Roper: So now you'd give the Devil benefit of law!
More: Yes. What would you do? Cut a great road through the law to get after the Devil?
Roper: I'd cut down every law in England to do that!
More: Oh? And when the last law was down, and the Devil turned round on you - where would you hide, Roper, the laws all being flat? This country's planted thick with laws from coast to coast - man's laws, not God's - and if you cut them down - and you're just the man to do it - d'you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake.
Richmond. What they're doing is flatly unconstitutional, as the article mentions.
And it's an old American tradition to consider bankers as "the Devil" or strongly in that direction. This has even provided what's very possibly our best bit of political rhetoric, "You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold." (http://en.wikipedia.org/wiki/Cross_of_Gold_speech)
The constitution explicitly permits eminent domain, provided it's for the benefit of the public. It's also clear that Wells Fargo will argue against it, because it's obviously not in their interest.
Not too far from where I live is a house that Deutsche Bank took possession of a year and a half back. They haven't made any moves to sell since. The lot is overgrown, the roof will start leaking soon, it's an eyesore that's getting worse every month.
A few years back I had the misfortune to rent from an absentee landlady from one of the poorest ZIP codes in Brooklyn who had bought that property at the height of the boom. The high point of the tenancy was the heating failing in early October. When the code inspector showed up I could show him the garbage that hadn't been collected for three weeks and send him down to the basement where the lady, her husband and her useless cousin had torn the boiler apart, attempting to fix it, and couldn't put it back together again. She had arranged for the plumber to come, cancelled it a day later, and then went out from Brooklyn to do this cock-up of a cowboy job.
The backstory was that her bank had asserted rights the day the plumber was cancelled. The garbage was there because the garbage hauler had gone unpaid for that month. I moved out soon after, and the move was a pain.
That was in 2008. The state of the house is uncertain. Lis pendens was filed in 2008, as I said, and there has been no court date until now.
What I'm saying here is that unmaintained housing stock and housing stock without a clean title has real effects on the people that live in them and nearby, the public that is. You can make a good case that eminent domain is justified here. No one has done it yet, this is uncharted territory as far as the law is concerned, but it's heartening to see Richmond take a shot at it.
What the 5th Amendment actually said is "nor shall private property be taken for public use, without just compensation."
Kelo notwithstanding, "benefit of the public" is not "public use"; the former can be stretched infinitely, to the ending of the rule of law.
You're also ignoring that they admit they're seizing the property for less than it's value:
"Richmond, working with San Francisco-based Mortgage Resolution Partners, offers $150,000 to buy a $300,000 bank loan on a house that is now worth $200,000 and is in danger of foreclosure.
If the bank agrees, the city and the company then obtain the loan at $150,000. Richmond and the company then offer the homeowner a new loan of $190,000, which, if accepted....
If the bank refuses to sell the loan to Richmond, then the city invokes its power of imminent domain and seizes the mortgage. It would then offer the bank a fair market value for the home."
The offer of kUSD 150 in cash for a title to a house valued at kUSD 200 in Richmond, that the bank needs to realize a steady stream of income from, doesn't seem unfair outright. What I mean is, where are the creditworthy buyers in Richmond? The town is failing and not getting any better.
What is always troubling is the interaction between municipal authorities and venture capital; their interests do not intersect, and there is little experience in municipalities with complex financial deals. The showcase piece is the Birmingham, AL sewer disaster.
The idea of eminent domain is appealing, and the real-world implementation is another problem.
They aren't seizing title to the house, they are seizing a lien and promissory note. Although the lien can't be worth more than the underlying property, the note certainly can.
> "benefit of the public"...can be stretched infinitely, to the ending of the rule of law
The Supreme Court has ruled that the government can take property from one private party and give it to another private party for "economic development" [1]. So it's already been stretched pretty far.
> The constitution explicitly permits eminent domain, provided it's for the benefit of the public.
No. The Constitution provides that property taken for the public good must be fairly paid for. Property can be taken for private use without compensation. For example, the adverse possession laws in many jurisdiction.
The constitution also requires fair compensation, which is exactly what Richmond tries to avoid. If they offered fair price, there's no reason why for the bank doesn't make sense to sell distressed properties - banks do a lot of such deals. Banks hate dealing with bad real estate instead of good clean money flows. But it looks like the city wants to force the banks to sell for significantly lower price - they plan to argue that the loan is actually worth below market value, force the sale on that value and profit on it. This is not eminent domain, this is robbery.
> Richmond. What they're doing is flatly unconstitutional, as the article mentions.
