The Bonds of Inequality
Debt and the Making of the American City
By Destin Jenkins
Published by The University of Chicago Press
Last summer, as the vitality and rage of protests coalesced into the clear demand of Defund the Police, protestors asserted a new politicization of municipal budgets. And while defunding the police seems clear enough, the question of how a city might invest in its communities prompted reflection from many, myself included, who realized that they had little idea of how exactly a city funds its operations. And perhaps others felt, like I did, that this was knowledge being kept from us, deliberately painted as technocratic and wonky so that it might not fall into the hands of the community.
Destin Jenkins’s new book The Bonds of Inequality: Debt and the Making of the American City comes in this auspicious time, when many are hungry to untangle the public and private interests behind the city’s regressive fees, corporate welfare, and bloated police budget. It is a short, dense book wherein Jenkins argues that understanding the municipal bond market is the key to understanding the inequality at the heart of the contemporary American city. It joins a new canon of academic books analyzing what is broadly termed racial capitalism, Race for Profit by Keeanga-Yamahtta Taylor and Bankers and Empire by Peter James Hudson being two other notable examples. And like those books, in The Bonds of Inequality Jenkins excavates the archives of private industry to expose the inner workings of capital.
Origins of the Municipal Bond Market
Jenkins locates the origins of the modern municipal bond market in the economic boom following the Second World War. In the late 1940s, US cities faced large increases in population and needed to borrow large sums of money to repair infrastructure that had been neglected throughout the war. So, cities issued bonds. In buying bonds, banks and other investors gave multimillion dollar loans to be used for specific repairs which would be paid back, with interest, over a fixed amount of time. Jenkins paints the picture that in the post-war boom, these municipal bonds were seemingly win-win. Because interest rates were so low, cities were able to borrow cheaply and could be confident that they would easily pay back the principal and interest of the bonds. Individuals, banks, and other companies with money to invest were drawn to bonds despite their low interest rates (and therefore low returns) because of a particularity of federal policy: municipal bonds were tax-free. Accordingly, Jenkins likens municipal bonds in this time to “offshore tax-havens.”
In this relative peacetime between debtors and creditors, the modern profession took shape. In 1932, the Municipal Finance Officers’ Association of the United States and Canada formed in Chicago so that the technocrats in charge of their cities’ finances could compare notes, learn about new sources of revenue, and standardize their practices of accounting. On the other side of the arrangement, banks were professionalizing their own municipal bond departments. They developed strategies to evaluate risks posed by investments, endeavoring to mold the vast differences between disparate cities and authorities into abstractions that could more easily be compared. While analysts like Moody’s and Standard & Poor’s often receive blame today for their ability to discipline cities by lowering their credit rating, Jenkins notes that banks in this period developed their own methods of financial surveillance. The business of determining credit-worthiness was shaped by bankers’ and analysts’ opinions about the proper scope of government and the relative appeal of different cities, even if its mathematical nature lent an air of objectivity to the enterprise.
City Technocrats as Willing Collaborators
To emphasize the biases lurking within bond buying, Jenkins dives into the culture of what he terms a “fraternity” between bondmen, with a particular focus on San Francisco. He presents comics and jokes from the San Francisco Tapeworm, an annual lampoon written by and for the bankers of the San Francisco Bond Club. The humor magazine featured graphically sexist illustrations of the bankers’ secretaries and racist comics painting Native Americans as needing the bankers’ financing to bring them into modernity. Jenkins links the dehumanization that is apparent in the bankers’ humor to their professional mission, to develop methods of control and surveillance of cities in pursuit of higher profits.
City financial officers came to see themselves less as public servants and more as technocrats who could guard the finances of the city
There is an inherent antagonism between creditors and debtors: cities want to borrow cheaply, while borrowing cheaply translates to lower returns for investors. But the social relationship that developed between city officials and financiers was anything but antagonistic. In this post-war moment of low interest rates, cities were eager to borrow money and competed for the attention of banks. City financial officials were all too happy to adopt the professional advice of bond bankers, in hopes of distinguishing their own city’s bond offerings.
