Dale Burnett had this to say:

“We are here today because Chase and other big banks are ripping off money for our transit system...I live on the South Side of Chicago. I am a personal assistant for the Illinois Department of Human Services. I provide key life services so an individual can live in their home with dignity.Without me they cannot live and without them, I cannot live. We cannot make any more cuts for vital services, whether its health care, education and transit. I depend upon Chicago’s public transit system for my life.”

Interest rate swaps were among a swarm of exotic securities that gestated inside of Wall Street and then burst forth to reproduce across the planet. What follows is the short version of how swaps work. For the long version please download this free report.

How Interest Rate Swaps Work

To fund new projects with the swaps, the banks asked that cities and states pay the loans at a fixed rate, but the banks would pay back a variable rate that the cities and states could use to pay the interest. The swaps were kind of rebate, but a treacherous one.

Then came the 2008 Crash, the tax payer funded bank bailout, and the decision by the Federal Reserve to lower interest rates to near zero. Now the banks could borrow from the Fed almost for free, and their swap payments to cities fell to nearly zero. The cities were stuck with a fixed rate of anywhere of 3% to over 6%.

What subprime mortgages did to the housing market and what payday loans do to hard-pressed working class families, credit default swaps are doing to transit systems. No wonder transit activists were chanting “Banks got bailed out. We got sold out” in the lobbies of big banks from coast to coast the morning of June 7. Illinois alone loses over $88 million a year, second only to NYC. The USA as a whole is losing $529 million dollars annually. Transit was only one type of project funded through the swaps, but public transit has been hit by these losses especially hard.

It gets worse. Investigators from several nations including the US Justice Department are looking into charges that banks conspired to manipulate interests rates illegally to extort even more cash from cash-strapped municipalities. Fortune calls it,” The Wall Street scandal no one is talking about”:

[T]he government disclosed that it is looking into bringing criminal cases against traders and banks that manipulated a key bank lending rate, called LIBOR... Both Barclays and Deutsche Bank have disclosed that they have been the focus of investigations. Banks have suspended dozens of traders. Today, Credit Suisse announced that it was cooperating with regulators on the case. Traders at UBS reportedly are already working with the government on its investigation.

So how does shortchanging public transit affect riders?

In Chicago transit riders report crowded buses and trains. Routes have been cut and buses come less frequently. Rapid transit lines have aging track sections where the EL trains crawl slowly. Night service, so critical to people who do shift work, is spotty as some El lines shut down in the early morning hours.

Chicago Transit Authority President Forest Claypool seems determined to put through further fare increases (among the highest in the nation) and even more service cuts. There is talk of creating a “distance fare structure,” which would hit low income workers especially hard as many jobs are in the suburbs, far from the homes of Chicago workers. A former CTA intern released a report calling for automatic fare increases, which he claims would take the issue “out of politics and public opinion.” The Chicago Tribune gushed over his ideas in a glowing article that excluded any independent transit rider or transit worker input, thus demonstrating their contempt for the democratic process.

Disabled passengers are experiencing a rash of problems. A team of reporters from Chicago’s Columbia College investigating the El system found:

“...broken elevators, handicap turnstiles and automatic doors at 16 stations, while there were no automatic doors at another 20 stations. In all, 36 of 88 stations the CTA labels as accessible had problems. And in several cases, the same problems were discovered weeks later on second and third visits to the stations.”

Michelle Robbins of Chicago’s Access Living has given up riding the CTA trains because of accessibility problems and has had repeated problems on CTA buses. She has no plans to remain silent saying,” It’s my right to ride.”

Why is CTA management blaming CTA workers for its woes?

CTA management has unleashed a torrent of abuse of abuse at the CTA workers, blaming them for the crisis because of their wages, work rules and benefits. No mention of the big banks or any of Chicago's LaSalle Street financial barons though. Operating buses and trains is a vital city service. It’s also a demanding and stressful job. Everyday CTA workers know that even a small mistake in judgement can cost lives.

CTA bus operator Pat Mojarro put it this way in 2010,

"We are verbally and physically attacked every day. We are expected to be police, homeland security, lost and found, maintenance, doctor and psychiatrist for the public. Add that up and see how much we are underpaid."

CTA workers are among the highest paid transit workers in the country, topping out at $28.13 for experienced rail operators. This should be a point of pride for Chicago, whose leaders claim to want more middle class people in the city. Apparently their “middle class” does not include the bus and train operators, without whom the regional economy would collapse.

The CTA workers are represented by two locals of the Amalgamated Transit Union (ATU). The ATU has made major concessions in the past, to the point that many workers are angry with their union. CTA workers point to a rash of recent arbitrary firings and a broken grievance procedure that provides little defense against management injustices.

The CTA is relying on more part-time employees who make less money and have fewer rights. Workers question the CTA’s policy of pressuring employees to come in if sick or injured. The alternative can be disciplinary action. Does Chicago want bus and train operators coming to work ill or injured; in a condition that might impair their ability to react effectively in an emergency?

