Saturday, January 12, 2008
Cleveland sues banks over foreclosure mess…
“I’m gonna make them an offer that they can’t refuse.” That’s what the mayor of Cleveland said happened to his city. Likening the actions of the 21 major banks that the City of Cleveland just sued, mayor Frank Jackson said that the banks were acting just like organized crime syndicates to rape and pillage his city.
As reported on CNN Radio, the suit, filed in Cuyahoga County Common Pleas Court, alleges that in pushing sub-prime mortgages in Cleveland, the companies created a public nuisance in violation of state law.
City officials hope to recover hundreds of millions of dollars in damages for lost property tax revenue, the cost of demolishing homes left abandoned and the cost of policing neighborhoods devastated by thousands of foreclosures.
Jackson said, "If you look at the end result of organized crime activity on neighborhoods, cities and individual lives, sucking equity out, you see the same thing here."
The banks and mortgage companies being sued reads like a 'Who's Who' list on Wall Street. "They are the ones that fueled this operation and that's what placed us in this predicament," said Cleveland's Director of Law Robert Triozzi. "They are going to be held accountable. Mayor Jackson said the lenders signed off on deals that they knew should have never been made."
The companies being sued are Deutsche Bank Trust, Ameriquest Mortgage, Bank of America, Bear Stearns, Citigroup, Countrywide Financial, Credit Suisse (USA), Fremont General, GMAC-RFC, Goldman Sachs, Greenwich Capital Markets, HSBC Holdings, Indymac Bancorp, J.P. Morgan Chase, Lehman Brothers, Merrill Lynch, Morgan Stanley, Novastar Financial, Option One Mortgage, Washington Mutual and Wells Fargo.
Certainly, the same statements could be made here in Detroit and in many cities and communities around the country. Defenders of capitalism will protest that this is how the system works and argue that the lenders are the victims here and not the foreclosed homeowners. They will point to greed on the part of the borrowers and downplay the greed that drove the banks to pursue these questionable lending practices. My last rant about greed in the system brought out vigorous defenders of greed as an underlying engine of capitalism, so I won’t go there this time. That is the extreme view on the opposite side of this argument by Cleveland that the banks acted in the same manner as organized crime to bilk unsuspecting homeowners.
The truth, as usual, lies somewhere in the middle and is obscured somewhat by the human nature that was involved on both sides. I have no doubts that many homeowners knowingly took on more credit than they could afford, hoping that the ride upward on home values would continue forever; or that they could at least get out before it ended. I also believe that many loan officers (with or without any official blessing from the banks involved) took full advantage of every gullible borrower they could find during the run-up to this failure, because they were being paid to make loans, not to give credit counseling to potential borrowers. So, who’s to blame – nobody, everybody or just whomever you can drag into court with deep pockets?
The mayor of Cleveland will get his 5 minutes of fame over the lawsuit and, likely, will never be heard from again, unless he’s planning to run for governor next year, at which time he will point back to how he tried to “stick up for the tax-payers of Cleveland.” Lots of lawyers will earn outrageous fees to defend against this frivolous lawsuit and will laugh all the way to the bank. The banks will end up paying nothing but legal fees and the poor foreclosed and now homeless people will get nothing but some small, temporary sense of satisfaction that someone at least tried to stick it to their protagonists. It’s all quite pathetic, when you think about how little really can be accomplished by these actions.
The good that could come out of this sad state of affairs will not be the result of lawsuits or even of new laws being passed in Washington. If any good comes from it, it will be the collective learning that the rest of the people in America should take from this lesson when listening to those “too good to be true” offers that have now come back to bite the unfortunate homeowners who have been foreclosed. Unfortunately there is a famous saying in American history that haunts us in this case as in some many cases of pain in our history – “those who cannot remember the past are condemned to repeat it” - George Santayana. We seem, as a society to be forever condemned to repeat the mistakes of waging wars over vague issues and trusting loan officers with offers that sound to good to be true. Didn't we go through something similar in the Savings and Loan meltdown a few years back? Let us resolve not forget the pain of the current sub-prime debacle for a long time to come.