Sunday, January 13, 2008

US Economic Crisis Deepens: Cleveland Sues Lenders; Michigan Foreclosure Struggle; Implications of the Economic Downturn

Last week the City of Baltimore sued banks over the damage done to their cities by their loan practices. Now Cleveland is also suing. Detroit's mayor has done nothing--except veto the 2002 city council's ordinance against subprime lending.

January 12, 2008

Cleveland Sues 21 Lenders Over Subprime Mortgages


CLEVELAND — Cleveland is suing 21 of the nation’s largest banks and financial institutions, accusing them of knowingly plunging the city into a financial crisis by flooding the local housing market with subprime mortgage loans to people who could never repay.

The city is seeking “at least” hundreds of millions of dollars in damages, Cleveland’s law director, Robert J. Triozzi, said Friday. The list of defendants includes some of the most prominent firms on Wall Street, like Citigroup, Bank of America, Wells Fargo, Merrill Lynch and Countrywide Financial.

Mayor Frank G. Jackson said in an interview on Friday that the companies would be “held accountable for what they’ve done.”

“We’re going after them to get the resources we need to rebuild our city,” Mr. Jackson said.

The financial crisis has hit Cleveland especially hard, with more than 7,000 foreclosures in each of the last two years, Mr. Jackson said. Entire city blocks have been abandoned. The city’s budget has been strained by the effort to maintain thousands of boarded-up homes, and by the cost of responding to a rise in violent crime and arson.

The major banks involved did not return calls about the lawsuit. A spokesman for Merrill Lynch, Mark Herr, said, “We’re declining to comment right now.”

The Cleveland suit is separate from one filed Tuesday in federal court by the City of Baltimore against Wells Fargo, accusing it of violating fair-housing laws by singling out African-Americans for high-interest mortgages.

The Cleveland suit, filed Thursday in Cuyahoga County Common Pleas Court under the state’s public nuisance law, asserts that the financial institutions created nuisances across broad swaths of Cleveland because their loans led to widespread abandonment of homes. “We’ve torn down
1,000 abandoned houses, and haven’t even made a dent,” Mr. Jackson said.

The drop in homeownership, and a steep decline in population—to 444,000 residents in 2007 from almost a million in 1950, according to census figures — has drained Cleveland’s budget. In December, Mr. Jackson announced that the city was unable to borrow money and would be forced to postpone or permanently shelve millions of dollars in public works projects.

“The strain on our budget is too much,” Mr. Jackson said. “These companies have knowingly created a public nuisance by exploiting the city of Cleveland.”

Several Cleveland suburbs have expressed interest in joining the case as a class-action suit, Mr. Triozzi said. Because the city is suing under a state statute, cities outside Ohio could not join. “This case is about what these Wall Street bankers did to Cleveland,” Mr. Triozzi said.

Instead of aiming at the banks that originally made subprime mortgage loans in the city, the lawsuit is against those firms that bundled the loans into securities to be divided into shares and sold on the stock exchange. This process, and the large fees the firms generated from the work, Mr. Triozzi said, drove their effort to make as many loans as possible during an era of low interest rates and a prolonged housing boom.

Copyright 2008 The New York Times Company

Protests called in Michigan to halt home foreclosures

By Kris Hamel
Published Jan 9, 2008 9:30 PM

Activists fighting for a moratorium on home foreclosures in Michigan are stepping up their efforts after an organizing meeting held on Jan. 5. They produced a leaflet to call people out to a public hearing to be held by the Detroit City Council Housing Task Force on Jan. 11.

At the hearing activists pressed the council to formally apply to Gov. Jennifer Granholm to declare Detroit an economic disaster area, the first step in having her impose a halt on foreclosures in the city.

Progressive attorneys are drafting language that other municipalities will be able to use as well. Foreclosures in the metro Detroit area are up 100 percent from a year ago, with over 72,000 homes now in foreclosure.

United Community Housing Coalition coordinator Ted Philips, who is involved in stopping tax foreclosures in Detroit, told the meeting participants that show-cause hearings are scheduled on Jan. 7-9 for Wayne County tax foreclosures. Activists plan to leaflet the hearings each day.

Community organizer Thelma Curtis spoke about her upcoming eviction from the home that has been owned by her family for over 30 years. “After I was divorced and became responsible for the bills, the mortgage payments rose from $252 a month to $550. My daughter bought the home in 2001 and the mortgage payments rose to $1,100 a month. We found out our house was on a list to be sold, which we did not know about. Now we are in the redemption period which ends on Jan. 19.”

The meeting unanimously agreed to fight to keep Curtis in her home, which she rents from her daughter. An emergency response task force was set up to plan an action to prevent the bailiff from evicting Curtis.

Michigan Emergency Committee Against War and Injustice (MECAWI) activist Jerry Goldberg reported on the demonstration, leafleting and petitioning that took place at a mortgage fair on Dec. 13 sponsored by state Attorney General Mike Cox. Thousands of people attended in an effort to find some relief from the foreclosure process.

