Mortgages and Madness
Now the investigations are going all the way up the pipeline—to Wall Street. According to FBI spokesman Bill Carter, 19 "large institutions" are being investigated for corporate fraud, in addition to more than 1,200 individual cases of mortgage fraud. One area of inquiry, Carter says, are deceptive sales practices related not just to mortgage fraud in places like Cleveland but to how such mortgages were packaged into complex securities called "collaterized debt obligations." Among the targets are "major subprime lenders" and investment banks, Carter says. "We're going after people right at the top," says another FBI spokesman, Steve Kodak.
Earlier this year the city of Cleveland, suffering one of the highest foreclosure rates in the country, filed a lawsuit in the Court of Common Pleas in Cuyahoga County against 21 major investment banks and lenders. The suit contends that major Wall Street firms such as Goldman Sachs, Citigroup and Bear Stearns were a "public nuisance" that depleted Cleveland's tax base and destroyed its urban-renewal programs. "Over the course of several years, financial institutions routinely made money available to unqualified borrowers who had no realistic means of keeping up with their loan payments," the suit says. "This phenomenon claimed entire streets, blocks, and neighborhoods."
An astonishing 80 percent to 85 percent of the Cleveland loans bought up by Wall Street from 2003 to 2007 went into foreclosure. Asked to assess the economic damage, Cleveland Mayor Frank Jackson told NEWSWEEK: "You give me a number." County Treasurer Jim Rokakis tries: "More people have left Cuyahoga than any other county in the U.S. with the exception of New Orleans. They had a hurricane; we had lenders." Lawyers for the investment banks dismiss the claims. Shawn Riley, a Cleveland lawyer with a firm representing two of them, says that public-nuisance laws "written to address leaf burning in the neighbors' backyard can't be applied to a sophisticated financial transaction."
Slavic Village seemed, at first glance, an unlikely spot for investors in mortgage securities to place their bets. The childhood home of Rep. Dennis Kucinich, it was for decades a chronically depressed steel-mill town noted for its kielbasa shops. But like other rust-belt cities, Cleveland was trying to rehabilitate itself, pouring money into revitalization programs.
Yet insidious forces were at work in the neighborhood. After the mortgage-refinancing boom of 2003–04, demand for fresh subprime "product" grew so intense that lending standards nationwide disintegrated. To meet Wall Street's demand for a steady supply, lenders kept reaching lower and lower down the scale of quality in both property and borrowers, until the street hustlers jumped in to offer up their "product." Not surprisingly, the once shunned inner city became a prime lending spot across America. That, in turn, led to the phenomenon of reverse redlining. More than a decade ago, the big story was the redlining of low-income, often African-American, neighborhoods by banks that refused to lend there. Now the opposite happened.
Wall Street's insatiable demand inspired the local shop owner and plumber to go into the mortgage business—what Brancatelli calls "station-wagon brokers."
"There are a lot of former drug dealers who have gotten into the business," adds Ed Kraus of the Ohio Attorney General's office. Many brokers simply invented biographies and jobs for their indigent borrowers, officials say. In one case, says Brancatelli, Kellogg saw a lawn mower in a truck belonging to Williams's husband and declared him a "landscaper" for the mortgage records.
Rokakis compares the small brokers and borrowers to drug users whose weaknesses were exploited. "The police don't really want the small-time drug dealer or user," he says. "The guy they really want is the drug lord in Colombia. In this case the drug lord was Wall Street."
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Member Comments
Posted By: None of the Above @ 05/29/2008 11:11:28 PM
Comment: Comment: Anybody read the January '08 Wall Street Journal op-ed where Bill Clinton and Arnold Schwarzenegger portray locally owned inner city check cashers and payday lenders as "predatory," and then suggested banks be positioned as a superior source of financial assistance to America's urban working class? Well, it turns out the REAL predatory lenders of the inner city have been the subprime mortgage brokers, bank lenders and the investment banks who peddled, lent and securitized ridiculously bad paper in the heart of America's cities. Reading this article I could not help but think about that string of Sopranos episodes where Tony and his boys work a real estate deal in Newark on the advice of Carmella's legit, Wall-Street wise cousin.
