It's the money of other citizens. People don't realize it but money doesn't always gets invested from wealthy individuals. It could very well be from pension funds, mutual funds etc. So it's not that banks are getting hurt but other normal citizens. Also, stop painting banks as evil.
Richmond’s rules: Why one California town is keeping Wall Street up at night
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Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#32Earlier quoted context omitted.
Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elected officials far too much power. Isn't the purpose of government to protect its citizens when a more powerful entity acts against them? Also why bother obtaining property and wealth when the Government positions itself…
I actually agree with your last point, but the correct course of action would be for the Government to sue the banks based on this fraud. Using Eminent domain is the nuclear option. I'd rather see a court where the banks are ripped apart for their crimes, but for some reason this never happened.
I think the analogy "the nuclear option" is unfortunate. But if you remember the cold war, "the nuclear option" always was that: a real, actual option. Warsaw Pact forces in East Germany were far stronger than NATO forces, but they knew NATO policy was to use tactical nukes in the event of an invasion.
From the mortgaged home-occupant point of view, the banks have all the power here. Government power is the only thing they fear, but government power is a fairly blunt stick - governments generally don't intervene in individual cases and have to attempt a systematic solution, and so far it has been very ineffective.
In this case the mere threat of government intervention that will actually help consumers may be enough to change bank policies (if not in Richmond, perhaps elsewhere). I see that as a positive thing, and one that will help correct a distortion in the market.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#33It's the money of other citizens. People don't realize it but money doesn't always gets invested from wealthy individuals. It could very well be from pension funds, mutual funds etc. So it's not that banks are getting hurt but other normal citizens. Also, stop painting banks as evil.
It's the money of other citizens. People don't realize it but money doesn't always gets invested from wealthy individuals. It could very well be from pension funds, mutual funds etc.
Pension & mutual funds are big enough to force banks to act differently, and haven't. They should bear the risks associated with that behaviour.
stop painting banks as evil
Why? Their behaviour in the lead up to the 2008 financial crisis was unethical (to say the least), and their behaviour after 2008 has shown a complete lack of regret.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#34The reporting of the so-called "Wonkblog"'s reporting is particularly un-wonkish, describing the plan as 'complex' and talking about it in one of those artificial newspaper pseudo-neutral points of view, affecting to be balanced while dropping loaded language like such as
A courtroom victory for Richmond, a town of about 100,000, could give cities around the country the courage to act -- and potentially help keep millions of people in their homes.
The plan doesn't target distressed mortgages, so it's not just a problem of loaded language designed to appeal to certain kinds of readers--it's also a bald lie. As for the other side:
But even a win could spell defeat for Richmond if the financial industry cuts off lending to make an example of the city.
Make an example of the city. Hmm. It's not that private industry is not obligated to do money-losing business with eminent domain thieves, it's that they want to make an example of people who cross them. Well, you can see what the writer actually believes, or at least what he pretends to believe in order to appeal to readers.
The plan is not 'complex' but fairly straightforward and very obviously illegal and not in the best interests of the public. I'm not aware of any informed opinion to the effect that this is a good idea. I discussed this in an earlier post(https://news.ycombinator.com/item?id=6273836), which I think is worth reposting, because as far as I can tell little has changed since then.
Repost below:
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The blog Naked Capitalism--hardly a friend of big finance--points out that this is a scam here: http://www.nakedcapitalism.com/2013/08/beware-of-private-equ....
Some key points:
* The profits are being split among Richmond and a private investment firm named "Mortgage Resolution Partners, LLC".
* Seizing a mortgage for less than its fair market value is blatantly unconstitutional. The argument that the value of an underwater mortgage in repayment is worth less than the house is so obviously wrong, I have a hard time believing Richmond officials honestly buy it. A mortgage that is on track to be repaid is undoubtedly worth close to the future value of repayment, even if the house is worth $0.
* Big banks do not actually own most mortgages in general. So this is not a scheme to rob big banks, although Mortgage Resolution Partners, LLC certainly wants to spin it that way.
* Almost all housing mortgages are merely serviced by banks but owned predominantly by entites such as "state and local governments, hospitals, Fannie, Freddie, and to a lesser degree, foundations and endowments". The banks have a legal obligation to protect these mortgages, of course.
* Many of these loans are current--they're not distressed mortgages at all! They also plan to steer clear of houses with liens. Naked Capitalism comments that the plan only works financially if they go after the mortgages of those that need help the least.
