This past week, the Richmond CA city council voted 4-3 to move ahead with the Richmond CARES program, in which the city will buy underwater mortgages from lenders then reduce the amount owed by the homeowner to less than the assessed value of the home. More than half of all mortgaged homes in the city are underwater, and the city is starting by purchasing particularly toxic “private label security” loans which were sold by banks to pools of private investors, who now claim that they are unable to modify them.
The Richmond plan also allows the city to buy houses by eminent domain, although banks have threatened that such a move would make them less likely to lend to the city in the future, and a court was set to rule on Thursday as to whether the use of eminent domain in such a case is constitutional, but the city of Richmond has asked the judge to dismiss the case as neither plaintiffs Wells Fargo or Deutsche Bank have shown any evidence of harm from the loan buyback program. Both banks, meanwhile, have been targeted in court and by activists for code violations or illegal eviction practices.
If the Richmond plan survives court challenges and succeeds in preventing foreclosure, perhaps some Massachusetts towns and cities will take a first or second look at similar initiatives here. A state or city bank could be an excellent source of funding for these kinds of programs. In turn, neighborhoods with housing-secure resident homeowners mean a stronger tax base and higher property values. Democratizing our banking system is a win-win for everyone but predacious lenders.
When Bear Stearns and Lehman started to collapse in 2008, we were warned that without a federal bailout the rest of the investment banking structure would follow, and we’d be facing a second Great Depression.
Not quite, says economist Dean Baker in this article on Truthout. The kind of banks that most of us use—basic commercial operations that handle our checking accounts and mortgages, would have been operational in short order, as they are whenever the FDIC has to take over a failing bank.
The real danger in an investment banking collapse, says Baker, is that the crisis could have provided the nation’s 1% with a very good excuse for instituting some classic austerity measures–gutting Medicare and Security, and other programs that working people depend on, rather than upping public spending, as the US did to get out of the last Depression. (Hopefully we would be spending on something other than a world war.)
“So the long and short is that we only need to have worried about a Second Great Depression if the bad guys got their way,” Baker writes. “And most of the people who warn about a Second Great Depression were on the list of bad guys. The prospect of a second Great Depression was not a warning, it was a threat.”
It’s a threat that helps make a case for democratized finance—both for public banks run so that they are accountable to the public interest, instead of a handful of powerful stakeholders, and for community commercial institutions like local banks and credit unions. North Dakota, with a state-level public bank, has managed to weather both economic and natural disasters. We should have the same kind of protection for communities, families, and small businesses here in Massachusetts.
Boston city councilor and mayoral candidate Felix Arroyo is looking for community support for his “Invest in Boston” ordinance online, and you can sign a petition online here.
The petition notes that the City of Boston has approximately $1 billion dollars on deposit, money that could, if invested appropriately in the city, support job creation, stabilize neighborhood housing stock, and help small businesses.
Read, sign on, and share with friends.