Exposed: How Banks, Investors Make Millions From Police Brutality Bonds

(AP Photo/Paul Beaty, File)

What if I told you investors and banking institutions are making millions upon millions of dollars off of police brutality? Well, as it so happens, this is precisely what is happening.

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In fact, the issue of police misconduct has been quite lucrative for certain individuals seeking to make oodles of cash off of policing-related lawsuits filed against major cities like Los Angeles, Chicago, Milwaukee, and many others. What is truly galling about this practice is that not only are these entities making tons of money from government malfeasance, but they are also doing so at the expense of taxpayers who are left holding the bag.

But what makes this even worse is that the majority of Americans have no idea this is happening.

Any city or county can issue bonds, which are essentially ways for local governments to borrow money for a variety of uses. These can include infrastructure projects, events, or other expenditures. But in this case, they can also borrow money to pay for settlements and judgments resulting from lawsuits related to police misconduct. These are known colloquially as “police brutality bonds.”

Police brutality bonds refer to financial investment vehicles issued by municipalities or law enforcement agencies to raise capital. These bonds are designed to fund settlements, legal fees, and other costs associated with cases of police misconduct, excessive force, or other violations of civil rights.

They serve as a means for governments to cover the financial burden resulting from lawsuits and judgments against law enforcement officers and agencies involved in instances of misconduct. Police brutality bonds are typically backed by the taxing power of the issuing municipality and may have varying degrees of risk depending on the specific circumstances and reputation of the jurisdiction.

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These bonds have become a controversial topic, as critics argue that they effectively transfer the financial responsibility for police misconduct from the perpetrators to taxpayers, rather than holding individual officers accountable for their actions.

When a city decides to issue a police brutality bond to settle a lawsuit, the bank underwrites the bond and becomes the middle-man between the city issuing the bond and the investors interested in purchasing the bond. The bondholders are typically wealthy individuals or institutions who the city will pay back with interest over a designated period of time.

Banks profit from these arrangements through “issuance fees” that they charge to facilitate the transactions. According to a report from The Action Center on Race & the Economy (ACRE):

“[T]he average issuance fees on a municipal bond is about 1.02 percent of the initial principal of the bond— in other words, a tiny bit more than 1 percent of the total amount being borrowed.

On a $200 million bond issuance, Wall Street banks and other firms can collect $2 million or more in fees.

ACRE’s case studies of five cities yielded an estimate of $1.73 billion in costs related to these police brutality bonds, including more than $891 million in profit for the investors who buy the bonds.

There are several reasons why cities and counties might choose to issue police brutality bonds. For starters, some of these governments have made a habit of using bonds because they routinely exceed the funding allocated to them in the budget for law enforcement-related settlements. Some issue bonds on an emergency basis when they are dealing with an unexpectedly high judgment against them. Others will use this option when their insurance does not cover the amount of the settlement.

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There are several problems with the use of police brutality bonds. Firstly, it enables banking institutions and wealthy investors to profit from the government’s abuse of citizens. These include Bank of America, Wells Fargo, Goldman Sachs, and many others.

Definitely not a good look, is it?

But there is also the reality that it further helps police departments insulate themselves from having to face consequences when their officers engage in wrongdoing. Indeed, the agency needs only to ask the city for funds to pay off the lawsuits and the government will issue bonds to do so. This means the police department’s leadership and officers are not held accountable for engaging in tyranny.

Another problematic element in this equation is that it is taxpayers who are footing the cost for the interest payments associated with the repayment of these bonds. ACRE’s report notes:

Between 2008 and 2017, Chicago sold over $700 million in “police brutality bonds,” more than any other city included in the Action Center on Race and the Economy’s report. Over that period, investors reportedly collected $1 billion in interest — and taxpayers spent about twice that much servicing the debt.

So, not only do taxpayers have to pay the amount for the settlement, they must also make the interest payments to the bondholders. This means that investors and banks are getting fatter and wealthier off the backs of taxpayers, many of which are victims of police misconduct. In fact, some cities have even raised taxes to take care of the total cost of paying off the bonds.

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Unfortunately, when a police department and its officers know they won’t be made to face real consequences when they overstep their boundaries, there isn’t much motivation to make sure they are properly carrying out their duties. Indeed, it is rare that corrupt police officers are prosecuted for excessive force and other forms of misconduct. The lack of accountability has allowed this problem to persist, and it has affected Americans from all walks of life. As long as it is the taxpayer who is responsible for rectifying these abuses, our local governments have no reason to reform.

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