Contracts With Workers Vs. Contracts With Banks


When are contracts ironbound, and when are they optional? Via the Center for Economic & Policy Research, Dean Baker writes:

The debate over public pensions clearly shows the contempt that the elites have for ordinary workers. While elites routinely preach the sanctity of contract when it works to benefit the rich and powerful, they are happy to treat the contracts that provide workers with pensions as worthless scraps of paper.

We see this attitude on display currently in the Detroit bankruptcy proceedings. It is even more clearly on display in efforts by Chicago Mayor Rahm Emanuel to default on the city’s pension obligations.

The basic story in both cases is that the contracts that workers had labored under are being laughed at by the elites because they find it inconvenient to carry through with the terms.

In Detroit, paying for pensions or anything else without outside assistance poses a real problem. In Chicago, the cost of the city’s pensions is an inconvenience.

While media like to play the scary number game — $20 billion in unfunded pension liabilities – this comes to about to about 0.5 percent of the city’s GDP over the next 30 years, the time period in which the shortfall would have to be made up. The city could of course raise this much revenue, but the current mayor Rahm Emanuel thinks it would be too inconvenient. And hey, these are just contracts with workers, not obligations to people who really matter.

Emanuel’s cavalier attitude toward contracts with the city’s workers apparently does not apply to its other contracts, for example its deal with Morgan Stanley to lease its parking meters for 75 years. The city arguably received less than half the market price for this long-term lease, but Emanuel apparently thinks the city can still afford to honor its contract with the huge Wall Street bank.

Contracts with Wall Street types always seem to draw more respect than contracts with workers. Folks may recall that when AIG was bankrupt and effectively a ward of the government, we were told by the Obama administration (where Emanuel was then chief of staff), that it had to pay out $165 million in bonuses to its senior staff.

The other notably instance where we have gotten lectures recently about the sanctity of contracts has been with underwater mortgages.

So there is a clear lesson on morality in modern America. Contracts are sacred when respecting them works to the benefit of the rich and powerful. Contracts that imply obligations to workers, like pension commitments, are a joke. Got that?


9 Comments on "Contracts With Workers Vs. Contracts With Banks"

  1. Anarchy Pony | Sep 5, 2013 at 11:54 am |

    Treating workers with respect and dignity? COMMUNISM!

    It’s depressing how many people actually think along those lines.

    • Charlie Primero | Sep 6, 2013 at 4:26 am |

      National Socialism is a more accurate descriptor of the situation.

      Welcome the the Fourth Reich.

      • Jin The Ninja | Sep 8, 2013 at 11:19 am |

        treating workers with respect and dignity is naziism in what defining ways?

  2. emperorreagan | Sep 5, 2013 at 12:29 pm |

    Hey, when you’ve got to pay out preferential contracts to all of your friends, pensions are a convenient place to look for your accounting tricks!

    Also very convenient way to retroactively give your servants a pay cut.

  3. Liam_McGonagle | Sep 5, 2013 at 12:51 pm |

    A contract is only as strong as the litigation war chest have you have to defend it.

    • Or, more to the point, how well you’re able to defend yourself.

      It’s one reason why most retired autoworkers still have their retirement benefits (or a measure of them) while most once-unionized workplaces are seeing how long before they start trying to grind wages below the minimum.

      (Written by a son of a former autoworker)

    • Calypso_1 | Sep 8, 2013 at 12:04 pm |

      I had a friend, an engineer, who’s company went bankrupt after a major engineering firm refused to pay on their contracts. The Big Firm knew the little firm had limited resources for legal defense and had specifically written a contract that had enough ambiguities that would allow for drawn out litigation. The Big Firm had calculated that fulfillment of the contract would cost more than their own legal defense. After the smaller firm went under, the Big Firm brought in a company w/ an interlocking board of directors that did the same kind of work as the smaller firm to fill the ‘market gap’.

  4. kowalityjesus | Sep 6, 2013 at 2:20 am |

    Mayor Daly in his last year of office sold the city’s parking authority for the next 75 years to a private company for $1.2 billion. Unfortunately the parking prices in Chicago are now the highest in the nation (supply and demand, right?). The Chicago Parking LLC made revenues of $129 million in 2012 (an increase of 29% over 2011), which means they will theoretically make back their initial investment with orders of magnitude of profit. This is an excellent example of a contract that should be broken, and broken hard. Fuck you Daly, sitting retired in your den, unnaturally warm.

  5. Carl Marx predicted this dilemma for Capitalism long ago. Even he did not have a solution or alternate too it. America creeps to the edge of the abyss, peaks over and sees the real world? No American Dream? No McMansions? No ever-downward valued U.S. Petro Dollar? No SUV’s, Not a Hummer in sight? No model changes for the sake of churning money? No lifetime secure jobs? No “pipe up &Allah’s ass” spewing eternal sweet crude? Saudis in fact, building nuclear power as fast as they can? Safer, cleaner, Thorium reactors in China? Safer, cleaner, pebble bed gas reactors running there now, too? CANDU’s chewing up old warheads and Thorium for fuel in China at the moment? Bill Gates’ crews designing newer, better, neutron guns for new Thorium reactors in China, for the Pan Eurasian Alliances, for stationary or mobile uses in ships, planes? Electric cars faster, cleaner, and cheaper to fuel than the gasohol V-8’s of their Twentieth Century Glory days? Chinese Electric Bullet Trains operating 24/7 for decades now, at 320 kilometres per hour? No Asian Superman, Batman, GI Joe, movie, fantasies? No social Black or White demarcation lines? No Christians in sight? No vast and offensive military buildups? No manipulating Feds, rather: Chinese with bars of gold and silver for security? No legal drugs, only the truth in clear minds allowed? No GMO experiments allowed on their general populations? No cities bankrupted as California has experienced in three dominoes then Detroit City, to be followed by possibly Chicago? Rather: huge modern cities empty now and ready for the factory workers from all over Asia, as Capital from around the world, and especially the U.S.A. and Asian technical advances, even purloined U.S. advances, invite Thorium LFTR powered manufacturing jobs here?

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