The city itself could be propelled into bankruptcy by speculative derivatives dealings with Wall Street banks. The dire results can be seen in Detroit, where the emergency manager, operating on behalf of the city's creditors, put it into bankruptcy to force payment on its debts. First in line were UBS and Bank of America, claiming speculative winnings on their interest-rate swaps, which the emergency manager paid immediately before filing for bankruptcy. Critics say the swaps were improperly entered into and were what propelled the city into bankruptcy. Their propriety is now being investigated by the bankruptcy judge.
Not Too Big to Abandon
Mega-banks might be too big to fail. According to U.S. Attorney General Eric Holder, they might even be too big to prosecute. But they are not too big to abandon as depositories for government funds.
There may indeed be no profit in bashing JPMorgan Chase, but there would be profit in pulling deposits out and putting them in Los Angeles' own public bank. Other major cities currently exploring that possibility include San Francisco and Philadelphia.
If North Dakota can bypass Wall Street with its own bank and declare its financial independence, so can the City of Los Angeles. And so can the County. And so can the State of California.
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