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.
Mortgages and Madness
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And who was the middleman? Farther along the pipeline from local brokers like Kellogg was the man who started Argent Mortgage—Roland Arnall of Beverly Hills, Calif. A Holocaust survivor and cofounder of the Simon Wiesenthal Center, the billionaire entrepreneur was known as an L.A. bon vivant, a cultivator of the rich and famous.
While Arnall—who died of cancer in March—seemed to inhabit a different social universe entirely from Mark Kellogg's, the two were effectively in business together. Argent handled more bad loans—27 percent of foreclosures—than any other company in Cleveland during the boom (including several loans to Kellogg). The first company that Arnall founded, Long Beach Mortgage, was bought by Washington Mutual, which is now being investigated by New York Attorney General Andrew Cuomo for conspiring to inflate real-estate values. (Washington Mutual did not return a call asking for comment.) Long Beach is the company listed in Cuyahoga County records as the issuer of most of Kellogg's loans from 2004 to 2005, when the hunger for new product reached its crazed heights.
National and state regulators, meanwhile, paid almost no attention despite pleas for help from the local officials. It was way back in 2000 that Rokakis led a local delegation to the Federal Reserve Bank of Cleveland, asking for help. After much pleading, the Fed scheduled a daylong conference in March 2001 titled "Predatory Lending in Housing." "We asked them to step up and take action," the county treasurer recalls in his office in downtown Cleveland. "But here's what I learned about the Fed. They do wonderful lunches. But the Federal Reserve Bank is not there to protect us. It's there to protect the banks."
So cities like Cleveland sought to take action themselves. In 2001 Mayor Jackson prodded the city council to pass an antipredatory lending act that would have "slowed the Mark Kelloggs down," says Rokakis. But within a year the state, heavily lobbied by Ohio banks like National City, stepped in to void the local law, saying authority lay with the governor and legislature in Columbus. Then the U.S. Office of the Comptroller of the Currency issued a pre-emption order saying the states did not have the authority to enforce laws against national banks. (OCC spokesman Robert Garsson counters that states are the ones that oversee "nonbanks" like Argent.) When the Feds and state officials tied the hands of the locals, Rokakis says, "it was clear this was the Wild West, and there's no sheriff in town. If you're a lender, there's nobody who can stop you. The only difference is that in the old days, people robbed the banks. Now the banks were robbing the people."
Whether any Wall Street bigs ever face prosecution, the localities are still suffering from the fallout. Cuyahoga County, which includes Cleveland, now has about 22,000 vacant foreclosed properties—more than 5 percent of its 395,000 houses. Foreclosures in Slavic Village have ballooned from 114 in 2001 to 840 last year, and the rate is now at two a day, Brancatelli says. As thousands of distressed houses have been stripped and gutted, local youth gangs have begun using the hulks as hideouts. Father Mike Surufka, the Franciscan rector of St. Stanislaus Church, frets that his parishioners are moving out as a result. "For me the real sin is that people made huge amounts of money precisely by destroying neighborhoods," says Father Mike. Ultimately, many in Cleveland believe the only way to rebuild those neighborhoods is to return mortgage finance to where it started—to local lenders, local borrowers and local government. At least that way, everyone can keep an eye on one another.
© 2008
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