The current generations of Americans were born to affluence (most of them, that is), and few have any idea how quickly it can all go away. As it did for Latin America — rich after WWII, poor today. Here are three articles foreshadowing a possible future for America. All grim, all essential reading to understand what’s happening.
An excerpt is provided from the last of these, as it illustrates important dynamics of how we got here — and a way to a better future. The situation looks bleak for Cleveland, but they are responding with resolution and adaptability.
- “Wall Street on the Tundra“, Vanity Fair, Michael Lewis, April 2009 — about Iceland. “The world is now pocked with cities that feel as if they are perched on top of bombs. The bombs have yet to explode, but the fuses have been lit, and there’s nothing anyone can do to extinguish them.”
- “Tough Times in Troubled Towns – America’s Municipal Meltdowns“, Nick Turse, posted at TomDispatch, 22 February 2009 — Main Streets closing down around America.
- “Breaking the Banks – The Struggle to Feed America’s Nouveau Needy“, Nick Turse, TomDispatch, 8 March 2009
- “All Boarded Up“, Alex Kotlowitz, New York Times Magazine, 8 March 2009 — About Cleveland, an example of municipal collapse hitting America’s cities.
Excerpt from “Tough times in Troubled Towns”
First, one source of their problems.
TONY BRANCATELLI, A CLEVELAND CITY COUNCILMAN, yearns for signs that something like normal life still exists in his ward.
… There was something else going on in the city that was even more destructive. Unlike fast-growing communities in Florida and California, Cleveland didn’t see housing prices rise through the stratosphere. But even moderately rising property values created the conditions for subprime lenders to exploit strapped homeowners. Cold-calling mortgage brokers offered refinancing deals that would let homeowners use the equity in their houses to pay off other debts. … Many of those deals were too good to be true, and interest rates ballooned after a short period of low payments. Suddenly burdened with debt, people began to lose homes they had owned free and clear.
As early as 2000, a handful of public officials led by the county treasurer, Jim Rokakis, went to the Federal Reserve Bank of Cleveland and pleaded with it to take some action. In 2002, the city passed an ordinance meant to discourage predatory lending by, among other things, requiring prospective borrowers to get premortgage counseling. In response, the banking industry threatened to stop making loans in the city and then lobbied state legislators to prohibit cities in Ohio from imposing local antipredatory lending laws.
… Now banks are selling properties at such low prices – many below what they sold for in the 1920s – you have to wonder why they bother to foreclose at all. (The F.D.I.C. estimates that each foreclosure costs a bank on average $50,000, more than if they were to do a loan modification.) All of this leaves Brancatelli in a constant state of exasperation. When asked how he’s doing, he often takes a breath and replies, “Another day in paradise.
… U.S. Bank, which owned the house, appealed a city condemnation order. “It’s the running joke,” Brancatelli told me. “The banks appeal the condemnations because they say they want more time to make repairs to put it on the market to sell. And I go to the hearings on a regular basis to say you shouldn’t get more time. Here, they owned it for more than six months and hadn’t made any repairs. They just want time to try to unload the property.”
Second, how they are coping.
BY MID-2007, IT BECAME CLEAR to Brancatelli that his was a city at the mercy of lenders and real estate wholesalers, who now owned thousands of abandoned properties in the city. Somehow, the city needed to hold these new land barons accountable for their vacant houses, so many of which were in utter disrepair.
Brancatelli and others looked to Raymond Pianka, the judge in the city’s lone housing court. In 1996, Pianka gave up his seat on the City Council to accept this judgeship. His judicial colleagues derisively refer to it as “rat court,” because its main function is to make sure that owners mow their lawns, trim their hedges, clean up their garbage, repair leaning porches or hanging gutters – in short, that they make their homes inhospitable for rats. No one foresaw that this lowliest of courts would become one of the most powerful instruments in the city’s fight for survival. “The court’s the only tool we have,” Brancatelli said. “When we get them into court, we can’t let them go.”
In 2001, when it became clear how Raymond Delacruz was wreaking havoc on city neighborhoods by flipping houses, it was Pianka who ran him out of town. The city’s building and housing department cited Delacruz for code violations on a house he hadn’t flipped fast enough. When he didn’t show up in court, Pianka had his chief bailiff stake out Delacruz at a doughnut shop. Pianka placed him on house arrest, ordering him to spend 30 days in the dilapidated structure he owned but had not maintained. Shortly after his sentence was up, Delacruz moved to Columbus, where he continued his flipping, and was eventually convicted for fraud that included swindling a bank vice president.
