Review: The Bonds of Inequality: Debt and the Making of the American City

Matt Hartman


On September 27, 1966, a Black teenager named Matthew Johnson was murdered by a police officer in San Francisco’s Hunters Point neighborhood. The police department claimed that Johnson was fleeing from a stolen car and that the officer had first fired warning shots into the air, but Johnson’s neighbors—with good reason—weren’t inclined to believe them. By the early evening, the crowd that had gathered around the scene had erupted into an uprising. Windows were broken; a curfew was imposed. The National Guard arrived.

But while Johnson’s murder triggered the event, it does not explain the full breadth of its context. Since Watts rebellion in Los Angeles the year before, city officials had warned that Hunters Point could be next—a specter journalists were quick to raise the following day, pointing to longtime infrastructural neglect and poverty in the area. Black leaders agreed, calling for jobs programs.

If the neglect caught the paternalistic attention of the liberal-minded, though, it didn’t create enough of an incentive to fix it. “For many, the presence of a public-housing project defined [Hunters Point]; everything else faded into insignificance,” writes historian Destin Jenkins in The Bonds of Inequality: Debt and the Making of the American City. The city focused on protecting its more lucrative assets instead. “By October 1, half of the remaining National Guardsmen were reassigned to Candlestick Park, the city’s prized and costly debt-financed sports arena,” Jenkins explains.

The basic contours of this story are familiar today. With a single spark, the tension of decades of racist, classist urban disinvestment explodes, and the resulting fear among the well-to-do only deepens inequality. But that plot is so familiar that important details are glossed over: Who made the investment decisions in the first place? Why did the uprisings fail? And how did these conflicts fade into the neoliberal era we’re still reckoning with today?

It’s just those questions that Jenkins begins to answer in The Bonds of Inequality. To do so, he turns to a space mostly hidden from public view: the municipal bond market, using San Francisco as a primary case study. “The history of inequality in twentieth-century America is, in part, the history of municipal debt,” he writes. Understood through the politics of debt financing, the urban uprisings of the 1960s are no longer just a historical comparison to be trotted out at each new sign of tension. Instead, they can be seen as a turning point in a longer history that can help today’s activists see hidden relationships of power—and just maybe write a new story for the future.


Cities have depended on the bond market to finance infrastructure projects since the early 20th century. Without the cash on hand to fund necessary, major capital outlays—from new subway or water systems to smaller projects like individual schools, museums, parks, and stadiums—they must create bonds, borrowing the money by using either their tax revenues or revenues from the specific project as proof of their ability to repay it. Banks underwrite those bonds, in turn selling them to investors, including other banks, wealthy individuals, and pension plans and other savings vehicles. While returns are generally low for bondholders, so is the risk. Perhaps more importantly, they’re also tax exempt.

Jenkins begins his history in the Great Depression, which placed new dilemmas on the desks of city finance officers. Not only were workers facing mass unemployment and the middle class defaulting on mortgages at crisis rates, but the wealthy staged a tax revolt, further emptying municipal coffers. Banks were desperate to stay afloat, and were especially averse to any threat of default. “Suddenly, the virtual collapse of the banking system disrupted the ability of cities to improve water and sewage systems, schools, and roads,” Jenkins writes.

Ironically, cities only grew more dependent on banks as a result. The New Deal’s Keynesian response to the crisis pushed public spending and ambitious new construction, but it turned to financiers for funding. While 1933’s Glass-Steagall Act separated commercial and investment banking, it made an important exception: commercial banks could still underwrite certain kinds of government debt, including municipal bonds. “New Deal banking reforms rekindled this public-private partnership and provided a number of lifelines that would shape the arc of postwar urban governance and the reconfiguration of the built environment,” Jenkins writes.

Because the bond market was controlled by a relatively small number of investors—Jenkins notes that “the number of people wealthy enough to loan huge chunks of funds for a significant stretch of time” and who preferred guarantees to higher profits “was limited”—cities were forced to operate on their terms. Professional organizations like the Municipal Finance Officers’ Association of the United States and Canada brought together city officials with bankers and lenders who counseled their public counterparts on how to best court bondholders; credit rating agencies like Moody’s and S&P, whose backing could make all the difference; and lenders’ preferred law firms, who could grease the right wheels. A new “fraternity,” as Jenkins describes it, became crucial decisionmakers, determining which capital projects were funded and on what terms.

