Wall Street, foreclosures and Detroit

Mar 21, 2013 at 2:33 pm
The Eclectablog site, which features progressive news and commentary, has an excellent piece linking the issues of bank wrongdoing involving foreclosures and how Wall Street is making out like a bandit because of Detroit’s financial crisis – which, at least in part, is directly linked to the foreclosure crisis.

The Eclectablog story starts by drawing attention to a phenomenon referred to as “zombie foreclosures.” As the name implies, they are nasty things. We quote electablog:

“Last week, Dave Dayen reported at the National Memo that some banks have begun foreclosure proceedings on homeowners and then simply walked away before taking possession of the property. This leaves evicted homeowners on the hook financially for the home they are no longer permitted to live in. What’s worse is that the banks don’t even have to inform the homeowner or the city of Detroit which no longer receives any tax revenue from the property.”

From that item (which includes a helpful clip of Dayen’s appearance on MSNBC), the story shifts to a recent Bloomberg piece detailing how big bondholders – including the Bank of America affiliate Merrill Lynch — are benefitting from Detroit’s debt:

“The only winners in the financial crisis that brought Detroit to the brink of state takeover are Wall Street bankers who reaped more than $474 million from a city too poor to keep street lights working. ...

“Banks including UBS AG, Bank of America Corp.’s Merrill Lynch and JPMorgan Chase & Co. have enabled about $3.7 billion of bond issues to cover deficits, pension shortfalls and debt payments since 2005, according to data compiled by Bloomberg. Liabilities rose to almost $15 billion, including money owed retirees, according to a state treasurer’s review.

“The debt sales cost Detroit $474 million, including underwriting expenses, bond-insurance premiums and fees for wrong-way bets on swaps, according to data compiled by Bloomberg. That almost equals the city’s 2013 budget for police and fire protection.”

As a business publication, Bloomberg can’t exactly be accused of mouthing lefty propaganda. The debt issue is a legitimate one, as is its connection to the foreclosure crisis. That’s why we wrote about it one month ago. You can read that story, titled "Foreclosures, fraud and the big fight," here.