Our urban poor have had their credit histories irrevocably destroyed by the most "reputable" of financial conmen, and they weren't above enlisting the help of street scum to make it happen. In the process, middle class investors (whose 401Ks and mutual funds are awash in subprime crap) and taxpayers (who get to bail out Bear Stearns) also took a beating. And the snake oil salesman who orchestrated the whole thing? Well, they are now lying low at the corner hot dog stand until the next bubble comes along to exploit. Meanwhile, locally rooted mom-and-pop check cashers and payday lenders -- who directly freight a lot of financial risk and charge relatively fair fees and/or interest relative to that risk -- get regularly hung in effigy by idiots like Arnold and Clinton. No matter what reform politicians propose in the wake of the subprime mess, you can be sure that the Bank Lobby and Wall Street will be the tail wagging on this dog.
Posted By: None of the Above @ 05/29/2008 11:07:04 PM
Comment: Anybody read the January '08 Wall Street Journal op-ed where Bill Clinton and Arnold Schwarzenegger portray locally owned inner city check cashers and payday lenders as "predatory," and then suggested banks be positioned as a superior source of financial assistance to America???s urban working class? Well, it turns out the REAL predatory lenders of the inner city have been the subprime mortgage brokers, bank lenders and the investment banks who peddled, lent and securitized ridiculously bad paper in the heart of America's cities. Reading this article I could not help but think about that string of Sopranos episodes where Tony and his boys work a real estate deal in Newark on the advice of Carmella's legit, Wall-Street wise cousin.
Our urban poor have had their credit histories irrevocably destroyed by the most "reputable" of financial con men, and they weren???t above enlisting the help of street scum to make it happen. In the process, middle class investors (whose 401Ks and mutual funds are awash in subprime crap) and taxpayers (who get to bail out Bear Stearns) also took a beating. And the snake oil salesman who orchestrated the whole thing? Well, they are now lying low at the corner hot dog stand until the next bubble comes along to exploit. Meanwhile, locally rooted mom-and-pop check cashers and payday lenders -- who directly freight a lot of financial risk and charge relatively fair fees and/or interest relative to that risk -- get regularly hung in effigy by idiots like Arnold and Clinton. No matter what reform politicians propose in the wake of the subprime mess, you can be sure that the Bank Lobby and Wall Street will be the tail wagging on this dog.
Posted By: None of the Above @ 05/29/2008 11:06:36 PM
Comment: Anybody read the January '08 Wall Street Journal op-ed where Bill Clinton and Arnold Schwarzenegger portray locally owned inner city check cashers and payday lenders as "predatory," and then suggested banks be positioned as a superior source of financial assistance to America???s urban working class? Well, it turns out the REAL predatory lenders of the inner city have been the subprime mortgage brokers, bank lenders and the investment banks who peddled, lent and securitized ridiculously bad paper in the heart of America's cities. Reading this article I could not help but think about that string of Sopranos episodes where Tony and his boys work a real estate deal in Newark on the advice of Carmella's legit, Wall-Street wise cousin.
Our urban poor have had their credit histories irrevocably destroyed by the most "reputable" of financial con men, and they weren???t above enlisting the help of street scum to make it happen. In the process, middle class investors (whose 401Ks and mutual funds are awash in subprime crap) and taxpayers (who get to bail out Bear Stearns) also took a beating. And the snake oil salesman who orchestrated the whole thing? Well, they are now lying low at the corner hot dog stand until the next bubble comes along to exploit. Meanwhile, locally rooted mom-and-pop check cashers and payday lenders -- who directly freight a lot of financial risk and charge relatively fair fees and/or interest relative to that risk -- get regularly hung in effigy by idiots like Arnold and Clinton. No matter what reform politicians propose in the wake of the subprime mess, you can be sure that the Bank Lobby and Wall Street will be the tail wagging on this dog.