The response to the demand for a moratorium was overwhelming, Goldberg stated. “The racist and predatory lenders aren’t going to solve the crisis they’re responsible for. Nothing is abating the situation. All the proposals are like putting a thumb over a bursting dam. The only way to get a state of emergency declared and a moratorium on foreclosures is by mass pressure. Our task is how to build this movement.”

MECAWI has called for a demonstration at the State Capitol on Tuesday, Jan. 29, at 6:00 p.m. during Gov. Granholm’s annual State of the State Address, to keep up the pressure on the governor to declare a state of emergency and a moratorium on all foreclosures.

A Detroit News article on Jan. 5 as well as on channel 2 Fox News reported on MECAWI’s call. The moratorium campaign was also bolstered by an hour-long community radio and television program hosted by Agnes Hitchcock on Jan. 5. MECAWI organizer Jerry Goldberg was Hitchcock’s guest and reported an overwhelming positive response to the moratorium call.

On Jan. 7 MECAWI organizers will make a presentation on the foreclosure moratorium struggle to a mass meeting of Detroit community organizations.

For bus tickets from Detroit to the Jan. 29 demonstration in Lansing, and for more information on the struggle for a moratorium on foreclosures, call (313) 319-0870 or visit

Workers World, 55 W. 17 St., NY, NY 10011
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Unemployment spreads as
Foreclosure storm hits major cities

By Deirdre Griswold
Published Jan 10, 2008 9:38 PM

Sour. That’s been the taste of the U.S. capitalist economy for some time now for a large and growing sector of the working class.

Real wages have been declining ever since the 1970s, so that now most families/households need more than one wage earner to get by. Pensions, paid vacations and health coverage seem like fairy tales from a golden past for millions of full-time workers, let alone the millions more who are part-time, self-employed or work for “temp” agencies.

Yet all the suffering caused by plant closings, by job losses due to high tech, and by the shift of industry and services to lower-wage, non-union areas had seemed to be off the radarscope of establishment politics. The politicians didn’t want to talk about how the high-paid CEOs of the transnational corporations would commit any crime against the workers to increase the profits raked in by their bosses.

That was yesterday. As though overnight, the economy now looms very large as a political issue as a tide of mostly younger people floods into the primaries. All the candidates of the big business parties, Democrats and Republicans, are honing their I-understand-your-pain demagogy, hoping to catch this new wind in their sails.

It can’t be avoided any longer. The evidence pointing to an economic meltdown grows stronger every day.

Rising unemployment and the ‘R’ word

The most recent statistical development is a rise in the monthly unemployment rate to an official 5 percent, with a simultaneous drop in new jobs created, to only 18,000 in December. It bears remembering, however, that these figures way understate the true jobless rate in this country. They don’t count the “discouraged” workers who have given up looking for work. They don’t count the people who can’t get enough work to survive. In fact, a person is considered employed if s/he worked just one hour in the week.

Nevertheless, the jobless statistics, as minimal as they are, do show which way things are moving. And it’s down. More and more, corporate economists, government officials and pundits are using the “R” word—recession—to describe what’s coming. Some say it has already begun. David Rosenberg, Merrill Lynch’s chief economist for North America, said on Jan. 9 that the unemployment figures, taken with all the other gloomy news, prove that a recession “isn’t even a forecast any more but is a present-day reality.”

Now, even President George W. Bush, who has avoided the people’s economic problems like the plague, had to go before the cameras on Jan. 7 and talk about the “challenges” in the economy. His motive was obvious: he’ll defend his tax cuts for the rich even as the national debt soars above $9 trillion and every worthwhile government service and program is threatened with cuts.

Even as Washington was bracing for the fallout from the weakened economy, Democrats and Republicans in Congress passed Bush’s “defense” budget in December—nearly $680 billion for fiscal 2008, not counting the “supplementary” bills that come up twice a year to finance the wars and occupations in Iraq and Afghanistan. This DoD budget is 10 percent larger than last year’s.

With so much money already committed to war and destruction, what will be left for education, health, parks and recreation, fixing infrastructure like bridges and levees, and other useful functions of the civilian government once a recession takes hold?

Which leads to the question of how severe this downturn is expected to be.

Mortgage storm hits major cities

By now, everyone knows about the mortgage crisis that is decimating whole neighborhoods and causing panic in city governments as “Foreclosed” signs mushroom on more and more lawns and porches.

Several million families, lured by mortgage companies into buying homes with offers of no down payment and an initial low interest rate, have now either already lost their homes or are staring default in the face as the rates “reset” and their monthly payments double or triple.

But there’s more to it than that. The foreclosure crisis is also happening at the same time that workers are being hit by a double whammy of layoffs and pay cuts as well as price increases, especially for health care and transportation.

Add the increased mortgage payments and, for millions of families, especially in the Black communities, it is a “perfect storm” that has engulfed their lives and turned them upside down.

In Detroit, which has been virtually abandoned by the auto companies its workers made rich and which has the sad distinction of leading the country in foreclosures, activists are demanding the governor declare a moratorium that would prevent the banks and mortgage companies from seizing people’s homes.

