of austerity and retrenchment over the last thirty or forty years.
In the 1930s, during the Great Depression, there was an idea that municipalities needed to tighten their belts. So that discourse exists. Although thanks to the power of workers in the 1930s, people were also saying, “Now is not the time to tighten the belt; now is the time to borrow for the sake of expanding public works projects and getting people jobs.”
I found, in the late 1930s in particular, a sense that borrowing was necessary for relief purposes because issuing a bond through financial markets could help get folks back to work. Even though there were surely some folks insisting on a discourse of austerity and belt-tightening, many city governments recognized that you need to get folks back to work through expansive public works projects. We don’t really see that program now, although maybe some could say that Build Back Better is hearkening back to that.
But morality discourse around municipal debt predates the rhetoric of belt-tightening, going back to the late nineteenth century. This is a fascinating story that I kind of take up in the book and in writings elsewhere. In the nineteenth century, there was a sense that the United States was becoming a nation of rascals, that municipalities were being ruled by a council of “buccaneers.”
This is the language you see in the Nation, from around 1874 to 1877, in the context of the economic depression post-1873. Creditors are talking about municipalities who are repudiating their debt obligations, pushing the United States, a reconstructing nation, beyond the bounds of civilization.
Though discussions around the morality of indebtedness stretch back into the late nineteenth century, the biggest difference is that in the present moment bondholders are supreme: their claims are honored even if the issuer has to extend an obligation through a refinancing arrangement. The bondholders get paid no matter what. In the late nineteenth century, these moral claims around municipal indebtedness spoke to the profound weakness of creditors, because, in many cases, even if creditors took their claims to state courts, those courts would often rule in favor of the municipality. The resulting settlements would prove to be hollow remedies.
Bondholders didn’t begin to form protective committees until the late nineteenth and early twentieth centuries. There was no surveillance mechanism, like Moody’s, Standard & Poor’s, or Dun & Bradstreet, that could monitor the finances of municipalities and report on reckless political experiments, whether they be municipal ownership or forms of municipal socialism. So discourse around the morality of municipal debt goes way back, extending from the antebellum period to the present.
But at different moments, the morality of indebtedness speaks to different dynamics in the relative strength and weakness of creditors and debtors. It’s important to highlight this change over time, given the supremacy of bondholders in this moment.
Financialization is often described as a trend that took off in the 1970s. But you’re saying that the politics of municipal finance go way back, though obviously there has been a pivot as the hands of creditors have strengthened over the past few decades. It’s gotten to the point where default is off the table, you say.
Defaults happen. But there was an important distinction in the 1930s between default and repudiation. There is room for default in the financialized world, and that default usually looks like a payment missed by only a few days: “Oops, we forgot to get the paperwork in time,” or “Oops, the bank closed at 4:30 PM because it was a holiday.” Those kinds of defaults happen, as we know.
What really falls by the wayside is repudiation. I’ve talked to your friend and colleague Hannah Appel about the difference between repudiation, abolition, and canceling the debt. But repudiation, as a strategy, is the idea that we won’t honor these claims. It starts to fall by the wayside in the late 1920s; there start to be more calls for absorption of bad debts and older debts by the federal government.
We can talk about who was making those claims. Usually, it was racists in the South who used propaganda to argue that Reconstruction-era debts were unjust and odious and that the federal government should absorb these debts and basically bail out the new South. But nevertheless, there was a move away from repudiation to absorption in the late 1920s. By the post–World War II period, there’s a sense that repudiation is basically shooting oneself in the foot, because surveillance mechanisms are in place and creditors have a strong hand over municipalities
In Laura Bear’s writings on austerity in India, one of the points is that austerity in her context is rooted in changing mechanisms and relationships of indebtedness. Likewise, in the 1970s, at least when it comes to municipal debt and austerity and retrenchment, that’s not financialization per se: it’s changing interest rates and a changing borrowing context. These changes take us back to obligations incurred in the 1940s and the 1950s, well before the so-called neoliberal turn.
This is not to deny the ideological shift and not to say that financial services don’t become more important. But I don’t necessarily think we need those big narratives to think fundamentally about the changing terms of indebtedness. Change over time is what we need to focus on: changing moralities of indebtedness, changing strategies of indebtedness, and changes in how creditors organize.
You write, “A borrower’s duress is a financier’s bonanza.” I think that’s the morality we want to highlight: people profiteer not just from the needs of communities but actually from their suffering, their desperation.
Your work powerfully shows that the municipal bond market structures racial privileges, entrenches spatial neglect, and concentrates wealth and power. Our communities are very dependent on financial markets to fund their basic infrastructure, and the Action Center on Race and the Economy (ACRE) has estimated that these municipal debt deals transfer over $160 billion a year from taxpayers to investors and to Wall Street.
Do any concrete examples of this from the present stand out to you? I was just reading about Flint, Michigan, and how a bond deal helped lock residents into drinking the toxic water there.
ACRE does very important work. They’ve extended the insights of the Debt Collective, moving from a focus on student debt and consumer debt to thinking about municipalities, police brutality, and the way debt redistributes money from working-class black folks to wealthy individuals and institutional investors.
