Debarring Goldman Sachs would be huge news. However, Oakland’s bill to prove their culpability is also quite large. Last week, the Oakland City Council approved a $226,000 budget to hire an outside consultant to investigate Goldman Sachs’ controversial rate swap with the city.

The 1998 Goldman Sachs deal with the city, of which, some now say was rigged to fail, will cost Oakland nearly $11 million through 2021. Although, most agree nothing can be done to change the binding contract without incurring even greater costs, the City Council has pushed over the past year to beginning debarment proceedings against Goldman Sachs doing business with the city in the future.

Councilmember Lynette Gibson McElhaney called it a “pretty significant contract” and asked, “What am I getting?” Councilmember Libby Schaaf, who once suggested simply readingRolling Stone to understand Goldman Sachs’ corporate behavior, said, “I was surprised about how much this could costs us.” Both McElhaney and Schaaf even suggested asking attorney’s and financial experts to volunteer time to the investigation. That is not possibly, said an assistant city attorney, since any administrative hearing for debarment of Goldman Sachs would need to maintain its independence and neutrality.

“If you’re balking at the cost now, the cost of debarment will be much more,” added Oakland Mayor Jean Quan. She believes Goldman Sachs’ next move following any debarment proceeding would be to sue the city. “You will be in court a long time. This is pretty serious business.”

Some have charged the city administration with dragging its feet on merely setting the first step toward debarment. Councilmember Desley Brooks has sharply criticized City Administrator Deanna Santana’s office for neglecting to offer timely reports on the issue. As it has bounced around the City Council and committee hearings over the past year since direction was given to seek debarment of Goldman Sachs, a power play between Santana and Brooks over who controls the investigation has ensued. In April, the newly-seated City Council reaffirmed its decision to debar Goldman Sachs while recognizing a role for the Council. Yet, little movement has been made other than last week’s allocation to fund a preliminary investigation.

Successfully debarring Goldman Sachs from city contracts would be a stunning, somewhat symbolic rebuke by Oakland. In the Great Recession-era it would also be unprecedented and potentially mimicked across the country by other municipalities who also believed they were swindled by the financial behemoth.“If we can show Goldman Sachs needs to be debarred,” said Council President Pat Kernighan, who supported the resolution, “I think that would be really significant in the whole country.”

During a meeting last week that appeared to betray Oakland’s standing as an icon of progressivism—the City Council approved funding for a citywide surveillance center and made the possession of makeshift weapons at protests a misdemeanor—the Goldman Sachs issue is a return to pure populism for some members.

Councilmember Dan Kalb said he supports a debarment investigation because “I’m disgusted at Goldman Sachs for what they did to our city and many other cities.” But no member has been stepped up to the Goldman Sachs soapbox more than Councilmember Rebecca Kaplan.

Last week, she urged Washington to get involved in the process. “When we look at the malfeasance of Goldman Sachs, it would be really nice if the federal government took this on. It is really a nationwide issue and the misconduct of these corporations has caused financial devastation throughout the country,” said Kaplan. “I support us moving forward because someone has to step up and say that behavior is not okay.”


Cross posted from EastBayCitizen

10 Responses

  1. Yehoshua

    Great. So the Oakland City Council will halfheartedly try to get out of bed with Goldman Sachs, but jump into bed with SAIC on their DAC surveillance center. SAIC builds many of the drones being operated in the middle east, was a primary contractor on sections of the US border fence with Mexico, trained the Egyptian military in special ops, built up the Saudi “War College,” has many nuclear weapons contracts with the military, and is the NSA’s biggest contractor.

    Yeah, this council is SO progressive…


  2. Oakie

    Did you notice, after agreeing to throw money on this futile effort that the City Clowncil voted themselves a 2% raise.

    I suppose they feel they’ve earned it for having postured so well on our behalf.

    Instead, they could have forgone their raises to pay for their squandering of our tax money. Of course they could have forgone the raises and lowered the metered parking rates, but that’s just me dreaming.

  3. KL

    A few months ago, I read a book by a guy who used to work at Goldman Sachs. He specifically described how they sucked the City of Oakland. Yes, he specifically named the City of Oakland, California.

  4. Len Raphael

    Oakland City Council has a long tradition of passing resolutions and legislation that makes the residents feel good and the council members look progressive, but have absolutely no effect on anyone. Council will give each other high fives after the vote because they found something they could agree on and the residents liked.

    Usually it’s something safe like renaming a street for an IRA terrorist or threatening to boycott an entire state like Arizona (except for A’s training camp).

    Normally such resolutions and legislation doesn’t cost us any money and just wastes time that could be spent grappling with the basic problems Oakland faces.

    But recently the new council is showing a tendency to pass feel good impotent legislation that costs us money. Hiring Bratton for 250K to consult on CrimeStat was the first example. Now, this Goldman Sach debarment.

    Twice last week I asked one of the council members mentioned above to comment on a similar analysis in the Tribune to the effect that spending up to 226k for a consulting firm to prepare the case for barring Goldman Sachs at best would cost us consulting and legal fees and at worst would make it harder to negotiate an exit from those contracts. No response yet.

    To KL’s comment above: Last year Darwin-Baldwin wrote an article in the EBX with citations to newpspaper quotes from city council members at the time of the approval of the GS rate swaps. If that was a trap, the council members willingly and with full knowledge walked into that trap into to finance additional payola to induce the Raiders to move back to Oakland. They were proud of their joint venture with Goldman. Council had top legal advisors on that deal.

    The only ones who were snookered were the residents who got stuck with both the 10Mill/year payment to the Raiders and the Goldman rate swaps that were not needed.

    We just got the privilege of being punished again by spending up to 226K that could be spent on so many desperately needed services and programs here.

  5. Len Raphael

    The technical term for such legislation by our Council is “cutting off your nose to spite your face.”

  6. MIchelle t

    I would like to know What happens when interest rate rises?

    I would not want Oakland taxpayer money wasted just to prove a moral point.

  7. Len Raphael

    The pension bonds for which the rate swaps were ostensibly meant to hedge have long since been refi’d with fixed rate bonds.

    in the rush to spend money to debar Goldman, the Council and debarment proponents should keep in mind that in the next few years we’re going to need to borrow A LOT of MONEY to essentially refi the huge pension and post retirement medical obligations so that we can pass those costs on to younger and future Oakland residents.

    Not such a good idea to eliminate Goldman competing with other underwriters to lend us that money.

  8. P-K4

    How about understanding a contract before you enter into it in the first place? And then take responsibility for your bad or shortsighted decisions? It’s not enough to say “we didn’t understand how this could go wrong and blow up in our faces 10~12 years from now so we made a multi million dollar mistake.” The people making decisions in the city all make really good money to not f*** up. Too bad they can’t even do that!

  9. SM

    One of the basic lessons of investing is to understand what you’re investing in. If you’re going gamble on some harebrained idea, use extra play money.


Leave a Reply

Your email address will not be published.