I didn't see that mentioned in the article. Are you sure you are not thinking of that article someone linked to in a comment here on HN rather than the submitted article?
"The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain, which allows governments to seize private property for public use — like a house in the path of a new highway or a piece of land needed for a new park."
That's consonant with the plain language of the 5th Amendment, Kelo notwithstanding: "nor shall private property be taken for public use, without just compensation."
I take the article's language as the author knowing this is scamming the Constitution's provision for eminent domain, even if it's pretty clear he doesn't care. Hence the quote starting this thread.
Not so sure about that... the Supreme Court has given wide leeway to municipalities in their interpretation of eminent domain. This is just one of the slippery slope side effects of their earlier decisions.
I do not for a moment accept the principle that the Supreme Court has the final say in what's Constitutional, especially since the latter makes that crystal clear, explicitly in jurisdiction stripping (http://en.wikipedia.org/wiki/Jurisdiction_stripping) and implicitly in the absence of sanctions on the Executive ("John Marshall has made his decision, now let him enforce it!")
But your point about this slippery slope is well taken.
Thomas Jefferson had this to say about it, per Wikipedia:
"You seem to consider the judges as the ultimate arbiters of all constitutional questions; a very dangerous doctrine indeed, and one which would place us under the despotism of an oligarchy. Our judges are as honest as other men, and not more so. They have, with others, the same passions for party, for power, and the privilege of their corps.... Their power [is] the more dangerous as they are in office for life, and not responsible, as the other functionaries are, to the elective control. The Constitution has erected no such single tribunal, knowing that to whatever hands confided, with the corruptions of time and party, its members would become despots. It has more wisely made all the departments co-equal and co-sovereign within themselves."
The subsequent history has shown he was spot on. Given that the Switch In Time That Saved Nine waved through FDR's New Deal, and most subsequent gross violations of the Constitution, shows in practice they're really bad at what they arrogated to themselves, and they've far too often given the other branches of government cover. E.g. "sure, this might be unconstitutional, the Supreme Court will decide!" Fairly often the "might" is really "is", and later politicians who depending on a saving throw from the Supremes got disappointed. E.g. McCain-Feingold.
That's what I thought you meant. Thinking way back to high school government class, I assumed you were going all the way back to Marbury v Madison. In that case, that ship has sailed, and that's just the precedent we live under.
"old American tradition"? Bryan's speech is a continuation of a tradition which is far older than the US. In the Bible, Jesus cast out the moneylenders from the temple, and thus for centuries usury - loaning money at any interest - was prohibited in Christendom, upon torment of one's immortal soul. A similar prohibition exists in many parts of the Islamic world today.
Can you point out where the article mentions that it's "flatly unconstitutional?" The only reference I could find to constitutionality (mentioned also in the photo caption) is:
"first-in-the-nation plan to use the government's constitutional power of eminent domain to ..."
The article does mention that "The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain", but every legal opposition to eminent domain seizure makes that claim.
Well, yes, but you're very wrong about the example of Jesus, he chased out the moneychangers. Per Wikipedia: "A money changer is a person who exchanges the coins or currency of one country for that of another."
I won't get into the much more complicated usury argument, since that's now settled in (post)Christendom, else we wouldn't be having this argument.
Thanks for the correction! For years I've been thinking it was "money lenders" not "money changers."
I read the link you pointed to. It affirms that the plantiff's claim is "consonant with the plain language of the 7th Amendment."
There must be a typo there, as the 7th is right to a trial by jury, while the given quote about "nor shall private property ..." is from the 5th.
I don't see though how this is an effective argument. Every single lawsuit filed in opposition to an eminent domain seizure must claim that the seizure is violation of the 5th amendment. So of course this lawsuit is "consonant with the plain language of the 5th Amendment" as otherwise it would be thrown out as being unjustified.
A more effective argument would point to existing legal cases, to show how the courts have previously ruled. But the comment you linked to dismissed Kelo - a case which gives some idea of how much the Supreme Court may defer to local governments - without giving any reference to other more relevant cases.
You're welcome, and thanks for yours. Despite a niggling doubt, I copied "7th" from Wikisource (http://en.wikisource.org/wiki/United_States_Bill_of_Rights), which has them as originally passed by the Congress. However the first two weren't ratified by the states in the original set we know as the Bill of Rights, although curiously the 2nd was ratified in 1992. I've made corrections.
To go back to my original question: Can you point out where the article mentions that it's "flatly unconstitutional?"