But you also mentioned taxpayers, wealth being drawn from taxpayers and sent upward. I just wanted to take a step back and mention how that framing can make two mistakes. The first is centering a taxpayer identity. My colleague Raúl Carrillo has pushed us to think about the limitations of taxpayer identity, in that the discourse around being a taxpayer is racialized; the great work of Camille Walsh has also shown this racialization. There are limits to centering a taxpayer identity, if we want to make particular claims on the state against Wall Street. But this framing also misses the broader empirical reality, which is that bonds are not just backed by taxpayer funds but also by criminal fees and fines not derived from taxation. Policing is another way to conscript people’s funds in order to pay back bondholders.
Focusing on fees and fines can add to important conversations around criminalization and mass incarceration: even folks who aren’t incarcerated for draconian stretches of time are still brought into courts and forced to pay various fees and fines. That becomes part of the municipal revenue base, which then gets kicked back to bondholders. This is one insight that links municipal indebtedness to work that seeks to break down incarceration. Incarceration’s fiscal dimensions aren’t limited to issuing a bond to build a prison facility — fees and fines form an important revenue source, through which bondholders are paid.
Yes. You’ve studied police-brutality bonds, which are bonds that raise funds to pay damages for police brutality. Investors also profit from those.
Nas has a great song called “Black Zombie.” In one line, he says, “We run and we ask for reparations / then they hit us with tax.” I’ve used that line before, because it shows how folks whose lives have been destroyed by police brutality are then conscripted into being debt servicers, all in order to receive reparations for the harms done against them.
The question isn’t just about whether victims receive reparations but about which revenue source these reparations come from. We need to ask whether folks victimized by police brutality are being conscripted into paying for their own reparations.
Let’s move to San Francisco, because that is where your book is centered. Through San Francisco, you make the case that debt arrangements have global implications. At the same time, San Francisco is unique: in your introduction, you write that it doesn’t quite fit into the standard story of deindustrialization.
What drew you to the example of San Francisco? Why is it so important to the story of how lenders came to rule over our cities?
Anybody who’s written a book will tell you that authors tend to go down and abandon many pathways. My project did not start out as a book about municipal debt; it did focus on questions of redevelopment and gentrification in San Francisco, but the municipal debt stuff came much later.
What drew me to San Francisco was actually the fact that my dad and I have been going to different baseball stadiums around the country since 2005. We see this as a kind of sociological experiment. We look around, we check out the architecture; when we went to Cincinnati, we thought about the older Rust Belt economy, layered with the ghost of financialization. We would go downtown and see commercial office buildings that were totally empty.
There were two different kinds of political economies, both hollowed out, and you saw this manifest in the landscape. And then you also saw the outsize importance of sports in local commerce, with the downtown baseball stadium.
We went to San Francisco when my dad helped me move into graduate school at Stanford. We walked from the Ferry Building down Market Street, and we did not see any black folks until we got to the Tenderloin. In the Tenderloin, it was just chaos on the street. It didn’t look right; it didn’t look healthy. It seemed like you couldn’t ignore the fact that these folks were being neglected. And that was where you saw most of the black folks at the time, although certainly black folks live in Bayview–Hunters Point, the Western Addition, and so forth.
So basically what drew me to San Francisco as a site for my research project was the opportunity to think about the story of the city by the Bay: the city that has “gotten it right” in terms of tolerance and cultural experimentation; the city of the Summer of Love; the city with all its progressive policies. It felt important to think about the particular place of black folks in this economy and this political establishment, because it seemed to reveal the contradictions of liberalism. Is this inequality the fulfillment of color-blind liberalism?
San Francisco is also a great case study in the power of bondholders over time and the consequences of structural dependence on the bond market. San Francisco, as you mentioned at the beginning, does not have the classic Rust Belt story. It’s not a story of Detroit, Cleveland, or Milwaukee. It’s not a story of the Sun Belt, in terms of the military-industrial complex, though certainly the military was very important in the Bay Area during World War II. San Francisco is a city that, in the early 1950s, began to deepen its ties to finance, insurance, and real estate (FIRE). It saw the FIRE sector as an important source of local economic growth; it also saw these industries as a way to prevent white professionals from leaving for the suburbs.
To keep these people in the city, it built up amenities around the downtown financial sector, which could draw white suburbanites. San Francisco is a city that “got it right,” staying ahead of the curve compared to other cities.
In the 1980s and onward, San Francisco would begin to turn to a certain type of tourism, in which people came to the city for financial services and so forth. But nevertheless, by the 1980s, city officials are going to Wall Street and New York, trying to perform their creditworthiness and explicitly promoting the potential revenue that could be derived from a new baseball stadium or a new convention center.
In the late 1990s, Willie Brown becomes the first black mayor of the city. The bond buyers are fine with Willie Brown being a black mayor, which is a reflection of changing racial politics in the post–civil rights era; it’s fine at that point for black people to be in positions of political power. But the issue for the bond buyer is: Will Willie Brown control social spending? Will he betray his black, working-class constituencies, who may demand expansion of social services?
