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View Diary: Can a Small California City Take on Wall Street - And Survive? (298 comments)

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  •  It's not just punishment for Richmond (24+ / 0-)

    Taking away a revenue stream.  All the big bank have vast numbers (nobody knows how many) of underwater mortgages tied up in bad derivatives.  BUT, these bad mortgages don't show a loss on the banks book, so long as the mortgages aren't sold for fair market value, ie, a loss.  Once these mortgages are sold for fair market value, the loss MUST be marked as a loss on the banks books.
    If Richmond and other cities start to eminent domain all these underwater (bad) loans, the banks will be forced to demonstrate the fact that they are so invested in toxic shit derivatives that they will be in violation of federal banking laws and will be bankrupt.  THAT'S THE REAL THING THEY'RE HIDING FROM US.

    •  Exactly! (6+ / 0-)

      The banks will fight this tooth and nail because it forces all their dirty laundry out into the light.  All their bad mortgage assets will be forcibly marked to market via eminent domain sales, resulting in huge losses to their balance sheets leading to bankruptcy.  They rightly view it as an existential threat.

      Look for banks to not only file numerous lawsuits, but start funding challengers in local city council elections for any city that tries this.  I think the best defense for the cities involved will be safety in numbers, effective PR/education programs for their citizens on the benefits, and a pool of deep pocket investors ideologically committed enough to stay the course and make it happen.

      This will be a huge victory for working families if they can pull it off.

    •  How do we help make it happen? (1+ / 0-)
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    •  Essentially, I agree with you on this however, (1+ / 0-)
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      the big banks have moved the shells around a bit since the meltdown.  They've bundled and sold the bad loans to a multitude of investment groups whose stock is owned by institutional investors like pension funds, etc.  The banks won't be holding the bag on this loss, the investors will.  

      After the meltdown, I received a no fee, no appraisal, lower interest offer from my TBTF bank because my credit was a good risk, rather it was A paper already. I happened to be a former employee and thought something was up.  Why were they offering this to me?  I wasn't in trouble.  When I talked to other former employees at a reunion, they all received the same offer.  It was because the banks needed to shore up their own portfolios with A grade mortgages to offset all the bad ones on their books.  Thus the offer to re-paper my good mortgage at a time when supposedly they were under the gun to repaper bad mortgages.  

      It's a shell game, and really, no one knows who will be hurt if the Richmond scenario plays out and other cities follow suit.  We may think "banks" will be hurt, but we may find out the Teacher Retirement System in Minnesota or a similar group is actually the party who will be hurt.  Unintended Consequences.

      We are all in this together.

      by htowngenie on Mon Sep 16, 2013 at 07:43:03 AM PDT

      [ Parent ]

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