Their influence remained apparent even as municipal bonds entered their golden age in the postwar era. In 1941, the federal government began taxing earnings on its own bonds, giving state and local equivalents a near monopoly on tax-exempt investments. Over the following decades, commercial banks responded to the incentive: they owned 18.5 percent of state and local government debt in 1948, but 57.8 percent by 1950, while the municipal bond market as a whole grew from $1.2 billion in 1946 to $11.1 billion in 1966. Yet as late as 1953, Bank of America only had 12 municipal bond financiers. The social connections of the profession became even more important.

The technocratic nature of the industry also encouraged an ambivalent approach to democracy. On the one hand, a bond passed by voters signaled strong support, which increased investor confidence. On the other, voters might want things investors didn’t, and the uncertainty was a threat against guaranteed investment incomes. As a result, the technocrats undermined democratic controls whenever possible, limiting public input and using specific types of bonds that didn’t require voter approval, among other methods. “Lenders cared about democracy less as an idea and more for how it protected or jeopardized their holdings,” Jenkins writes.

They got away with it for two reasons. The obvious one was that it wasn’t just bankers who were benefiting. They formed what Jenkins calls an “intraracial cross-class compact.” The projects that bankers and bondholders deemed worthy of debt tended to be the things that benefited white residents, which Jenkins calls the “infrastructural investment in whiteness.” Only some schools and parks were bond-funded, and they were often the ones in white neighborhoods. The construction contracts meant benefits for the segregated building trades, including their representatives in organized labor. “White workers built the infrastructure on which the white middle class depended for their enjoyment of San Francisco,” Jenkins writes. And the bankers—also white—cashed in. “The expansion of a segregated pie for white workers and white consumers required borrowing from wealthy white investors.”


As suburbanization and deindustrialization sped up in the 1950s, San Francisco, never heavily dependent on industry to begin with, turned increasingly to the finance, insurance, and real estate sectors to prove its value to lenders. In other cities, taxpayers fled urban cores, giving creditors reason to doubt the cities could repay the sums they wished to borrow—even though they were borrowing to build infrastructure that could attract residents back to the cities. To avoid that fate, San Francisco poured money into its downtown leisure economy and office highrises. “Just as federally guaranteed mortgages propelled white middle-class suburbanization, municipal debt made possible the well-paved streets, downtown parking garages, new sports arenas, and rehabilitated art spaces for the white middle- and upper-class urbanite,” Jenkins writes.

Taken collectively, those individual projects constituted “urban renewal,” to use the euphemistic phrase of the time. Urban renewal was facilitated by its own kind of bond. Offered by the San Francisco Housing Authority, this bond wasn’t backed by the city’s tax revenues, but instead by the federal government, in addition to the revenue generated by housing projects themselves—including fees from tenants. “In effect, income was earmarked first for payments to bondholders and secondarily, if at all, for project operations,” Jenkins explains. Since the bonds didn’t rest on tax revenues, the public didn’t get a chance to vote on them, either.

While renters and low-income residents—disproportionately Black and Asian—were harmed the most, this new approach to development also split the capitalist class. Their battles “proved yet another avenue for racial capital accumulation,” Jenkins writes. Slumlords and small-time property owners, whom Jenkins calls “little c,” felt their own profits squeezed, which, naturally, they mitigated by further squeezing their tenants. The local developers (“middle c”) fared better while speculating on property that, thanks to their fraternal connections, they knew would be redeveloped soon. But the real winners were “big c,” the large bankers and financiers.

In historical memory, redlining—the practice of refusing mortgages in specific, racially segregated neighborhoods—was the driver of spatial and wealth inequality in the mid-century. One of Jenkins’s most laudable achievements in The Bonds of Inequality is demonstrating that it’s only a portion of the story: “if we move the focus from one financial instrument—the mortgage—to another—new housing authority bonds—we find millions of dollars invested in the inner city throughout the 1950s,” he writes. It’s not that Black and Asian neighborhoods were abandoned; it’s that they became tax-free guarantees for investor income. “In a sense,” Jenkins writes, “the program became a laboratory for the profitability of poverty and how short-term debt could mollify the cost-profit squeeze of bondmen.”