If he is able to do that, San Francisco’s credit will remain sterling. If not, the bondholders will be concerned about San Francisco.
So, here’s a city with a black mayor, and here’s a city that ties itself to financial services. Yet nevertheless, this city holds the line on certain kinds of spending, prioritizing infrastructure and social-service projects that are financed through bonds. This makes San Francisco’s predicament very similar to the predicaments of cities elsewhere. And that’s the story.
To my mind, the kind of inequalities, austerity, and retrenchment that we see in so many parts of the country are rooted in changing mechanisms of debt; the inequalities that derive from deindustrialization are layered atop what is, at base, the structural dependence of cities on a predatory, extractive bond market. San Francisco was such an important case study for me, because its history shows that inequalities we often attribute to neoliberalism and other grand narratives are very much — and perhaps primarily — rooted in questions of real estate and the bond market.
Let’s talk about the real-estate example, because you have a chapter that explores the double meaning of the word “shelter.” These debt deals are a tax shelter, and these arrangements are deeply involved in our housing, whether it’s mortgage finance, private housing, or public housing. You write: “The deterioration of public housing projects was taken as proof of the failures of socially oriented public policies rather than as a consequence of a structural arrangement that, from the beginning, privileged the claims of bondholders.”
You’ve already said municipalities rely on bondholders for the revenue to finance public housing projects. But then how did this spiral kick off? And what does it mean for actual people living in San Francisco?
To provide a bit of context, these trends start with the Housing Act of 1937, and then a more robust form of debt financing for public housing arrives with the Housing Act of 1949. By July of 1951, folks in the financial press are highlighting the importance of what were described as new “housing authority bonds.”
More or less, the idea is that local housing authorities enter into a contractual arrangement with the federal government; then, they use that as collateral and security to borrow through the bond market, presumably at lower interest rates. This policy allows funds to be generated quickly, with the expectation that revenue from tenants and funds appropriated by Congress will ultimately make the bondholders whole. That is the structural story of how many public housing projects post-’49 are financed and built.
This reliance on the bond market might make sense in the context of low interest rates. But by 1966–67, interest rates are rising, and now the financing for basic operations to public housing — the installation of new windows and the servicing of elevators for instance — has to come through a market that is charging a great deal to borrow.
So what does that mean? Do you forestall certain improvements? Do you delay maintenance because the cost to borrow is too high? In that structural context, black folks, brown folks, and other poor folks in public housing projects are forced to walk through stairways that are poorly lit and to take elevators that don’t work.
The consequences of these housing authorities relying on the bond market became obvious to me when I was doing political organizing in New York. I was finishing up graduate school and trying to participate in politics as best I could, in the wake of the murder of Akai Gurley. This was a black man who was murdered by an NYPD officer. The story was that the bullet hit a wall, ricocheted, and killed him. This was linked to the poor infrastructure that required folks to walk down dimly lit stairwells, because part of the defense was that the officer could not see as he was doing a vertical patrol. And of course, Gurley may have been taking the stairs because the elevator was unreliable.
So here, folks’ everyday choices are clashing with a form of policing, the vertical patrol. And you can think about why these folks are in the stairwell, why the stairwells are dimly lit, why folks are not taking elevators. If there were robust investment in public housing projects, might Gurley still be alive? This policing of the human consequences of austerity pushed me to think about, well, why is it that these projects have become so divested and underfunded? And to me, a crucial flash point was the rising cost of borrowing in the late 1960s.
This gets at the fact that “public” housing isn’t public; it’s not privatized fully, but it depends on private funding. Why did the state enter into this exploitative relationship with investors?
Post–World War II, there was a commitment to expanding the public housing stock. We don’t see that now. Maybe you have folks like Alexandria Ocasio-Cortez who have insisted on expanding public housing, but for the last thirty or forty years the idea that you would invest in public housing has been seen as a failure. Instead, you provide vouchers and Section 8 to get folks out of the projects and the so-called culture of poverty.
But in the late ’40s, in the lead up to the Housing Act of 1949, folks actually say that we should invest in public housing projects now. The big elephant in the room is that there’s an idealized tenant who’s going to live in those public housing projects. And one can make the case that, if people thought that black folks and brown folks are who would live in public housing projects, then we would not have seen this commitment to public housing projects.
But nevertheless, there is a commitment to public housing in the ’40s, and that is an important change. And the sense is that the best way to raise funds and expand the housing stock is through the bond market. We can talk about the morality of indebtedness, we can talk about power relations, and I agree with those critiques. But the fact remains that financial markets are perhaps the quickest way to raise a ton of funds.
With federal grants or federal loans, there was deference to local authorities, which were often racist and steered funds toward privileged sectors. So by going to the bond market, folks thought they were embracing the fastest way to fund public housing projects.
I think it’s important to recognize this intent, even though the overall arc bent toward the prioritization of bondholders over public housing. Ultimately, this arrangement did not work for those who were seeking shelter in public housing projects, but it worked quite well for those who saw public-housing debts as a way of sheltering their income from high marginal federal tax rates.
