Nov 26, 2012
Wall Street banks were among the biggest winners when California Proposition 30 passed in the November election. Those who pushed Prop 30, starting with Governor Jerry Brown, promised that increased taxes from working people and the poor would go to public education. Instead, much of the new tax revenue from Prop 30 that supposedly was earmarked for higher education is being gobbled up by big Wall Street banks and financial companies.
In the last four years, management at the University of California (UC) has doubled the university’s debt. Much of this debt is in complicated financial instruments – similar to subprime mortgages – that are filled with sneaky increases in interest rates and fees aimed at supercharging bank profits. As a result, the cost to finance that debt has skyrocketed.
This is hardly a surprise since the top financial positions at the University of California are staffed by former officials at the biggest banks, who had already pushed these kinds of deals on the university. The UC Chief Financial Officer, Peter Taylor, had been Managing Director of Public Finance for Lehman Brothers until it collapsed in 2008. While at Lehman, Taylor struck a deal with UCLA that will cost the university more than 170 million dollars in extra fees and interest rate charges. The UC Executive Vice President, Nathan Brostrom, had been Managing Director of Western Region Public Finance for JP Morgan, another big underwriter of UC bonds. Overseeing these officials is the governing Board of Regents filled with Wall Street bankers like Monica Lozano, who also is on the board of directors of Bank of America.
This debt has helped to finance the expansion of the university’s for profit-enterprises, like their massive university medical centers. This produces profits for companies in health insurance, drugs and medical instruments – as well as for the university hospitals themselves.
The losers are the students and the taxpayers. The universities have tripled student tuition and fees over the last decade, while slashing spending on education. As the credit agency Moody’s explained in a report that it issued in September, the UC system is a good risk to cover the increased debt load because it can leverage its “powerful student market position ... by raising tuition dramatically.”
Now, the increased taxes taken from workers and the poor from Prop 30 are providing more money for the banks to gobble up. Like pirates of another epoch, the banks plunder the education system and the working masses pay the taxes.