Specifically, you said: What they're doing is flatly unconstitutional, as the article mentions.
The article, as far as I can tell, says that the plaintiffs claim that it's unconstitutional, but as I've pointed out, every such plaintiff must make the same point.
You wrote "I take the article's language as the author knowing this is scamming the Constitution's provision for eminent domain."
As you write, this is your interpretation. It's not the same as "flatly." Another, and in my opinion better, interpretation is that the author is reminding the reader what eminent domain means. Let's see if I can provide evidence for my view.
For reference, the original quote is "The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain, which allows governments to seize private property for public use — like a house in the path of a new highway or a piece of land needed for a new park."
What do other newspapers say when they describe eminent domain?
1) "Another option would be for the county to acquire the property under eminent domain, the process by which a municipality can take over private property for a public good, for a price." http://www.miamiherald.com/2013/03/01/3262043_p2/um-county-c... (The private University of Miami wants to build a pedestrian bridge across a major road, where 8 students have died since 1989. The city doesn't have the budget for an eminent domain claim.)
2) "There's a new partner in the mix as Aberdeen officials work to buy the now-closed federal courthouse under eminent domain, which allows government entities to take possession of private property if it is in the public interest." http://articles.aberdeennews.com/2013-08-06/news/41141473_1_...
3) "As with the Trans-Texas Corridor, the pipeline dispute seems certain to reopen a legislative debate over eminent domain powers, which governmental entities and so-called common carriers such as utilities and pipelines use to acquire land for public projects after compensating the owner." Fort Worth Star Telegram, reprinted in http://www.mcclatchydc.com/2012/02/22/v-print/139579/texas-b... . (On the question of if an oil pipeline counts as a common carrier under Texas law.)
Do note how this points out that the Supreme Court isn't the only court to judge the constitutionality of an eminent domain seizure. State courts are also involved, and the Supreme Court usually defers to them, rather than making an overarching statement.
4) The Chicago Tribune articles I looked at never explain 'eminent domain.' I guess they expect their readers to know that already. But quoting from http://articles.chicagotribune.com/2006-01-03/news/060103024... , "Overwhelmingly, the eminent domain cases filed in Cook, Kane, DuPage, Lake, McHenry and Will Counties are for traditional public purposes, such as highways, schools, libraries, police stations--projects that will be owned by the government for the public use. / But a review of court cases filed since 2001 shows local governments have used eminent domain powers in many redevelopment projects where private companies end up in control of the land. / Municipal officials say this is nothing new and the current system should not be changed. Chicago area communities have used eminent domain in this way for decades to dream up new plans, they say."
That suggests that despite your rejection of Kelo, it is not completely out of line with the use of eminent domain over decades. Of course, it isn't, since you're really objecting to the court's decision in Berman ...
The one suggestion that I'd add to this is to play hardball. If you force the city to use eminent domain, the bank can only get paid a fair market price if they can demonstrate a clean chain of title.
As a number of scandals have shown, they will be unable to do so for a significant fraction of the mortgages, and they know it. They will scream, but push come to shove negotiation will be in their interest. And they know it.
You're assuming the Supremes will buy off on such a radical extension of eminent domain. Sure, its possible, but I don't at the moment think that's likely.
Given their earlier decisions, this isn't so radical of an extension. In fact, it might not be an extension at all... municipalities can use eminent domain to give land to private companies if it is in the economic interest of the city.
I should clarify, it's not so radical an extension of current eminent domain law, to wit Kelo as you and lisper note. But I'm judging it's enough of a radical extension from the base Constitution they won't make that leap with their current makeup.
Which is an iffy opinion, on, I suppose, Justice Kennedy's opinion, who I don't know that well, and I would not be surprised to be proven wrong.
Note this is in part due to the fact that there's a lot more than "public use" at stake, e.g. the whole profitability of the deal depends on there being a difference between the price paid to the bank and a price of the new mortgage. The losers are more sympathetic than small time landowners, and the big winner is another "banker"/eeeevil Wall Street type firm (see the Naked Capitalism posting).
Richmond is the most depressed city in the Bay Area. It's a horrible place. I spent time there in the early 80's and it was bad then, but it's a lot worse now.