In your book, you use the phrase “infrastructural investment in whiteness.” Why did you settle on this phrase to describe these dynamics?
I was very interested in thinkers such as George Lipsitz, who write about whiteness not just as an ideological project but also as a material project. The material dimensions of whiteness take their basic form in questions of who lives, who dies, which communities receive resources, and which do not. The phrase “infrastructural investment in whiteness” captured a particular compact, as I describe it, that emerged post–World War II; this was a compact in effect, if not an explicit agreement. This concept lets us think about race and class: how, for instance, white workers in segregated building trades are going to secure segregated pieces of the pie, in the form of income and wages, to construct physical infrastructure.
This infrastructure includes the trains, the streets, the sewage systems, and the parking garages that enable a white middle class to consume, kicking back rents and tax-exempt interest income to upper-class white folks in the United States. Infrastructural investment of whiteness is a way of describing an intraracial cross-class compact that yielded dividends to white workers in segregated building trades, white middle-class consumers, and a white upper class that collected interest payments from their loans to the city’s infrastructure projects.
The flip side is that debt, especially when issued by the San Francisco Redevelopment Agency and other urban-renewal entities, was often used to clear neighborhoods. And these were often black neighborhoods, described as blighted or slums and designated as urban-renewal zones. They cleared entire areas of the folks who lived there in order to attract idealized tenants, most often white professionals.
In San Francisco, the San Francisco Redevelopment Agency issued what were basically short-term notes and borrowed from Bank of America. With the funds on hand, they execute urban-renewal projects, which James Baldwin, when he came to San Francisco in 1963, described as “Negro removal.”
Here, we can see infrastructural investment in whiteness not just as a compact between white building-trades workers, white middle-class consumers, and white upper-class bondholders. This transformation of borrowed funds also took the form of displacement projects: the clearance of entire neighborhoods, commercial landscapes, and communities built up by black folks in San Francisco, who had just arrived, in many cases, to the city.
Along with infrastructural investment, there’s also divestment; they are two sides of the same coin. The divestment and the displacement make possible the emplacement of critical infrastructure, which San Francisco deemed essential for avoiding the horrors of urban decline.
Regular people also hold small bits of these municipal bonds; through retirement funds, these investments are spread out among huge numbers of people. Is that entanglement part of what makes people buy into this white-supremacist system?
This is a great observation. I want to give one example of that intense entanglement, which comes from my recent research and shows up at the end of the book, in the epilogue. It’s about the financial forensic accounting of black public sector workers in the mid-1960s in New York, who wondered why their pensions were underwriting the bonds of Southern segregated municipalities.
This is a phenomenal and often forgotten story of financial activism by black folks who are saying, wait a minute, our funds are buttressing segregation through our pensions, which are channeled through bond markets underwritten by financial institutions and insurance companies. It’s a complicated web. That’s why it goes back to your earlier question about how his all happens.
Folks working for the Chicago Defender and the Amsterdam News began doing forensic accounting and engaging this question of complicity. On the one hand, they were boycotting certain financial institutions and utility companies and donating to the Southern black freedom struggle; but also, in an indirect way, the pensions on which they depended were buttressing a segregationist regime. They were trying to fully divest from this regime, which had been weakened by Brown v. Board.
But even post–Brown v. Board, Southern municipalities were still able to raise the funds to build segregated public schools, as CORE and the NAACP pointed out. Through diffuse debt arrangements and payments that are spread over time, almost everyone was somewhat complicit in affirming this system. This is a challenge that folks have engaged in the past, and we would be wise to revisit those forms of financial activism.
You and your colleagues at the Debt Collective are on the front lines, thinking about these big questions. How do we change the identity of being a debtor? What does debt cancellation or abolition look like? You guys are part of that tradition, and it is an important one. We should also revisit the work of these 1960s financial activists, because conscription is a key issue. It’s the difference between municipal debt and student loan debt: you may not even be aware that you’ve been conscripted into a municipal debt arrangement, especially if you move to a new locality.
A bond may have been issued twenty years before, and when I look at my tax bill, I might say, wait a minute, what’s this? A bond issue to fund XYZ? I didn’t vote on that, but I’m conscripted into it as a resident of a particular locality. With other kinds of debt, there’s a bit more transparency, even if the loan gets diced up, sold, and securitized.
The struggle is to figure out who actually owes whom. Who is sending me this notice? Municipal debt conscription is especially difficult to disaggregate, but it’s really important work. It’s the work that I’m committed to and that I’ve tried to engage since publishing the book.
I think conscription is a really useful concept. There’s also an element of compulsion in student loans, even though you do sign on the dotted line at seventeen. One of our phrases at the Debt Collective is “People do not live beyond their means; they’re denied the means to live.” The market forces people to take on these debts to survive.
Municipal debt audits and other forms of forensic accounting are so important, because they allow people to look at the books. The call to defund the police is in the same spirit. It says, “Look at the budget: Where’s the money going?” This question is a matter of public concern, and residents see things differently than bondholders. Throughout the book, you discuss these different modes of seeing. What does it mean to see like a credit-rating agency? How does their ability to see in an abstract way allow them to treat our communities as interchangeable commodities?