It’s that cost-profit squeeze that points to the second reason why bankers and bondmen were able to assert their power over cities: the golden age of municipal bonds, from the New Deal to the 1960s, was an era of unique macroeconomic conditions. Highly rated cities paid a scant 1 percent interest on long-term bonds in 1946, creeping up to 3.5 percent by 1957—right around the time that the Black population in San Francisco exploded during the Great Migration. The viability of selling residents on debt by “insisting that a deracialized subject would benefit from universally cherished values” was already beginning to fray, but Lyndon Johnson’s Great Society programs continued to spur the bond market to new heights throughout the 1960s. Of the $122.8 billion in total municipal bonds sold between 1946 and 1965, 40 percent came between 1961 and 1965. Then came the credit crunch of 1966.

From the perspective of the cities, a series of factors changed monetary conditions for the worse. Federal budgets skyrocketed thanks to the Vietnam War and a growing welfare state, especially as de jure segregation was outlawed. Deficits began to rise, as did inflation, continuing until Fed chairman Paul Volker “shocked” it into control in 1979. As a result, interest rates rose as well, driving up the cost of borrowing for cities. Finally, “the relationship between borrowers and lenders revealed itself for what it always had been,” Jenkins explains, “an unequal power dynamic that only appeared symbiotic because of the confluence of postwar needs.”


It is in that context that the impact of Matthew Johnson’s murder in Hunters Point—alongside similar urban uprisings around the country—must be understood. Faced with new borrowing pressures, the politics of debt financing fractured the coalition that had turned to bonds for the 30 years prior. Beginning in the 1950s, San Francisco taxpayers began to balk when asked to pay expensive loans that increased their taxes, especially when the loans only benefited the elite. They were sold on the universal benefits of an airport and schools, but rejected the claims about the Palace of Fine Arts, a Civic Center Auditorium, off-street parking, and sewer improvements.

As Black and Asian residents pushed for greater equity during the Civil Rights movement, the situation worsened. White taxpayers didn’t want to fund Black schools, parks, or housing. Basic infrastructural investment slowed. “A once-surefire issue, the prospect of bonds for the city’s public schools was now blackened and rejected,” Jenkins writes. It was the early stirrings of a taxpayer revolt that would eventually come to fruition in a 1978 ballot measure that cut property taxes, helping sweep Ronald Reagan into the White House in the process.

Even when the public could be convinced that a specific project was worthy of debt (or when public input was sidestepped through anti-democratic, technocratic measures), cities faced another problem: investors themselves. Funders had long viewed the very presence of Black people in a city as a detriment to creditworthiness. In the rebellious ‘60s, unruly labor unions and non-white racial groups proved too much of a risk. Instead, bondmen used their influence “to further insulate bond finance from popular input and democratic oversight,” Jenkins writes. They used new, more expensive short-term varieties of debt to increase yields for bondholders in the process.

Liberals, civil rights activists, and others pushed back, but in the end, their efforts never threatened the power of the moneymen. Jenkins points to the San Francisco Bay Guardian as a telling example. Arguing against some bonds and for others, the paper articulated a demand for more equitable debt financing, emphasizing the need for long-term investments against the expensive short-term options then in vogue. “For the SFBG,” Jenkins explains, “the problem was not debt per se, but how debt for the consumer playground crowded out other priorities such as schools, housing, and transportation that truly benefited all San Franciscans.” But that framing “did not challenge the dependencies of cities on debt and the bond market for basic infrastructure and social welfare.”

The same happened nationally, as civil rights groups used bonds to fight back against segregation in Southern states. Beginning in the early ‘60s, the Congress on Racial Equality argued that federal tax exemption on bonds amounted to a subsidy that Southern cities were receiving for debt-financing segregated facilities. They pointed out that this was a violation of federal law, playing up the risk to cajole bondholders to dump their holdings. “With so many bonds from which to choose, many of which offered a litany of protections and guarantees, why should bond buyers be bothered with the validity of southern debt?” Jenkins summarizes. The fundamentally technocratic nature of bond financing and the influence of its experts were legitimized, perhaps even amplified, as civil rights groups leaned on those experts in an attempt to influence policy.

