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Blaming the banks for urban blight, civic rot, other bad things



From the SEC, a news release, "SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages":

The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS).

Goldman Sachs was one of the 21 banks and financial institutions sued in 2008 by the city of Cleveland, which argued that the banks' subprime mortgage marketing created the foreclosure crisis and resulting urban blight. Mayor Frank Jackson claimed at the time, "The unscrupulous lending practices that are part of the subprime market have devastated Cleveland neighborhoods, which clearly demonstrate a public nuisance."

A federal judge tossed the suit in 2009, rejecting the public nuisance arguments. One wonders if the SEC's prosecution of Goldman Sachs might engender a new round of municipal claims.

Baltimore's renewed litigation against Wells Fargo might also stimulate followers. The city originally took a different legal strategy, suing the bank for violating the federal Fair House Act throught predatory lending practices. After having its suit dismissed in January, Baltimore refiled earlier this month (as did Memphis). From Reuters:

(Reuters) - Baltimore and Memphis have filed new federal lawsuits accusing Wells Fargo & Co of steering black borrowers into expensive mortgages, only to later conduct many foreclosures that cost the cities property tax revenue and forced both to spend more on public safety.

The cities filed complaints on Wednesday, the same day Wells Fargo agreed to settle a National Association for the Advancement of Colored People lawsuit accusing it of steering blacks into subprime mortgages while giving comparable white borrowers better loan terms. As part of the accord, Wells Fargo will let the civil rights group review its lending practices.

NAACP issued a news release, "NAACP Dismisses Lawsuit against Wells Fargo," which reported that the organization is not seeking monetary damages in its other pending suits, but rather to change lending practices.


More ...


In semi-related editorializing, The Washington Examiner today argues, "Repeal CRA, stop blackmailing banks." The editorial reaches its conclusion after the paper published a five-part series on the Greenlining Institute, a left-wing outfit active in political extortion on housing finance.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.