Media blackout on banks’ role in Detroit’s financial crisis
By Curt Guyette
Special to the Michigan Citizen
Mayor Mike Duggan and Gov. Rick Snyder had nothing but praise last week when banking giant JPMorgan Chase and Co. announced plans to invest, through a combination of loans and grants, $100 million in Detroit over the next five years.
“I want to thank and applaud JPMorgan Chase and Co. for their generous investment and long-term commitment to the reinvention of Detroit,” said Snyder. “This multi-year initiative is coming at an excellent time to not only build upon, but help accelerate, the positive momentum happening in areas like workforce skills training, community development, growing small businesses and blight removal.
“With JPMorgan Chase’s strong ties to Detroit, I am so grateful for their willingness to give back to the community with a smart, sensible investment that helps further ensure that Detroit is on a sustainable path to recovery,” he said.
Duggan added, Chase’s commitment “represents a real vote of confidence in the work we are doing in Detroit right now.”
“It is also a significant investment in the strategies we are implementing to address blight in our neighborhoods, build our workforce and support small business and non-profits. I am grateful to (JPMorgan Chairman) Jamie Dimon and his team for stepping up to be a true partner in Detroit’s turnaround,” he said.
The media coverage, however, failed to make note the part JPMorgan and other banks played in the financial crisis that crippled cities such as Detroit. That role was summarized in a press statement released by the U.S. Justice Department last November:
“The Justice Department, along with federal and state partners, today announced a $13 billion settlement with JPMorgan — the largest settlement with a single entity in American history — to resolve federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009.
“As part of the settlement, JPMorgan acknowledged it made serious misrepresentations to the public — including the investing public — about numerous RMBS transactions. The resolution also requires JPMorgan to provide much needed relief to underwater homeowners and potential homebuyers, including those in distressed areas of the country. The settlement does not absolve JPMorgan or its employees from facing any possible criminal charges.”
In that same statement, Attorney General Eric Holder points out that, “Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown. JPMorgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.”
The dire consequences of that behavior are still being felt.
In May, the nonprofit Haas Institute released a report titled “Underwater America,” detailing the extent to which people owe more on their homes than the homes are worth.
“Despite home prices rising in many parts of the country, the total value of owner-occupied housing still remains $3.2 trillion below the 2006 levels,” according to the report. “Despite rising home prices, there are still some 9.8 million households underwater, representing 19.4 percent of all mortgaged homes — nearly one out of every five such homes. Underwater homeowners are significantly more likely to default on their mortgages than homeowners with positive equity.”
The report identified Detroit as the fifth hardest-hit city, with 47 percent of its homes underwater, and, as of last year, more than 4,000 homes in foreclosure.
Along with the devastating impact this has on individual families, there are the immense civic costs — in the form of lost population and decimated property taxes — cities such as Detroit continue to experience as the crisis drags on.
Among the few journalists casting a critical eye on last week’s hoopla was David Dayen, who writes for the online publication Salon.com.
“Beware of big banks bearing gifts,” wrote Dayen. “That note should be attached to JPMorgan Chase’s much-hyped planned investment of $100 million in the City of Detroit. The move is mostly an effort to boost the embattled bank’s public image, in a part of the country where they have deep roots. But corporate philanthropy like this also hopes for a return on investment –—often in the form of the privatization of public infrastructure, which JPMorgan Chase certainly has in its sights.”
“Indeed,” noted Dayen, “Detroit is currently embroiled in debate over whether to sell off its public assets for much-needed cash to pay off creditors. The city’s emergency financial manager has issued a request for offers to privatize its water system. They’ve already privatized garbage collection, selling that off to two contractors. Banks like JPMorgan Chase are well-positioned to profit from this fire sale…”
Think of it as a circle.
The banks, through malfeasance, create an economic crisis and a tidal wave of foreclosures, which delivers a critical financial blow to the city of Detroit. An emergency manager is appointed, bankruptcy is declared, and public services are privatized. And, as the city discusses selling off its water and sewage treatment facilities, the banks however, are looking to cash in on the calamity they created.
Curt Guyette is an investigative report for the ACLU of Michigan. His work, which focuses on Michigan’s emergency management law and open government, is funded by a grant from the Ford Foundation. you can find more of his reporting at aclumich.org/democracywatch. Contact him at firstname.lastname@example.org or 313.578.6834.