As election season got into full swing this past summer, Oakland City council members made a splash by threatening to cut ties with Goldman Sachs if the investment bank refused to cancel an investment that will cost the city about $20 million before it expires in 2021.
If the council's bluster was a bluff, Goldman is calling it.
The bank refused Oakland's demand to cancel the interest rate swap at no cost to the city. It's willing to negotiate an early termination to the investment, but it won't terminate at below-market value price for the city, according to a city report.
The issue will go before the City Council's Finance and Management Committee on Tuesday.
Oakland entered into the deal with Goldman to protect itself from potential interest rate spikes on city bonds issued in 1998 to fund police and firefighter pensions. But interest rates have remained low, and the city continues to pay Goldman a fixed interest rate that is much higher than the prevailing rate Goldman pays Oakland.
Unions and citizen groups pushed Oakland and other municipalities to take a tough stand with investment banks over interest rate swap deals. They said banks were profiting from their role in the 2008 financial collapse, which forced the Federal Reserve to slash interest rates and consequently turned the deals dramatically in the banks' favor.