This Los Angeles City Council has passed a resolution to get out of various interest-rate swaps it entered into banks pre-crisis.According to the SEIU, getting out of the swaps, will save LA $19 million per year.
So why does the city think it should be able to get out of legally entered-into swaps without having to pay a cancellation fee?
Because, according to the SEIU’s Marcus Mrowka, all those swaps were entered into pre-crisis, before the banks changed all the rules.
Up next: the union will push for various Northern California municipalities to do the same, potentially costing banks $150 million/year.
Now, why would banks relent to the demands of the cities? Think about it: the cities do business with these banks, and do have leverage of them. Cancelling a few swaps might be well worth it.