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