Housing codes, which were established in the mid-19th century, set minimum standards for housing quality. They traditionally help maintain both a city’s aesthetics and safety. In Cleveland today, they seem to be all that keeps the city from crumbling. In 2007, Pianka realized that the banks weren’t showing up in court after being cited for code violations. “They were thumbing their noses at the city,” he told me. “They were probably thinking, It’s Municipal Court. What can they do? And we thought, How loud can this mouse roar?” Pianka set up what he called his Clean Hands Docket. If a bank didn’t respond to a warrant, Pianka refused to order any evictions it requested.
Pianka’s staff also dug up a little-used 1953 statute that allowed for trials in absentia, and every other Monday afternoon for the last year and a half Pianka has held trials with a judge and a prosecutor but no defendant. The first case involved Destiny Ventures, a firm based in Oklahoma that buys foreclosed properties in bulk and then sells them. It was cited in 2007 for violations on one of its houses, but didn’t show up in court. The idea of a trial without a defendant was so unusual that when the prosecutor said he had no opening statement, Pianka prodded him. “You’re going to waive opening statement?” he asked. “Don’t you want to give the court a little road map about the strategy?” A housing inspector testified that Destiny Ventures had done nothing to correct the code violations on the vacant two-story clapboard house in question. The windows were punched out, the front door was wide open and roof shingles were missing. Pianka fined Destiny Ventures $40,000, and then had a collection agency sweep the company’s bank accounts for the money. Brancatelli celebrated by taping a copy of the check to his office wall. In a recent phone interview, an owner of Destiny Ventures, Steve Nodine, said, “It’s unconstitutional the way they fine people.” His firm now refuses to do business in Cleveland.
… Mayra Caraballo, a 39-year-old mother of two, appeared in court in response to code violations on her home. … She had left after receiving a foreclosure notice. The house was quickly stripped of everything but the furnace. Pianka asked a clerk to check into the house’s ownership; he suspected that the lender had withdrawn the foreclosure at the last minute, as is becoming more common. The clerk tracked down the trustee on the mortgage, Deutsche Bank, and confirmed that the foreclosure had indeed been withdrawn. Pianka calls these situations “toxic titles.” “You’re in limbo,” Pianka told a shocked Caraballo. “There’s no hope in your getting out of this property as a result of foreclosure. We’re seeing this more and more.”
Pianka sees these toxic titles as an effort by lenders to dodge responsibility for vacant houses. Later, I called Deutsche Bank to ask about Caraballo’s house. “We don’t own the property,” a spokesman told me. “We’re the owner of record, but the investors who bought the mortgage-backed securities own it.” Pianka chuckled when I told him of the bank’s response. “That’s their mantra: we don’t own it,” he said. “It’s handy for them to say, ‘Oh, it’s not us.’ It’s part of this big shell game they’re playing.”
… Over the last year and a half, the housing court has collected $1.6 million in fines from defendants who didn’t show up for their trials. Last April, Pianka fined Washington Mutual $100,000 for a vacant property on the city’s west side. Washington Mutual, now owned by JPMorgan Chase, appealed, and in December, the Eighth District Court of Appeals in Ohio ruled that trials in absentia were not permitted in misdemeanor cases, essentially putting an end to Pianka’s efforts. JPMorgan Chase disputes the code violations, but a spokeswoman said the bank was not planning to send a representative to court to respond to the city’s charges.
“We just have to figure out some other ways,” Pianka told me. He has suggested that the city could name corporate officers when prosecuting code violations. He told me that a Cleveland police officer was so angered by all the abandoned properties that he volunteered last month to serve warrants to bank officers should they ever be issued. In the meantime, early last year, Cleveland sued 21 lenders, arguing that their vacant houses created a public nuisance, virtually destroying some neighborhoods. Ten of those lenders have since gone under, been acquired or gone into bankruptcy. The case is slowly winding its way through federal court.
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To read other articles about these things, see the FM reference page on the right side menu bar. Of esp interest are:
- About the Financial crisis – what’s happening? how will this end? (see section 7 for solutions)
- About America – how can we reform it?
Posts about the housing crisis:
- Diagnosing the eagle, chapter I — the housing bust, 6 December 2007
- A vital but widely misunderstood aspect of our financial crisis, 18 September 2008 — Too many homes.
- Destroying houses in order to boost home prices, 16 December 2008
- The housing crisis allows America to look in the mirror. What do we see?, 9 March 2009
Posts with forecasts and warnings:
- Consequences of a long, deep recession – part I, 18 June 2008
- Consequences of a serious US recession – part II, 19 June 2008
- Consequences of a long, deep recession – part III, 20 June 2008
- A look at the next phase of the crisis, as it hits the real economy, 31 October 2008
- A look at 2009 economy – some guesses, 28 December 2008