In Cleveland, where the mostly Black inner city was the first to lose homes to the auctioneer’s hammer, the crisis has now spread to the largely white suburbs where auto workers protected by union contracts had lived a fairly comfortable existence. Many have now been laid off.

In Baltimore, a majority Black city, the racist, predatory lending practices of Wells Fargo Bank are the subject of a lawsuit. The city charges that when Black people applied to the bank for mortgages, two thirds were told they qualified only for the more expensive “subprime” mortgages. But only 15 percent of the bank’s white customers in the same area were channeled into subprime loans, says the city’s lawsuit. The subprime rate is at least 3 points higher than the prime rate and results in much larger monthly payments.

The suit says that Baltimore is in a foreclosure crisis; notices of default, foreclosure sales and lenders’ purchases of foreclosed properties rose more than five times between the first and second quarters of 2007.

The heartache of losing one’s home is devastating and can have a long-lasting effect on physical, mental and financial health. Yet much more attention is being paid in the corporate media to the problems of Wall Street than of Main Street.

Markets decline and Fed is split

On Jan. 8, the stock and bond markets tumbled on rumors that Countrywide Financial, the biggest mortgage lender in the country, might declare bankruptcy. The Wall Street Journal’s Marketbeat blog, in a piece called “Countrywide shares tanking,” quoted market strategist Joe Kinahan as saying that the volatility of the company’s stock was “through the roof—it’s almost a panic situation.”

The Dow Jones Industrial Average of stock prices had hit a record high above 14,000 in October. A steady decline has been going on since then, and by the second week in January the DJIA had fallen below 12,600—a loss of about 10 percent. While the market is always fluctuating, this kind of sustained decline is more than a “correction” caused by inflated stock prices—like a heart that is fibrillating, it points to weaknesses in the organism itself, especially when accompanied by other very significant economic problems.

Before last year, new housing construction had driven much of the economic growth in this country. New housing starts have now declined as existing foreclosed homes are put on the market at fire-sale prices. The ripple effect is felt in lumber, roofing and siding materials, furnaces and plumbing, appliances, home furnishings—every industry associated with home construction.

As companies reduce production, laying off workers and/or cutting their hours, the crisis spreads into other markets and services. States and municipalities like Baltimore are particularly worried right now that their tax base will shrink at a time when social problems and the need for palliative services are on the rise.

Over the last two decades, several market crises seemed to threaten a general recession. When that happened, the federal government stepped in through the Federal Reserve system, this country’s central bank, and lowered interest rates to stimulate the economy. But this time the bank is in a deep dilemma.

According to news reports, the Fed’s directors are split over what to do. Charles Plosser, head of the Federal Reserve Bank of Philadelphia—where a lot of “old money” resides—in a speech to the Gladwyne, Pa., Chamber of Commerce worried that the “risks of higher inflation” might outweigh the risks of “even weaker economic growth.” In other words, the economy faces the dreaded “stagflation,” when government intervention to ease credit could unleash a serious inflationary spiral. (Wall Street Journal, Jan. 8)

Not all areas of the economy have turned down, however. The military-related stocks in the SPADE Defense Index increased in value by over 22 percent last year.

Besides pumping in credit, or liquidity, to stave off a capitalist economic crisis, the other major government intervention intended to stimulate the economy—and pump enormous wealth into a handful of corporations well-connected to the military brass—has been the growing “defense” budget. Military spending, however, creates fewer and fewer jobs as the armed forces and their weaponry become more high-tech.

And what was originally a stimulant can become a depressant as the capitalist government goes ever deeper in debt to pay for future, present and past wars—especially if these wars, which are meant to expand the territory available for imperialist super-exploitation, end in failure, as happened in Vietnam and is doing so again in Iraq and Afghanistan.

That federal debt now exceeds $9 trillion—or $30,000 for every woman, man and child in this country. You’re paying the interest on that debt right now, even if you’re not aware of it. It’s in every bill you pay, every tax taken from your paycheck, every service you should be getting from the government but aren’t.

For now, the hope of many people to find a way out of this horrible mess seems to be centered on the elections. Whoever is the next president, however, the capitalist economy will respond to its own inner dynamic, which seems to be driving it toward a significant recession.

If that happens, the rich ruling class will do as always and put profits before people, which means more layoffs in both the private and the public sector as the budget crisis deepens. California Gov. Arnold Schwarzenegger is already calling for automatic budget cuts when the state’s revenues fall—which would mean significant layoffs of state workers.

The time-tested recipe from earlier periods of crisis and intense class struggle shows that the only way for the working class to defend its interests is through independent, militant action that asserts that the workers’ right to their jobs and a decent standard of living must take precedence over the profits of the rich.

Workers World, 55 W. 17 St., NY, NY 10011

1 comment: said...

Someone needs to say something about this! IS THIS LEGAL? No wonder why we have the subprime mess we have when lenders USE FAKE DOCUMENTATION to help PUSH the loan through Quickly SO THAT EVERYONE DOWN THE FOOD CHAIN (from loan processor to the loan officer to the actual lender) can make the commissions they "WERE" making during the booming 90's!!!