My book is interested in a number of questions, but two stand out. The first is: How and why did cities become dependent on the bond market? That’s not a natural, timeless fact. Sure, one could trace that arrangement with the bond market back to the nineteenth century, but these ties are rekindled during the Great Depression, capitalism’s greatest crisis.
The Glass-Steagall Act separated commercial and investment banks, but it still allowed commercial banks to underwrite certain kinds of municipal bonds. This is an important point for historicizing how Bank of America, a commercial bank, becomes the dominant player in the bond market by the early ’60s. By looking at that exception to the Banking Act of 1933, we can gain insight not just into subsequent development of the bond market but also the trajectories of states and municipalities in the West Coast and the Sun Belt. Bank of America’s ethic was to avoid association with Wall Street speculation, but it was comfortable being part of the Wall Street of the West; thus, it anchored its growth and expansion in the development of the West.
The other main question was: Why is it that really smart people haven’t thought about the bond market and municipal debt as a powerful generator of inequality? In the book, I insist that this insulation of bond finance from popular input and awareness is itself a historical product. As they parlayed with folks from Dun & Bradstreet and other rating agencies, city finance officers actively thought about how to insulate municipal debt from the public. You see this in publications produced by the Municipal Finance Officers Association of the United States and Canada. The annual proceedings of its conferences feature an exchange of ideas between folks within the quote-unquote “financial sector” and city officials; I say “quote-unquote” because there’s a revolving door between these groups, which builds a shared ethic around technocratic knowledge and the importance of insulating debt.
This is important to your question about modes of seeing. All voters see is a yes-or-no question about whether to approve a bond issue or reject it. The voters’ perspective could be far more expansive: they could see a dilemma about whether we should borrow to fund a public hospital or a school, or they could see a broader question of what cities should spend their money on to begin with. But oftentimes all we see is a yes-or-no question, and that speaks to the removal of matters of municipal debt from basic input.
There are reasons for this obfuscation. If you take seriously the claims of technocrats in the late ’30s, their argument is that municipal debt was used and abused by Boss Tweed and the boss-rules system. It was a form of corruption, it was pay to play, and it helped build out the patronage system. Many of these ’30s technocrats see themselves as progressive reformers and as part of a movement to improve city government. To give them the benefit of the doubt, perhaps they thought that you need to remove municipal debt from popular input so that it can’t be influenced by special-interest groups — specifically, real-estate folks who lobby for bonds to fund infrastructure projects that will increase their property values.
But the result is the privileging, ironically, of another special interest: financiers and creditors. They’re often seen as technocratic experts rather than a special-interest group, and it was this perception that helped remove debt from public input, ultimately benefiting them.
I’m thinking about how creditors want to be able to see Topeka, Kansas, and compare it to Hendersonville, North Carolina, or any other city. They’re in a global market, and so they wrap themselves in this veil of objectivity, engaging in surveillance. Voters see almost nothing; they only see a yes-or-no question. But the lenders see a lot, and they transform all this data into a credit rating.
Yeah. The creditors reduce cities to abstractions. They turn dynamic entities — places where people live — into interchangeable, commensurate commodities. While these creditors do see a lot, what’s interesting to me is that they often see old stuff. One of the most striking sources I found when I was writing my dissertation and thinking about the book was these massive volumes produced by Moody’s in the 1950s. They’re about a thousand pages of six-point font, compiling the credit standing of municipalities with taxes and borrowing privileges — large cities, small cities, authorities, districts, you name it. At that point, I knew I wanted to focus on San Francisco. And in reading the 1950s report from Moody’s on San Francisco, I noticed that it was referring to data from the 1930s.
I found this interesting for two reasons. One, we should question whether what creditors see is actually the most accurate representation of cities. They attempt to project power through the idea that they are able to secure information and assess the city for what it is. But if you’re relying on data from the late ’30s, it speaks to a city that no longer exists.
By the 1950s, San Francisco had shifted its economy away from industrial port services and toward financial services. So, why is the stuff from 1937 relevant to the city in 1955? Creditors see a lot, but sometimes that information is obsolete or archaic. And that’s important to recognize, because at conferences between city officials and folks from the financial sector, the financiers ask the city officials to submit new information, because that’s key to their business model. How do you maintain an accurate grasp on what is fundamentally a dynamic entity, i.e., a city where people come in and leave, and industries change? You need some way of securing information, so that you’re not selling obsolete analysis.
This is an important political point. It helps us denaturalize the sense that financial institutions have the best ways of securing and consolidating information, thus the rating is an objective reflection of objective conditions. In the ’60s, there were big debates over the ways in which rating agencies rely on opinions and value judgments: only certain kinds of risk were called risks. When black folks and minorities insist on greater social services or when labor unions go on strike, those events emerge as risks.
But ultimately, that determination is a value judgment, disguised by a technocratic gloss and a quantitative thrust. Often, when you look at the process these agencies use to generate standardized ratings and make cities interchangeable commodities, the quantitative information they’re relying on is actually stale.