CTA workers also fear that Mayor Rahm Emanuel is maneuvering to eventually privatize the transit system. In other cities and towns, privatizing public transit has led to lower wages for workers and deteriorating service for riders.

Although it’s called public transit, CTA workers are reluctant to speak publicly about the agency’s problems or solutions that the workers may have. Forest Claypool, the darling of Chicago’s “reformers” for years, has instituted a virtual reign of terror. Employees are afraid of losing their jobs if they join the public discussion about transit issues. The very people who have the most intimate knowledge of public transit are being silenced. It makes you wonder what “reformer” Claypool is trying to hide.





Javier Perez of the ATU tells how his union is joining with riders to explain,”...how these bank swaps work and how they are taking money away from the State of Illinois.” Javier Perez of the ATU tells how his union is joining with riders to explain,”...how these bank swaps work and how they are taking money away from the State of Illinois.”

It’s time for big banks and corporations to step up

Chase and other mega-corporations need to do their part to improve public transit. After all it is public transit that gets many of the USA’s workers to the jobs that generate profits for business owners. This translates into mega-profits for the finance industry; the ones who are bleeding transit with their interest rate swaps and the low taxes on their casino-style financial transactions.

According to the Public Transportation Association,”Every $1 invested in public transportation generates approximately $4 in economic returns.” Public investment may not be as breathtaking as crashing entire economies with toxic securities, but at least it gets people to work and home again.

Getting the big banks to negotiate a better deal on interest rate swaps is necessary and proper. Cities like Richmond, CA and Detroit, MI have had some success in renegotiating terms. Goldman Sachs is currently in negotiations with Oakland CA.

Why do we even have transit fares at all?

The interest rate swap scam is a small drop in a large bucket. If we really want people to use transit rather than cars, we need to make transit a genuine public service and eliminate all fares. And yes, the big banks and corporations are going to have to pony up more cash to cover costs. They benefit hugely from public transit.

Fares are annoying. They require expensive fare boxes and turnstiles. They demand complex systems to account for the money and distribute transit cards and electronic card readers. They slow down buses on crowded streets as people line up while fumbling for their money or their transit cards. Fares mean people can’t board through both doors of the bus.They’re an added hassle for the bus operator who has enough to do already.



Photo Credit: CTA

So you think getting rid of fares is crazy? NY mayor Michael Bloomberg, a leading voice of the 1%, doesn’t think so,”I would have mass transit be given away for nothing and charge an awful lot for bringing an automobile into the city."

The city of Hasselt, Belgium, a metro area of about 300,000 eliminated fares 15 years ago. On the first day, ridership went up 783%. The first year saw ridership rise by 900%. Hallselt has been able to expand the number of routes over the years. With less choking traffic on the streets, bicycle riders and pedestrians feel safer and less stressed. There are smaller cities and towns in the USA that also have eliminated fares like Northampton, MA and Chapel Hill, NC. It does require careful planning however, as Austin, TX found in its unsuccessful experiment with eliminating fares.

Of course, lets get the money back from those interest rate swaps, but we also need to think bigger.

Our car and highway culture kills thousands of people annually with crashes and air pollution. It contributes to the wars for oil and to the climate change that could make entire regions of the planet uninhabitable for human beings. The more people who abandon their cars for public transit powered by renewable energy, the better future we will leave for our children. Public transit could end up helping save millions of lives.



Photo Credit: CTA Photo Credit: CTA

I believe Chicago nurse Jan Rodolfo said it best at an Occupy Transit rally last fall here in Chicago:

“Public transportation is no less important than the veins and arteries that bring blood and oxygen to our bodies. And to say that we are going to cut off a neighborhood or a community is like cutting off circulation to a limb and that is totally unacceptable.”

So lets keep public transit flowing, not bleeding.

Photos and cartoons by Estelle Carol and Bob Simpson unless otherwise noted

Correction: An earlier version of this article referred to the swap deals as credit default swaps. That was an error. They were interest rate swaps.

Sources Consulted

Wall Street Collects $4 Billion From Taxpayers As Swaps Backfire by Michael McDonald

The Wall Street multibillion-dollar scandal no one is talking about by Stephan Gandel

Taking Chicago Transit from Good to Great – Building the Vision by Aaron Renn

Riding the Gravy Train by The Refund Transit Coalition

Fare-free Public Transit Could Be Coming to a City Near You by David Olsen

CTA Group Says Mayor's Plans Will Destroy Public Transit



Free Public Transit



Absent CTA workers force riders to wait by Jon Hilkevitch

Scheduled fare hikes for trains and buses is best policy, study says by Jon Hilkevitch

We Have Your City. Pay Up or Else by Darwin BondGraham

The Inaccessible CTA by Kaitlyn McAvoy

Citizens Taking Action