In a recent speech printed in the November 21 New York Review of Books, retired banker Felix Rohatyn, one of the key players in the crisis 27 years ago, argues that Bloomberg and New York governor George Pataki are "going to look at the same set of painful choices as we did in 1975." He declares that "increased taxes and cutbacks in services and jobs are inevitable" and points favorably to the major concessions made by the municipal unions at that time.

If anything, Rohatyn says, the economy is in worse shape than in 1975, so according to him even more "sacrifice" is required from city workers and residents.

What really happened in New York City in 1975?

Like the so-called financial crisis today, the one then was a scam that enriched the billionaires at the expense of working people.

In late 1974 the billionaire families that rule New York proclaimed a "budget crisis." The city government owed $4.3 billion on short-term debts to wealthy bondholders. Democratic mayor Abraham Beame claimed the debts could not be paid with the income received from taxes and other revenue.  
 
Big Mac defends bondholders
The banks--led by Citibank, Chase, and Morgan--pretended they would not lend any more money to such a "high risk" situation. So the New York state government stepped in with the Municipal Assistance Corporation. Known as "Big Mac," it was run by a nine-person board that included six top officials of banks, brokerage houses, and other businesses.

The MAC issued $3 billion in long-term bonds at high interest to pay off $3 billion in short-term bonds at lower interest. The additional interest owed to bondholders jumped by $200 million in 1975 alone with the MAC bonds. All of a sudden, the banks that found New York too risky found no problem lending money for a higher return.

As a condition for these loans, Big Mac demanded "sacrifice." The government launched a campaign to slash city services and fire thousands of municipal employees and to deal blows to their unions. The top union officials went along with the bosses’ calls for concessions.

More than 63,000 municipal employees were fired. Some 15,000 teachers and 4,000 hospital workers were shown the door between 1975 and 1976. Transit fares jumped from 35 cents to 50 cents.

At the City University of New York, free tuition, dating back 129 years, was eliminated. Open admissions, won as a by-product of the civil rights movement of the 1960s, allowing anyone with a high school diploma or equivalency to go to college, was gutted. The cutbacks reduced enrollment by tens of thousands, with the ax coming down hardest on Blacks, Latinos, and other oppressed nationalities.

In August 1976, Victor Gotbaum, head of District Council 37 of the American Federation of State, County and Municipal Employees union, echoing the bosses’ claim that there was "no money" for both jobs and salary increases, sold striking hospital workers a deal that gave away cost-of-living increases for the promise of no more layoffs--for four months.

The city administration also tried to secure federal loans. President Gerald Ford initially said no. "Ford to City: Drop Dead," was the blaring headline of the New York Daily News on Oct. 30, 1975. Ford later authorized $2.5 billion in federal loans, saddling the city with more debt.  
 
A fraud to squeeze workers
As the Militant pointed out in its June 27, 1975, issue, "The financial crisis of New York is an elaborate fraud perpetrated to enable the city to fire workers. What Big Mac’s creation actually proves is that the money was there all along--it was just a question of what conditions the banks demanded to make the loans."

From the standpoint of working people, city hall is supposed to administer the services of the city. "From the standpoint of the banks, however, city hall is the source of a vast income that is a vital artery of the American financial system," the socialist paper pointed out in the May 30, 1975, issue.

Like most governments, New York City is always in debt--it does not raise sufficient funds through taxes to pay all its expenses. A significant portion of these expenses are paid by issuing municipal bonds, which are repaid at tax-free interest--one of the most lucrative investments for billionaire businessmen.

The 1975 "budget crisis" took place during the first worldwide recession since World War II and the beginning of a decades-long period of stagnation and decline in profit rates for the capitalist class. With the rise in unemployment and drop in corporate sales, tax revenues to the city and state government fell. The bankers decided to ensure that, no matter how far revenues dropped, they would keep getting paid--by cutting jobs, wages, and social gains of working people.

The city budget is geared, not to meet the needs of the majority, but to ensure regular payments to the coupon-clippers. In a November 1974 letter to the New York Times to reassure the bankers, Mayor Beame and City Controller Harrison Goldin pointed out "that the Constitution of the State of New York makes our New York City bonds and notes a first lien [claim] on all revenues--which include the real-estate tax, all other city taxes, fees and permits, all state aid and all Federal aid."

In 1975 the payments of interest and principal to the bondholders were almost $2 billion out of a budget of $11 billion.

The year before, the New York Times had quoted an unnamed bond dealer at a major New York bank. "We make a hell of a lot of money off this city," he blurted out. When the bankers announced the "budget crisis" and launched the cutback campaign a few months later, the big-business press was more careful not to make such statements.

Today the capitalist rulers continue to reap billions from municipal bonds. Big Mac remains in existence. In fact, the city of New York is due to keep paying on $3.5 billion in debt through MAC--which issued bonds from 1975 to 1985--until the year 2008, when those bonds will have matured.  
 
 
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