The result was that municipal financial officers came to see themselves less as public servants and more as technocrats who could guard the finances of the city from the whims of the unruly masses. They read the publications of bond buyers and sent copious amounts of information to credit rating agencies in hopes of securing higher ratings. Most dramatically, they invited lawyers and bankers onto commissions to further integrate their “expert opinion” into bond offerings; one such committee in San Francisco, the Bond Screening Committee, was created to essentially veto which bond offerings even made it to the ballot. The intertwined spheres of municipal financial officials and private capitalists resulted in bond offerings which successfully won the votes of San Franciscans, but created a particular vision of a city by and for white people.
San Francisco’s Racist Reorientation
Jenkins notes that city officials in San Francisco, even from the 1950s, desired to turn it into the “Wall Street of the West.” San Francisco’s postwar promotion of the finance, insurance, and real estate (FIRE) industries preempted Chicago’s own turn towards those industries by a few decades – this just one of many instances where Jenkins’ reading of the mid 20th century speaks powerfully to the present. But Jenkins notes that San Francisco invested in these jobs not just through office buildings, but by orienting the priorities of the city towards “capturing the consumer dollars of white people.” Bonds funded “well-paved streets, downtown parking garages, new sports arenas, and rehabilitated art spaces”; anything the mobile, modern white-collar professional would want to enjoy their city.
Once they were approved by the Bond Screening Committee, these proposals could be approved or denied by the voters of San Francisco. Jenkins explains the coalitions that arose to garner approval for various bond referenda with his concept of the “infrastructural investment in whiteness.” Projects like the Civic Center Auditorium helped further city planners’ visions of a San Francisco built for the enjoyment of white people with disposable income, but benefits accrued across class divisions. White workers in the segregated building trades were also sold on these projects because they were the ones employed to construct them. Meanwhile, bankers and lawyers were paid handsomely to facilitate said bonds, and private investors continued to use bonds as investment vehicles to shield their income from federal taxes.
It is a testament to the book’s finesse that Jenkins is always teasing apart the specific winners and losers around various bonds, although it helps that the creditors who buy bonds always win, in fact are contractually bound to make a profit before anyone else. Bonds continued to shape the city in un-democratic, anti-Black ways. The San Francisco Redevelopment Agency (SFRA) used a bond measure to fund urban renewal with the Western Addition A-1 project, clearing out African American and Japanese renters, demolishing existing buildings, and rebuilding the area into an “all-white residential neighborhood,” as the Sun-Reporter, the city’s most prominent African-American newspaper, put it.
Beyond some complaints in the Black and leftist press, Jenkins does not cite any organized efforts of communities that oppose these unequal patterns of development. But the effects of such inequality were deeply felt. In September 1966, a white police officer killed a 16-year old Black child named Matthew Johnson in the majority-Black neighborhood of Hunters Point. In turn, the neighborhood protested, and in the aftermath of the uprising, the city conceded the need to fund schools and infrastructure in the neighborhood. But when in November 1968 a $6.4 million bond measure went to the polls which would fund recreation centers and parks in Hunters Point, it failed to gain the approval of the necessary two-thirds of voters.
Bondholders Maintain Power Over Cities Today
The final act of the book narrates the story of municipal debt in San Francisco until the nineties: through the credit crunch of the 1960s, the stagflation of the 1970s, and the neoliberalism of the 1980s. In my opinion these chapters of the book were the least novel, heavily referencing other more vivid histories of this turn towards austerity like Kim Phillips-Fein’s Fear City, and repeating several points about “bondholder supremacy” that had seemed to be previously established in the book. But in fact, the repetitiveness of this section proves one of Jenkins’ central arguments: that the municipal bond market had articulated the same view of cities as consumer playgrounds for the FIRE industries, long before neoliberalism, white flight, and austerity made cities even more hostile to their working-class Black populations.
