The town of Richmond, California was hard hit by the economic meltdown. As a result, many homeowners are underwater on their mortgages and have little chance of being able to keep up the payments.
But instead of allowing those houses to go into foreclosure, the city is using its eminent domain powers to force lenders to sell those underwater mortgages to the city. If the lender won't renegotiate the terms of the loan, the city will force the lender to sell it the mortgage at a loss.
Banks are, understandably, upset. After all, they spent a lot of time and energy devising exotic tools to fatten their bottom line while putting homeowners at risk. They expended time and energy repackaging mortgages into securities and paid ratings agencies to give them a higher rating than warranted. Then they had to sell these securities to unwitting investors in order to let someone else eat the losses.
Now they are screaming foul. Mortgage lenders made some very bad decisions over the years. They created lending products that became toxic. They bear a large portion of the blame for the economic malaise of the past five years. But now they are going to court to try to prevent Richmond from doing something to help its residents.
Critics of the plan claim it is an affront to private property rights. They claim they are being forced to sell mortgages to the city at below-market prices because of the city's use of its eminent domain powers. Apologists for the banks make the same arguments and warn that if the plan continues lenders may choose not to do business in Richmond.
Funny how these same folks have no problem with cities using their powers under eminent domain to condemn property that sits in the way of a highway expansion or the building of a sports arena for some millionaire owner who doesn't want to spend his money building his own playpen. And where were these champions of property rights when local governments were using their powers of eminent domain to force landowners to allow the builders of the XL Keystone pipeline to construct their pipeline for transporting tar sands?
By staving off foreclosures, the city prevents surrounding properties from losing more value. The plan will reduce the number of abandoned properties. Reducing the number of foreclosures produces more stable neighborhoods. The plan will allow homeowners to keep some money in their pockets - money that can be spent on other things.
How many of us really want more smog, more polluted lakes and rivers, more toxic waste sites and more environmental degradation? Big business doesn't care - they are only interested in extracting as much profit as possible, regardless of the cost. And if their precious markets can't assign a price to a resource, they will use it up and spit it out without giving it a second thought.
I say it's about time a local government stood up to the corporations. It's about time someone told the banks that people come before profits. If more localities had the guts to stand up and fight the corporations, practices such as privatizing gain while socializing loss would come to an end.