Given the federal government is going to do nothing about the problem, I applaud the mayor for creative thinking. I don't think it'll work, but maybe it will spur someone into a more reasonable action.
creative is not necessarily good. Even if it's "for the better" - there are several questions you have to ask: "whose benefit is it for?" Keep in mind that these sorts of urban renewal efforts (especially those backed by eminent domain) are exactly the efforts that get called "gentrification" by left-leaning individuals. Are we actually helping out the people who live there, or are we lining the pockets of developers and speculators at the expense of a slightly wealthier but less connected entity? Finally - "do the ends justify the means". Maybe you believe that the ends always justify the means. One may wonder though, if the city does this, what will it do next? How could this newfound, "creative" power be used for ill? There is a reason why, fundamentally, we should like for our governments to have defined, proscribed powers, and not "creative" powers.
Obviously illegal and will be struck down in court.
Heres the issue- Bankers created the housing collapse, as far as the homes value is concerned. By allowing many 'liar loans' that started defaulting, we exploded with foreclosures which flooded supply without demand. As a result, home prices went down. It does not change the fact that a percentage of the people getting hurt by foreclosures are those who lied in the first place. Yes, your home value went down. Provided they were in a 30 year fixed (the vast majority were, since they were being resold to fannie/freddie) your payments did not go down, OR up. If you could afford it on day one, you should still be able to today.
Basically, this is comprised of many people who lied to get their mortgage and as a result, their home values went down (but their payment is the same as day one) but since their homes are down in value they stop paying.
The bank should have never loaned these people the money in the first place. You should have never been in this house if you are getting foreclosed on now.
*this comment is not applicable to all situations, but a common occurrence.
There's nothing stopping the state from using Eminent Domain to overreach and ruin businesses or move people out of their homes for their definition of "public good".
* The profits are being split among Richmond and a private investment firm named "Mortgage Resolution Partners, LLC".
* Seizing a mortgage for less than its fair market value is blatantly unconstitutional. The argument that the value of an underwater mortgage in repayment is worth less than the house is so obviously wrong, I have a hard time believing Richmond officials honestly buy it. A mortgage that is on track to be repaid is undoubtedly worth close to the future value of repayment, even if the house is worth $0.
* Big banks do not actually own most mortgages in general. So this is not a scheme to rob big banks, although Mortgage Resolution Partners, LLC certainly wants to spin it that way.
* Almost all housing mortgages are merely serviced by banks but owned predominantly by entites such as "state and local governments, hospitals, Fannie, Freddie, and to a lesser degree, foundations and endowments". The banks have a legal obligation to protect these mortgages, of course.
* Many of these loans are current--they're not distressed mortgages at all! They also plan to steer clear of houses with liens. Naked Capitalism comments that the plan only works financially if they go after the mortgages of those that need help the least.
In short, this is a transfer of wealth from a diverse array of investors to the city of Richmond and a bunch of investment banker types--theft under the cover of populist outrage. It would also severely damage the market for future homeowners in Richmond, anyone who wants to sell their home, anyone who wants to refinance... Oh, it's also a threat to fundemental notions of private property, rule of law, and market capitalism, but distressingly few people still care about that. The bit I want to emphasize is that it's Prince John pretending to be Robin Hood.
Heads (banks keep mortgages): You Lose, because the market value of your home is artificially high, and when the bottom goes out on the market again (unless you happen to be drinking the kool aid and equate a life time of mortgage payments as owning a home), you'll either find yourself on foreclosure or trying to refinance again.
Tails (City and PE get mortgages): You Still Lose, but now you have to pay a PE firm those monthly mortgage payments while the above still applies.
I think that the benefit of the Tails option is that your monthly mortgage payments are more in line with what your home is actually worth, as opposed to the inflated market value of the original mortgage.
Oh, so the homes get refinanced in the process? Does that happen every time the market cycle goes into a down turn, or just an one and done in the kick the can down the road kind of way?
That's what they're selling. Whether it really happens...? It wouldn't be the first time a gov't entity promised a plan that would 'help' homeowners and that plan failed to actually do so.
Ok, so basically the fundamentals aren't really being addressed to why this is even a problem in the first place, and the game can go on for another day. Fun to watch…
As an aside, I wonder if it would just be better sign yourself onto a mansion, get your neighbor to burn "your" house down (using pgp to communicate this with temporal keys), collect insurance, cover neighbors bail and skip to the some emerging market (with no extradition treaty with the US or its allies) together with your "ill" gotten earnings in ones under luggage. </joke>
Yes. (from the article) The city buys the original mortgage and then sells you a new mortgage for a more appropriate valuation. This would hopefully be a one and done deal, but it does kind open a pandora's box in the process.