I want to explore what you mean by the word “dynamism.” Creditors are trying to freeze this dynamic living thing; they’re responding to current events, such as the uprisings that you just mentioned. You talk about how, in the 1960s, “bankers were speculating in the futures market in riots.” What does that mean, and what were the consequences of this speculation?
My colleague Elizabeth Hinton has examined the role of these uprisings in accelerating mass incarceration; Russell Rickford has thought about the importance of these protests for black revolutionaries, who saw them as protorevolutions of an internal colony, similar to uprisings in the Global South. Basically, no matter how you look at them, the rebellions of the 1960s explain so much about our world today. I try to think about the importance of these uprisings, whether they be in Newark, Watts, or San Francisco.
San Francisco is a forgotten case: the murder of a sixteen-year-old named Matthew Johnson catalyzed a great deal of political agitation, which pushed city officials to invest in neighborhoods that had been neglected for seventeen or more years, black neighborhoods in particular. The officials made this investment through bond issues. Their thinking was: if we don’t use a bond issue to invest in schools and parks, our famed liberal city will go the way of Watts and Newark. In other words, if we don’t invest now, the cost to borrow is going to increase because we’ll be seen as a rebellious city. The sense that San Francisco is just like these other places would result in the city paying higher interest-rate penalties. So the uprisings push city officials in the direction of investment.
But they also sparked a kind of speculation in riot futures. I came across a document in the Wall Street Journal or the Bond Buyer, I think from April or May. The point was the long, hot summers are going to continue — that is, we’re going to see another round of uprisings. And it argued that by purchasing short-term debt, you can secure tax-exempt interest income without tying up your capital in a rioting city for twenty or thirty years.
In other words, this is speculation that a riot is going to happen.
Based on previous summers of rioting, they’re trying to make the case: Why not invest in short-term debt? Lend to, say, Cleveland, and in six months or nine months get your principal back and collect extra tax-exempt interest income in the context of rising interest rates. It’s possible to leverage the possibility of a riot, one item on the long list of potential penalties that give investors the upper hand over municipalities. Once you get your money back in six months to a year, then you can invest it elsewhere; you don’t have to worry about where the city is going to stand in ten or fifteen years, the usual lifetime of a bond.
In other words, the uprisings trigger not a wholesale abdication of long-term bond issues but the emergence of another kind of debt instrument: short-term debt. Through this instrument, financial institutions actually try to make the possibility of riots appealing to investors. The result is a changing temporality of debt, moving away from long-term investment to short-term returns.
This is part of what my former colleague John Levy describes as the turn toward short-term asset appreciation: the opportunity to secure higher yields on speculation in real estate or short-term debts. The turn begins in the 1960s, and I think the uprisings are a crucial part of that story.
In your book, you strikingly write that “democracy was paradoxical for bankers.” Why were bankers conflicted about democracy?
I first started thinking about democracy as a paradox for bondholders because of a report from a financial institution about San Francisco’s credit and the importance of investing in the city. This report was produced in the late 1930s — I think in 1936. The catalyst for this report was the background of the strikes: the radicalism of striking port workers in San Francisco, which might disrupt productivity and the city’s ability to deliver timely payments to investors.
In this report, there was the sense that liberal democracy is a good thing — at least in the sense of voting for a bond issue — because it signaled the general population’s willingness to support that issue. The sense was that if the population approves a bond, then the city will be more committed to repaying the debt; the bond will have the backing of the electorate.
But too much democracy is a bad thing. What if voters torpedo a bond issue that is seen as essential to growth? What if they protest, as black San Franciscans did in the 1960s through a major African-American newspaper called the Sun-Reporter? They say, look, for twenty years we’ve supported these bond issues, and we’ve gotten very little in return; until we get infrastructural investment or appointments to the public utilities commission or some other kind of reward, we’re going to encourage black folks to boycott bond issues and torpedo the city elites’ spending priorities. Or what if voters approve an issue that is seen as anathema to local economic growth or a distortion of public spending priorities?
So that’s the paradox. On the one hand, democracy signals the public’s willingness to support a bond issue. On the other hand, too much democracy can interfere with the passage of a bond issue that’s seen as essential. Ultimately, the arc of the history is toward a sense that you don’t need voter input at all; you can find a way to get a bond issued, circulated, and underwritten without securing public input. Things start to bend this way in San Francisco during the 1980s.
By the 1980s, there is a situation of what I call “bondholder supremacy”: the supreme confidence that, whether the electorate rejects or passes a crucial bond issue, bondholders will be repaid from some source. Property taxes and other regressive revenue-generating measures have conscripted much of the public into debt arrangements, so bondholders have great confidence that democracy won’t interfere with their repayment; they feel that democracy was something for city officials to worry about. And in the late 1980s, city officials insist that democracy is still a problem, because if we have to formulate a bond issue and wait for an election, we might miss the chance to refinance at lower interest rates.
So the argument is that if we miss that window now, you as taxpayers will have to pay a higher interest rate. In this argument, democracy is a burden that prevents us from striking while the iron is hot. This might be a compelling argument in terms of dollars and cents, but ultimately it’s a problematic argument for the democratic input of folks who live in the city.