In short, this is a transfer of wealth from a diverse array of investors to the city of Richmond and a bunch of investment banker types--theft under the cover of populist outrage. It would also severely damage the market for future homeowners in Richmond, anyone who wants to sell their home, anyone who wants to refinance... Oh, it's also a threat to fundemental notions of private property, rule of law, and market capitalism, but distressingly few people still care about that. The bit I want to emphasize is that it's Prince John pretending to be Robin Hood.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#35They say using Eminent domain as if thats the solution, take the banks property away. I am thinking the fallout from this move will be disastrous. These are the ideas that fundamentally change the fabric of a society. Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elect…
I don't think it's going to be that bad. Remember that eminent domain requires the government to pay the fair market value of the property being seized - and conveniently, it's difficult for the banks to disagree with that fair market value, because it's the amount they'd value the houses at when they inevitably foreclosed on them.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#36They say using Eminent domain as if thats the solution, take the banks property away. I am thinking the fallout from this move will be disastrous. These are the ideas that fundamentally change the fabric of a society. Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elect…
I trust corporations much more.
Why yes Mr Dupont, Mr Pinkerton, I'm just move these striking miners over.... okay, never mind, just call the undertaker.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#37They're making the fundamental mistake of fixing a problem now in a way that will cause huge problems in the future. Mortgage lenders will put huge premiums on mortgages in the town in the future because of "default by eminent domain" risk, if the government pulls freddie/fannie mae it'll be even more expensive. Basically they're robbing future mortgage owners in order to pay current ones. Worse yet, other towns with…
If this system becomes routine, mortgage rates will go up, though I'm not sure about "huge premiums." Is that a bad thing? The investment becomes risker and more expensive, so less money is available, so fewer mortgages are made. More people rent instead of buy their own homes. I would submit that fewer owner-occupied homes would be a positive thing for the national economy.
Fewer mortgages = lower property prices.
No mortgages = 10x lower property prices.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#38They say using Eminent domain as if thats the solution, take the banks property away. I am thinking the fallout from this move will be disastrous. These are the ideas that fundamentally change the fabric of a society. Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elect…
Now the Government will use Eminent domain whenever a private entity is acting against the social interests of the citizens, whilst many will applaud such a move I fear it gives the Government and elected officials far too much power. Isn't the purpose of government to protect its citizens when a more powerful entity acts against them? Also why bother obtaining property and wealth when the Government positions itself…
Not just that, many of the subprime mortgages were missold to people who could actually obtained a much cheaper prime mortgage that would've been less profitable for the bank.
(Often on the basis of race - which is one of the things that makes all the people who blame the Community Reinvestment Act for the mortgage crisis really misguided. All the CRA did was ban redlining, a practice where banks excluded everyone in predominantly-black areas from prime mortgages even if they'd otherwise be eligible, leaving expensive subprime mortgages as their only option.)
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#39Good luck to anyone ever getting a mortgage in that town ever again.
They said the same thing about Iceland too :).
I think this is the real and telling part. Yes, they had to give up a 34mm bond sale because the top level bond market was refusing to buy. This is a short term problem caused by butt hurt bankers, not actual investor class bond buyers. The city is not actually defaulting on any real bonds, the bond investor class is not being hurt.
Yes it will cost more for 10 years until they can re-finance; but when the city offers a margin over market, actual people bond buyers will jump for the chance to make a % over market.
Re: Richmond’s rules: Why one California town is keeping Wall Street up at night
#40Good luck to anyone ever getting a mortgage in that town ever again.
Moreover, the property values there will go even lower because of dried up financing. This could become a textbook case of government power abuse backfiring at the people the politicians claim to be "helping" There is a better description of what this city did: Theft
While I agree with railing about bad decisions, it is almost willfully ignorant to continue to argue against settled law. This is as much theft as it was in Connecticut.
As much as I hate it, "Wickard vs Fillburn", and "Citizens United v. Federal Election Commission", "Gonzales v. Raich", and lastly "Kelo v. City of New London" ARE the laws of the land.
If the investment classes are going to be leveraging laws against homeowner to take property at 'current market prices'; how is it wrong for cities to force investor classes to do the same?
Change the laws, but don't decry the victims of fraud and systemic false market inflation turning the current laws against those who perpetuated the pump and dump scheme on them in the first place.
I think it will cost some financing issues/property costs, but then it will lead to the rise of a Community Trust bank or Credit Union. These are things that truly change communities.