I don't claim to understand a lot of this, but I know if the principle of my home was altered to current market value & mortgage payment was made to match(looking at zillow.com's numbers) I'd be paying 1k/month less. That would be life-changing for my family. I wish someone would come seize my mortgage. That being said, I don't fully understand who's getting negatively impacted by me not paying so I await replies to my comment to enlighten me.
The investors who bought the bundled mortgages would be harmed. After all, if your mortgage was $300k and under this forced refinancing scheme it's now mortgaged at $200k, that $100k just didn't vanish - someone lost that money. It might have been divided up amongst 1500 small investors, or it might have been a handful of larger investors, the net result is the same -- someone is out that money.
On the larger stage, the City of Richmond is cutting their own throat by doing this. It's doubtful that I'd ever buy any of their municipal bonds after this. If I were somehow persuaded to (fat chance), it'd cost them a much higher rate - something like what Detroit is paying.
Ah, okay. Then it depends on how I feel about the investors taking the hit. I imagine(incorrectly?) the investors as a group of wealthy people that won't suffer a huge decrease in quality-of-life by taking the hit but all the "regular" people in underwater mortgages would have significant gain in quality-of-life by the freed financial resources. This is me thinking that for a lot of people about 40% to 50% of their income goes to mortgage payments.
The other problem though, is that wealthy people always seem to have a way of passing the damage down to the working class.
More than likely, investors in these cases are probably mostly compromised of 401k's and such. Small institutional folks (group of wealthy) who have been looking at the financials of some bond markets closely are probably getting out of risky areas like these…
Investors are probably a group of middleman that are managing money for pension funds, municipal funds, endowments, and such. Of course, if you take 100K out of billion-size pension fund, that alone wouldn't do much difference. That alone happening on scale means some pension funds would be in deficit, which means somebody who joins the workforce now would have to pay much more for their pension than before (since it is almost impossible to change conditions in an existing pension plan if unions are involved) or somebody's taxes would be raised, or somebody's tuition would go up.
>>> The other problem though, is that wealthy people always seem to have a way of passing the damage down to the working class.
There's no such thing as "wealthy people vs. working class", if they ever were. Look up how much money largest unions manage, how big are largest pension funds, how big are all pension funds combined. We're talking trillions here. Of course, there are some very rich people, but thinking that messing with economy you're only influencing those rich top-hat wearing monocle-donning monopoly men is completely wrong. Everything is connected, and "working class" is as interested in good investment climate as the wealthiest of the wealthy. Maybe even more - if Bill Gates loses 50% of his money, he'd be ok. If your average Joe's pension fund loses 50%, he's screwed.
Uhh, I'm probably one of those "wealthy" investors, via my 401k retirement savings. I assure you, I'm not in the 1%. Please don't default.
> 40 to 50%
That would be very unusual in most of the US, as the lenders typically want a 28/36 front-end/back-end ratios. Obviously, during the bubble things were a little ... looser.
The problem with this is that a person makes an investment with a known risk profile. That needs to be known in order to just the worthiness of the investment: the higher the risk, the higher the return needs to be.
When someone comes in and changes the rules, that messes up everything. Suddenly those safe mortgage investments that you felt were a good investment at a 5% return become absolutely shit because you run the risk of taking a huge loss.
What is the impact? All those people that bought up the mortgages a while back now want another 5% in return to offset the risk of having the mortgages suddenly lose value.
Who loses? Homeowners because now you can only find mortgages at 10%, not 5%.
> The problem with this is that a person makes an investment with a known risk profile
Which gets back to the root of the problem. Mortgage companies were not properly assessing (or outright lying about) the risk for some of these mortgages. A lot of those seemingly safe mortgages were in reality very unsafe.
Everyone needs to feel some pain on this one. Homeowners, mortgage companies, and investors - everyone who underestimated their risks should see some loss. If that risk wasn't properly assessed the first time around, then yes, it will cost more. Mortgages are at ridiculously low rates from a historical perspective, so it wouldn't be unreasonable to see those rates rise.
The people who really got screwed were those that had a properly sized mortgage, ability to pay it, but then had the value of their home drop when the rest of the market failed. If they were unable to ride out the collapse, it was brutal.
What is the home "actually worth" changes monthly, and even that is a very rough estimate since you have no idea how much it is worth until you actually sell it. So it would be more in line with whatever bureaucrat decides the home is worth in some particular point of time, probably basing on political considerations having little to do with market reality. It probably would result in some money being robbed from the banks - after all, that's where the money is - and some payments being lowered - after all, that's where the votes are - but it would have very little to do with actual market values.