While the specifics of the market look different today than in 1990, the structural relationship between cities and lenders remains in place. Paying back principal, interest, and fees for bonds are now a large part of cities’ annual expenses; the 2021 Chicago budget forecast projects the city will spend over $1.9 billion servicing long-term debt this year. And despite the fact that recent low interest rates encourage borrowing, the lowered credit ratings of Chicago and Illinois mean that they cannot borrow as cheaply as other cities and states.
Banks make money by underwriting bonds needed to settle police brutality cases, which are now normalized as a cost of policing.
The Bonds of Inequality historicizes the bind that cities like Chicago now find themselves in. The book mentions only a few instances of resistance; I imagine that this is not neglect on the author’s part, but rather a testament to the stability of “bondholder supremacy.” In the most intriguing example of activism in the book, Jenkins writes that during the Civil Rights movement the NAACP leaned on banks to pressure them to stop investing in the bonds of certain Southern states. In 1965 they induced Childs Securities Corp. to send a letter to Alabama governor George Wallace which said that the New York-based bond dealer would no longer buy the state’s bonds in the name of boycotting racial terror.
But as Jenkins notes in the telling of this episode, pressuring a bank to boycott the bonds of certain states does not fundamentally confront the structure of the municipal bond market. For a more radical, contemporary example, one can turn to the report the Action Center on Race and Economy (ACRE) produced in 2020 about “police brutality bonds,” their coinage for the bonds that cities sell to raise money that then goes to victims of police brutality who have successfully sued the government. Analyzing bonds that Chicago sold from 2010-2017, ACRE found “about $860 million in interest that the city will pay to investors over the life of these bonds.” Not content to just lay blame on a single party, the report emphasizes the mutually reinforcing relationship between the police and capital. Police departments, wielding outsized political power, brutalize people and count on cities to absorb the cost of any settlements. In turn, banks make money by underwriting bonds that are needed for these settlements, now normalized as a cost of policing.
Challenging Bondholder Supremacy
Yet The Bonds of Inequality reminds us that even if those same bonds were going toward progressive ends – say, financing schools, mental health clinics, or public housing – the municipal bond market would allow investors to capitalize off these investments. Other reports by ACRE put forward alternatives that would free cities from the trap of financialization. Their proposal “Cancel Wall Street” imagines how much cities could save if they were not beholden to the current municipal bond market. If instead the Federal Reserve offered “long-term zero-cost loans” to cities, ACRE estimates that Chicago would be able to save $1.1 billion dollars by refinancing its current debt portfolio. And similarly, in another report, ACRE called for the city to establish a public bank; in this scenario, it would be the public bank, not the Federal Reserve, that would offer low-interest loans to the city, free from underwriting fees.
Behind the supposed objectivity of credit rankings and the iron-clad debt schedule to which cities must hew, there are merely men projecting their power far beyond themselves.
Both of these proposals rise to the challenge that Jenkins sets down in The Bonds of Inequality, to think of the municipal bond market as producing and fortifying inequality. While The Bonds of Inequality is not a history of radicalism, I found its methodology radical in itself. The deliberate way that Jenkins draws a web of the exact syndicates, companies, commissions, and lawyers that make up the municipal bond market reminded me of power mapping. There is something empowering in the way Jenkins picks apart the archives of Bank of America and other bondsmen. He exposes the racism and sexism of the men who had outsized power over the shape and direction of San Francisco, but also the falseness and shabbiness of their power. He brings us into their offices, where they complain about the lack of space and noise, and their publications, where they draw comics revealing their fantasies about their secretaries.
The Bonds of Inequality reminds us that, behind the supposed objectivity of credit rankings and the iron-clad debt schedule to which cities must hew, there are merely men projecting their power far beyond themselves. They too can be the targets of protest: they work in offices, they go to conventions, they have networks both professional and personal. They are trained to see the city as abstractions, in debt ratios and risk assessments; one wonders what would happen if the city itself showed up at their doors, insisting on its materiality.
