Cleveland Reeks! Cleveland Reeks!

Although Baltimore was first out of the gate in the race to the courthouse by broken cities in order to "rob back" the banks that the cities believe robbed them, the recent suit filed by Cleveland seems to me the more bizarre piece of litigation. In Bank Lawyer's Blog's world, "bizarre" is synonymous with  "blog-worthy."

According to the Cleveland Plain Dealer, Cleveland Mayor Frank Jackson blames Wall Street for concocting the structured finance vehicles that funded subprime 2/28 and 3/27 ARMs made by mortgage brokers and lenders to idiots unsophisticated borrowers who lived within the poorer environs of the otherwise Eden-like garden that is Cleveland, Ohio (motto: "We're So Hot Even Our River Catches Fire"). When borrowers couldn't pay the piper, the lenders foreclosed, the borrowers lit out for greener pastures (say, Bayonne, New Jersey or Gary, Indiana), the houses were boarded up, and the city suddenly turned from one of the "must see" destinations in the Northern Hemisphere into what it's become today: a steaming pile of bat guano. Cleverly using a state public nuisance statute, the City of Cleveland alleges that the Wall Street banks created a public nuisance consisting of acres and acres of "boarded up houses" and, therefore, must be "held accountable for what they’ve done."

I'd say another quote from the Mayor that was cited in The New York Times article linked above gives you an idea that this is an opportunistic, and in some respects ingenious and disingenuous, attempt to secure a federal bailout without actually using tax dollars: "We’re going after them to get the resources we need to rebuild our city." Just sue some national banks and large investment banks, ratchet up the litigation which will be funded with municipal tax revenues, and hope you can squeeze some bucks out of financial institutions that are fighting for their very survival (but, really, are too big to fail). The city might not get $150 million, but tens of millions to stop pestering the banks might be doable. Even if it's a long shot, it diverts the public's attention away from holding its political leadership responsible for the deterioration of their once-proud city.  It also takes blame away from those voters and potential voters who borrowed money they could not hope to repay and places it squarely on the shoulders of corporate entities based in locales outside of Cleveland. For politicians, it's a "win-win."

Unfortunately for Mayor Jackson, newspapers in less sympathetic cities, like New York City, for example, might point out inconvenient facts along with the Mayor's spin.

The drop in homeownership, and a steep decline in population — to 444,000 residents in 2007 from almost a million in 1950, according to census figures — has drained Cleveland’s budget. In December, Mr. Jackson announced that the city was unable to borrow money and would be forced to postpone or permanently shelve millions of dollars in public works projects.

"The strain on our budget is too much," Mr. Jackson said. "These companies have knowingly created a public nuisance by exploiting the city of Cleveland."

I do hope to see the counter-offensive by the banks receive as much publicity as this opening salvo by the city. Proving causation is going to be a bitch difficult task, especially when there are so many unclean hands touching not only the relatively recent subprime mortgage meltdown, but the apparent sink hole in which the City of Cleveland finds itself today. At least, if the Mayor is to be believed, the city is in need of hundreds of billions of dollars due to the devastation "caused" by CDOs, so things must be horrible there. Of course, the loss of over half of your population didn't happen overnight, unless there was a nuclear explosion I missed. Crime, poverty, high taxes, a business-unfriendly environment, a lack of cohesive vision for the future and the will to implement that vision even if it existed, all might have had something to do with Cleveland's present woes, and we'll see how the defendants parse the nuances and apportion the blame when they fire back at the Mayor. My guess is that the defendants' first order of business may be to try to get the suit removed to federal court from the home town Cuyahoga County Common Pleas Court. After that, I expect that there will be much maneuvering over motions to dismiss. Eventually, however, we may get down to mud-slinging on the merits.

For those of us with no particular skin in the game, the whole sad affair might prove a source of some wry amusement. Let the games begin.

Oh, and check out the comments to the Cleveland Plain Dealer article. No matter where you are situated in the political spectrum, you'll find a number of comments that will make you wonder about how truly bad the Cleveland educational system might be.

Comments

[Arturo]

Like bank robbers, politicians go where the money is. Although causation might be difficult to prove, suing Wall Street investment firms makes more "sense" than trying to squeeze blood out of the turnips (i.e., defunct mortgage brokers and lenders). As you say, blaming big business diverts attention from the failure of local government to address decades of decline.

[DPB]

Curious too that the two major hometown banks, Key Bank and National City, were NOT on the list of banks being sued by the City of Cleveland. Key Bank has a subprime subsidiary, Champion Mortgage. National City was a significant player in the subprime market, writing down close to $200 million in mortgage losses in 2007. National City did sell its subprime First Franklin Financial subsidiary to Merrill Lynch in December 2006. Take a look at this blog as well: http://www.callahansclevelanddiary.com/?p=68

[lab]

It seems that any time people with low incomes are enticed into buying something they really can't afford, they blame everyone but themselves for their having no personal restraint. True, there's enough blame to go around for everyone, but IF YOU CAN'T AFFORD IT, DON'T BUY IT.