At the Debt Collective, we work to raise debtor consciousness. Your book shows that there’s also a creditor consciousness at work; we can talk about whether they’re really a class, but they definitely have class consciousness. You tell the story of creditors becoming organized so they can act as an economic and political force; you talk about New Deal bondsmen, and it’s interesting that they’re not anti-statist, because they want that sweet public money.
What does it mean for there to be creditor consciousness?
Yeah, the bond market brings together state and local governments and private investment. You can’t be anti-statist when your money comes primarily from taxes and interest income.
On the topic of creditor organizing, I’ve talked to some who ask whether we should disaggregate creditor power. I think we should, though I wouldn’t say that creditors are a unified class. We see that in bankruptcy settlements where the creditors who are first in line get theirs, while others take drastic haircuts. There are different kinds of bondholders and creditors, and if you’re high up in that hierarchy of creditors, you are going to fare better than those lower down.
In the early part of our conversation, we talked about the weakness of creditors: the fear, in late-nineteenth-century moral discourse, that creditors were at the mercy of a council of buccaneers and rascals. But by the early twentieth century, that starts to change.
There’s a great book on the history of municipal bonds by A.M. Hillhouse; what he notices is that, in the early twentieth century, creditors begin to organize. They form a solid front. They begin to form protective committees. They start to rely on federal district courts because they believe that, unlike state courts, the federal courts would be free from partisan politics. And, of course, creditors begin to surveil city finances again through the Bond Buyer, Moody’s, and other sellers of financial information.
It’s worth remembering that this important story flows from the profound weakness of creditors in the late nineteenth century. Before creditors began to organize, even when a state court agreed to honor the claims of a creditor holding defaulted debt, it was a hollow remedy: if the municipality didn’t have it, they didn’t have it. In the later nineteenth century, outside of parts of New England, municipal property was exempt from creditor claims.
In other words, a creditor cannot just come in and say, this is mine. Hillhouse notes that in some of the New England states, the property of individuals and corporations might be seized within the defaulting municipality.
Creditors and municipal bondholders begin to organize in three ways: by building protective committees, by taking cases to the federal district courts, by surveilling city finances. The main figure I look at is a gentleman by the name of Alan K. Browne. He’s a great character for many reasons; from the standpoint of storytelling, he left his personal papers to UC Berkeley, supplying some of the key material for this book.
He is interesting because he’s basically pissed off. Browne believes he’s generating incredible value for Bank of America, but he’s not getting his just due. From his papers, I was able to show that the bond market did not come with natural power: there’s a great deal of frustration, and folks feel like they’re not getting their just due. Brown also writes all these copious reports that allow me to stitch together and historicize the bond market.
In addition to these reports on the business of debt and his attempts to get more personnel and office space, I found a satirical paper called the San Francisco Tapeworm, a pornographic, deeply patriarchal, and elitist publication, which jokes about ripping off customers. I won’t even repeat some of the jokes. They’re extreme. I build off an anthropologist named Rosemary Joyce, who describes this as “jokelore”: a system of jokes and friendly banter that serves to deepen trust. This publication deepened a pedagogy of bond finance through double entendres like “part value,” meaning the price of a bond but also the size of a woman’s breasts. They used all these double entendres to joke about their secretaries and ripping other people off, which helped them deepen the trust that is key to forming syndicates and underwriting bond issues.
This source allowed me to think about the bond market as a tight-knit group of people: a fraternity. It engages in the typical activities of fraternities, whether these be sexual violence, harassment, or you name it. If we think about the bond market as a small, tight-knit group, then we can see that these “jokes” are not external to the bond market but crucial to the business of debt. Without trust and the deepening of knowledge, there is no underwriting of bond issuance. It was through Browne’s records, through his frustrations, that I could stitch together the history of the bond market; his argument that he wasn’t getting his just due helped me denaturalize the idea that these financiers are at the top of the world.
By the 1970s, he has a very different sense: he’s very frustrated because he’s on the outside of the fraternity. He’s part of the passing generation. This lets us think about financiers not just as an unchanging collective but as individuals with different sensibilities, values, and relationships to state actors. And that’s important, again, to historicize financial power, rejecting the idea that it is this timeless, inevitable, and insurmountable force. Historicizing financial power is crucial for thinking about pressure points — where to push and where not to push.
Definitely — these middlemen aren’t needed, but if we want to overthrow them, we have to understand how they positioned themselves as essential in the first place.
This topic has fascinating temporal and geographical dimensions. You make the point that often, when we talk about debt, we discuss it as an encumbrance on future generations. But you also argue that we need to place more emphasis on the way debt discourse uses the past to discipline, constrain, and shape opportunities — or lack thereof — in the present.
Built into this whole system, too, is space. Wall Street is placeless, and yet part of their power comes from the idea that financing should be tied to a place; a municipality or an institution issues a bond. However, the people who invest in that bond could be geographically dispersed, allowing them to make money off a specific place without taking on any concrete obligations to that place. How are these arbitrary temporal and geographical boundaries used to shore up profit?
