Financial History Issue 128 (Winter 2019) | Page 25
two men talked late into the night. Ravitch
recalls that their conversation ranged
from the immediate to the existential.
According to him, Shanker was primarily
concerned with the question of whether
it really was in keeping with any concept
of fiduciary responsibility to use pension
funds that retirees were depending on to
purchase the debt of a near-bankrupt city.
He never raised the question of the teach-
ers’ contract and the EFCB, even though it
must have been on his mind.
Ravitch went home in a police car at
5:00 in the morning, charged with a feel-
ing of tremendous responsibility. Anxious
and excited, he wondered whether one
man—Shanker—could make a difference
in history. Sleep was out of the question.
After all, the morning television stations
were reporting that the city was about
to go bankrupt, and no one knew what
would happen after that.
Rohatyn, meanwhile, had called Pres-
ident Ford’s adviser, L. William Seid-
man, shortly after midnight. “Looks like
a default tomorrow,” he told Seidman,
blaming the teachers for backing out of
the financing deal.
“Absolutely certain?” asked Seidman,
pressing him on whether the city had any
other options. Rohatyn responded that he
thought New York was out of alternatives,
though of course they’d keep trying. He
promised to keep in touch with Washing-
ton throughout the day.
When Ford woke up at 5:30 am, he got
the news from Seidman and convened a
meeting of those within the administration
dealing with New York City. The federal
government was kept closely informed
about developments, but it seemed unlikely
to step in with credit or aid.
As Ron Nessen, Ford’s press secretary,
told reporters, “This is not a natural disas-
ter or an act of God. It is a self-inflicted act
by the people who have been running New
York City for a long time.”
On the morning of October 17, as luck
would have it, Mayor Beame was supposed
to be honored by the city’s Optimist Club.
Thirty-seven members of the organization
came to City Hall, attempting to present
the mayor with an award to recognize his
“optimistic attitude” in coping with New
York’s difficulties. They were turned away.
“Only a miracle can prevent default
now, and I don’t expect any miracles,”
City Council President Paul O’Dwyer told
the Daily News.
The city’s collapse was the top story
on every television news program, and
the drama inevitably put a spotlight on
Shanker and the teachers’ union.
Early in the morning, Shanker met with
Beame and former mayor Robert Wagner
at Gracie Mansion. A few hours later,
Shanker called Ravitch at Carey’s office.
He wanted to talk again, but he had no
desire to go to the governor’s office, to
walk in past all the reporters.
They agreed to meet at Ravitch’s Upper
East Side apartment. Shanker came down
from Gracie Mansion, while Carey and
Ravitch, riding in an unmarked police
vehicle to elude press attention, traveled
up from the governor’s office. There was
no regular food in the house to eat, so
the governor, the head of the teachers’
union and their aides and friends snacked
on some matzos that Ravitch had lying
around. At around noon, after three hours
of conversation—and reassurances that
should the city default, MAC bonds would
get priority—Shanker agreed to recom-
mend to the trustees of the teachers’ union
that they agree to the bond purchase. No
one else was coming forward to save the
city, and if New York collapsed, who knew
what terms a bankruptcy judge might
declare for the teachers’ union?
It was easy to imagine that teachers
might be fired en masse, or their pensions
raided to pay back debts. Shanker went
back to the governor’s office to meet the
press around 2:00 in the afternoon. As he
spoke to the reporters, looking worn and
exhausted, he made it clear he was under
pressure far more intense than he had ever
anticipated. He still thought the mayor and
the governor had been “extremely destruc-
tive” to the school system and the entire
framework of collective bargaining through
their unilateral cuts. His union, he insisted,
had been the victim of “blackmail.” But
it was an unusual sort of coercion, for no
single individual could be blamed.
“Look,” Shanker told the crowd, “The
pressure is not from the governor, and it’s
not from the mayor. The pressure is from
the situation.”
Once the union voted to make the
purchase, the city’s normal mechanisms
cranked back into gear. The throng of
creditors who had gathered early in the
morning at the Municipal Building began
to collect checks at 3:10 in the afternoon.
Manufacturers Hanover stayed open
past its closing time to accept the money
from the teachers’ union and to process
requests to redeem notes. New York, it
became clear, would not default that day.
Ever after, there would be questions about
the events of October 17. It seemed surreal
that the city had come so close to bankruptcy.
Perhaps the teachers’ union had never been
serious about not making the purchase, but
had only sought to show the EFCB that its
compliance should not be taken for granted.
Perhaps if the UFT had held out and refused
to buy the debt, some other union—maybe
Victor Gotbaum’s District
Council 37 or John DeLury’s Sanitation
Workers—would have swooped in at the
last minute, unlikely as it was for one of
them to put up yet more cash. More than
anything else, the chaotic events of that
night and day demonstrated the theatrics
of default: the threat of bankruptcy and
its unknown consequences could be used
to make people do all kinds of things they
had earlier insisted were completely out of
the question.
Yet even if the near-default was half
performance, it made clear how chaotic
the reality would be: how bankruptcy
would slow the financial markets, gum up
the ability of other cities and states to bor-
row and affect the international strength
of the dollar.
In the event, the bankruptcy petition was
put away, as was Mayor Beame’s draft press
release. Never made public, they were part
of an alternative reality, one that had not
in the end come to pass but which would
hover over the city throughout the rest of
the fall. That it had come so close to hap-
pening brought bankruptcy from the realm
of speculation into the realm of the entirely
plausible, and there it would stay.
Kim Phillips-Fein is the author of Fear
City: New York’s Fiscal Crisis and the
Rise of Austerity Politics and Invis-
ible Hands: The Businessmen›s Crusade
Against the New Deal. She teaches his-
tory at New York University’s Gallatin
School of Individualized Study, and she
has written for The Nation, Dissent, The
Baffler, The Atlantic and The New York
Times, among other publications.
This article was adapted from Fear City:
New York’s Fiscal Crisis and the Rise of
Austerity Politics (Metropolitan Books,
2017).
www.MoAF.org | Winter 2019 | FINANCIAL HISTORY 23