Those trends were only exacerbated as interest spiked throughout the 1970s, especially after New York City’s fiscal crisis in 1975, which raised bondholder fears of municipal defaults. Even well-functioning cities had their credit ratings decreased, including San Francisco in 1980. Jenkins describes the resulting policies as akin to the structural adjustments that the United States imposed on other countries as a form of economic imperialism—he even notes that some members of the bondmen fraternity later took leading roles at the World Bank and the International Monetary Fund. Fees and other payments were increased to assuage financier fears, and cities followed investors in calling for more laissez-faire lending policies, like removing interest rate caps that limited the costs cities could pay, on the grounds that increased competition in the bond market would be best for all.

At the same time, the neoliberal assault on the welfare state took off, tracing racial lines. “The increased militancy of people of color would, the logic went, lead to bloated budgets and more borrowing for capital improvements,” Jenkins writes. “Their demands for greater public expenditures clashed mightily with the erosion of the city tax base and rising interest rates.” Labor groups, now fighting back against regressive debt service agreements, broke from their intraracial cross-class compact with the bankers. “What emerged was a very different kind of investment geared toward an emergent ideology of consumption,” Jenkins explains, “one that prioritized high style and high prices instead of the postwar emphasis on low prices and functionality.”

Democrats like Dianne Feinstein, appointed mayor of San Francisco in 1978, still pushed debt-financed infrastructure. But now, it was “increasingly targeted toward upper-class residents, tourists, and suburbanites.” All told, Jenkins argues, it was a “reification of older forms of racial inequality with a new class component.”


The birth of today’s San Francisco—dominated by tech, finance, and tourism while its multiracial working class is pushed out to ever-more distant suburbs—can be traced to those policies. Jenkins’s history helps clarify how a rich, vibrant city could be turned into a beacon for the investing class while ordinary people pay exorbitantly to cling to their homes. It was the bond that tied the city to the whims of the banker class, that held together a coalition of white residents—and that disciplined those who were discontented with the terms. Forced to measure themselves by the standards of Moody’s and Bank of America, San Francisco and other cities across the country played into the hands of bondholders and let basic infrastructure—that which makes a city livable for average people—fall into decay.

And bonds remain central to the city’s ongoing process of gentrification. San Francisco’s most recent budget earmarked over $489 million for debt service payments. New York City has over $7 billion in repayments planned for 2021—nearly half of which will go to interest. The funding model is still liable to trap cities in this deleterious budgetary cycle, as is made clear by cases like Flint, Michigan and its inability to provide clean water, and in the structural adjustment forced on Puerto Rico. In the midcentury, cities focused on becoming one of the “good names” bondmen prioritized for lending; today they seek to be included on “best places to live” lists to prove they are debt-worthy. From courting Amazon headquarters to touting new tourist attractions, it’s still the bankers’ criteria that matter most.

Though these issues are beyond the scope of The Bonds of Inequality, Jenkins’s book serves as a crucial primer on the questions that must be asked about today’s development. It’s not enough to point to the obvious existence of gentrification, nor to the centrality of cities and property values to the global economy. That was already proven decisively in 2008. What’s needed is a deeper understanding of the mechanisms at play: the individuals making the decisions, and the power they wield over the populace. Jenkins offers trenchant insights through a compelling narrative that explains how the world we live in today was built. The Bonds of Inequality provides comparisons and historical analogues that will be invaluable in the fights that lie ahead.

You could emphasize, as sociologist Melinda Cooper did in a roundtable about Jenkins’s book, the funding crises so many cities are facing today—especially smaller cities whose revenue streams were decimated by COVID-19, and those rocked by a new wave of antiracist urban uprisings—by comparing this moment to the urban austerity of the 1970s. The resurgent boogeyman of inflation coming on the heels of Biden’s infrastructure plan only strengthens the analogy. Or you could focus on today’s historically low interest rates, as Jenkins did in reply to Cooper, using the bond’s golden age as a benchmark. If the comparison holds, there’s a risk that social reformers and nominally progressive programs will turn to bonds to fund their initiatives, as many cities have done, especially for affordable housing. The real beneficiaries would once again be the financiers, undermining democratic power in the long run. At the core, that’s the story Jenkins tells: when people don’t control their city’s infrastructure, they don’t control their homes. ♦