I’ll first speak to the question of what creditors owe a place and to the consequences of abstraction — the consequences of borrowing from financiers, individuals, and institutions dispersed across a wide geography. This goes back to Browne, who argued in the ’70s that the new cult of financiers felt no civic obligation to local communities. I could play gotcha, pointing out the ways in which Browne may not have really cared about San Francisco. But honestly, Browne is on bond-screening committees and local development committees. Even though he steered public spending toward investments that prioritized a certain kind of economic growth, he did believe that he had a duty to these communities in his backyard.
Bank of America is in Downtown San Francisco, and I think he lived out in Walnut Creek; he would take BART or drive into the city. And he felt that a sense of civic obligation had been lost in the 1970s. We can begin to historicize that sense of a civic obligation, knowing that only certain people counted within the civic for financiers committed to civic investment.
The kind of financial activism that NAACP, CORE, and other civil rights activists take up — around the problem of funding segregated Southern municipalities through the bond market — is all about this problem of dispersal. One of their tactics is to picket outside the office of a financial institution that has just underwritten a segregated bond. We’re going to go outside their office and create a hoopla, and that’ll help build popular support and secure press.
But that action comes too late in the bond-finance process, even though it’s place-based — the bond has already been underwritten. How do you use nonviolent direct-action techniques when bond processes and bondholders are so dispersed over time and space? One answer is to seek injunctions through local courts, which are place-based but that can create a cloud of legal uncertainty that might obstruct a bond sale and compel district officials to accelerate desegregation.
Many folks in this movement are trying to think about dispersal, and we’d be wise to go back to the writings and ideas of “civil-rights liberals.” We have a way of relating to NAACP and CORE as liberal thinkers who are accommodationist and not radical enough, but they were very interested in the problem of finance; we should sit with their thought and their campaigns.
But you said that these “middlemen” are not needed. I wanted to push back on that idea, especially around climate finance. Think about climate breakdown, ecological destruction, minoritarian rule in Congress, the reactionary composition of the Supreme Court, the way in which just two senators can torpedo an infrastructure program — it’s clear it is incredibly difficult and time-consuming to deliver aid to people who really need it. Like I said before, the bond market is a very fast way to raise a ton of funds and finance costly infrastructure projects. Given the existential crisis of climate change and given the dilemmas of raising funds through federal grants and loans, are financiers really unnecessary?
I wouldn’t say that they’re needed, but I will say that, in this moment — given our gridlocked Congress and our reactionary Supreme Court — the bond market may not be strictly unnecessary. I’m thinking about a great piece Mohit Mookim wrote for the Law and Political Economy blog called “A Just Transition for Finance.” It’s about grassroots finance: removing public pensions, housing, and land sales from Wall Street. But could grassroots finance raise enough funds to build and maintain critical infrastructure, which costs a ton? And so I wouldn’t say that these intermediaries are necessary per se, but I’d like to know how else we would raise funds quickly, especially around the threat of climate change.
Perhaps we don’t need middlemen, but we still need mediators. We don’t need people to profiteer off public desperation. Likewise, we might still need credit-rating agencies, even in a socialist horizon — but these agencies would rate whether projects are sustainable, advancing democracy, or enriching people on a community level. Right now, we’re valuing the wrong things, and we’re not counting the things that matter.
I’m often struck by the fact that financial language is actually pretty beautiful. The word “credit” means trust — think about “mutual” funds or “bonds.” We want to imbue these things with all of the latent meanings that have been corrupted. But, of course, to expand the boundaries of the present, we need resources — we need credit. Since the pandemic, many have pointed out that there is federal funding. There’s also the potential for the Fed to lend at zero interest and compete with these financial markets.
Ultimately, how do you build the power to direct financial markets toward these necessary investments? To use another financial term, we need leverage over these people, and that’s tough to build.
You’re absolutely right that we need to wrestle with terms and institutions. Credit, bonds, mutual funds — these are things for which we have to cast new meanings, rid of the worst connotations. In addition to this battle over language, there’s also a struggle for institutions, such as the Federal Reserve. During the early pandemic, there were so many opportunities for the Federal Reserve to make a big difference, and these were squandered by obstructionism.
You also asked what the financial sector is trying to do around environmental, social, and governance (ESG) investing. What they’re trying to do is move away from the usual ways in which we evaluate risk. Some would say that environmental, social, and governance investing is just the most recent example of so-called conscious capitalism, and that’s legitimate. But folks in financial institutions and nonprofit organizations are saying that actually, even if we begin with risk, we can build equity into that assessment of risk in ways that don’t further punish municipalities.
The goal is not to penalize municipalities for things that are beyond their control, instead channeling resources into infrastructure and social services that help create far more equitable outcomes for the citizenry, for the body politic. Again, there are reasons to be skeptical of ESG investing, but that is an ongoing conversation.
That’s another point to mention: this is not abstract. There’s a parallel between what you and I are talking about and what folks in the financial sector are talking about. And the question is: Can we bridge these two parallel conversations? Maybe the differences are irreconcilable, but I think ecological destruction really does sharpen the dilemmas here, especially when we think about the fact that we don’t have that much time. And time is one thing that finance really has a mastery over.