Can Cities Make Wall Street Pay?
Wall Street devastated America’s cities. Consider the neighborhoods dotted with foreclosed homes; the jobs vanished with the bursting of the housing bubble pumped up by bankers; the public services slashed when the Wall Street-induced recession decimated city revenues. To add insult to injury, BusinessWeek describes how the same banks that brought down the economy in the first place are now raking in mega-fees from cities and states struggling to deal with the fallout. But here’s the ray of light: from Cleveland to Chicago to San Francisco, cities are contriving ways to get a bit of the money back. Through lawsuits and tax proposals that voters will have the chance to weigh in on, they’re blazing a trail for other municipalities hit hard by reckless speculation.
This week Cleveland suffered a setback in its an effort to sue major lenders and speculators in mortgage-backed securities for causing the plague of foreclosures ravaging the city. A federal appeals court ruled that the link between encouraging reckless mortgage lending and the arson, property deterioration, and crime that followed foreclosures was too indirect. Yet lawyers for the city insist that such consequences were “entirely foreseeable by Wall Street” when banks profited by encouraging more loans to homebuyers and homeowners who clearly never had the means to pay them back. Cleveland will seek a review of the decision. In the meantime, cities from Baltimore to Memphis are pursuing similar legal strategies to hold banks accountable.
In Chicago, banks may be asked to pay up at the point of foreclosure itself. Every other buyer and seller of property in the city is required to pay a real estate transfer tax, yet banks have traditionally been exempt. Alderman Roberto Maldonado proposes (pdf) closing the loophole, requiring the banks that foreclose on thousands of homes in the city each year to finally pay their share. The new revenue would support both the city’s general fund and the cash-strapped Chicago Transit Authority. Better yet, voters will have the opportunity to weigh in on the measure, which may appear as a proposition on the November ballot.
Meanwhile voters in San Francisco will have the chance to mark their ballots to increase the real estate transfer tax on the sale of the most expensive properties: those valued at more than $5 million. While the new levy wouldn’t hit banks directly, it would enable the public to realize some gain from the rampant speculation in high-priced real estate which is still going strong in the Golden Gate City. The real estate tax will appear alongside other revenue raising measures on the November ballot.
While neither the Cleveland, Chicago nor San Francisco efforts has the potential to fully make up for the urban ruin triggered by the financial sector’s reckless profiteering, they represent important steps to hold lenders and speculators responsible for contributing to cities' recovery. It's also significant that in Chicago and San Francisco voters themselves will have the opportunity to reject yet more rounds of painful service cuts and austerity in favor of policies that ask banks and real estate speculators to give something back. If they win, other cities may take the hint.