The "Banks" probably don't stand to lose much money. Pension funds and private investors stand to lose money. Also as tax payers we would all pay assuming that at least some percentage of loans are held by Fannie and Freddie. It is a wealth transfer to homeowners and a select group of players from everyone else. And if Richmond can make it work then other municipalities will undoubtedly follow suit. And if it works for mortgages why not other assets?
I would be pretty happy if pension funds would stop buying mortgages in an expectation of being paid back from underwater. Don't contribute to the problem and you won't get bitten.
> argument that the value of an underwater mortgage in repayment is worth less than the house is so obviously wrong
I'm not so sure that it is so obviously wrong... For the individual home, yes, it is a stretch to think that the value of an inflated mortgage is less than the value of the house. But, they are thinking in terms of the population of all underwater homes. There is an increased rate of default on underwater mortgages. So, you could argue (and they are), that the lost value when spread out among all underwater mortgages, makes the pool of them less valuable than the value of the homes themselves.
To know the answer, you'd have to know the normal rate of default, the rate of default for underwater mortgages, and the average amount the bank looses when a mortgage defaults (as well as the average value of the homes and the inflated mortgage valuations).
It is very possible that when all of the numbers are calculated that offering below the appraised value of the home for the mortgage is approximates fair market value over the whole population of underwater homes. A loan wouldn't necessarily have to be distressed to fall into that statistical population.
If you think in terms of one house, this plan doesn't make sense. But, when you think in terms of an entire city, it starts to make more sense (if the numbers and rates line up). It's probably short sighted for other down-stream effects, like lack of future investment and loans, but for the short term, it might work.
There's an "easy" way for the city to help prevent defaults: Give homeowners money or tax breaks to make their mortgage payments. If this scheme can be reasonably shown to be a good investment for ensuring future tax revenue, go ahead and get a loan to do it.
I think you are missing the point. If a government wants to seize a property using it's eminent domain powers it has to pay "just compensation" for that property. The Supreme Court has interpreted that to mean fair market value.
If there was a CDO pool that included only mortgages based on houses in that particular town, perhaps the whole pool could be seized at once, based on the fair market value of all tranches of the CDO (although there might be tricky jurisdictional issues). However, that's not the case. The mortgages are spread across many many different such pools. So rather than one big eminent domain case, there needs to be a condemnation of each and every mortgage separately. That being the case, the city must pay the fair market value of each mortgage -- not the the FMV of an abstract average house.
The single biggest problem with the city's proposal is not that it is underpaying (though it likely is in most cases) but rather that it is trying to claim that every mortgage can be fairly valued using the same simple formula: 80% assessed value of the underlying asset. Simply put, that's nuts.
The second biggest problem is that Freddie and Frannie have already said that they won't refinance the written down mortgages. So the city would have to hold the mortgages to maturity. They don't seem to have anywhere near enough capital to do that, and I don't think the muni market would be terribly interested in financing such a scheme (or the litigation!). Especially not with Detroit making everyone nervous to begin with.
No, I'm not missing the point. I'm trying to figure out their logic here. Which, I believe would be that they are trying to pay "just compensation" for a mortgage, based on the actual value of the house, and a built-in discount. The question is: is this a fair estimate of "just compensation". And it just might be, if you look at the mortgages in aggregate. It is harder to argue with an individual home, but when the entirety of all homes underwater is taken into account, that has a known risk associated with it. Each mortgage is different at the individual level, and so the risk would be harder to include in a discounted price. But when you lump them all together, you can start to look at how the risk affects the entire group, so you could start to apply the risk discount across the board. Some will be more risky, and others less.
So what is the "fair market value" of a mortgage? Consider that immediately on sale, the mortgage contract was bundled by the bank and sold as part of a bundle of similar mortgages, and the bundle has perhaps been split, recombined, and resold multiple times since, its relationship to the actual real property has become somewhat tenuous -- or rather, even more tenuous than it was when it was created in an inflated market.
So what's the "fair market value" of that piece of paper? You assume it "is on track to be repaid" but that is a highly optimistic evaluation. The note represents a net future value of payments multiplied by a probability P that it _will_ be repaid. P is considerably less than 1.0 for a note whose face value is more than the present value of the property, and it shrinks every time another house in the same neighborhood is foreclosed or abandoned. At best the value of the note is the sale value of the foreclosed home (less the not inconsiderable costs of performing a foreclosure and prepping the property for resale) -- and the sale value of an abandoned foreclosed house in a city full foreclosed houses is a fraction of the original purchase price.
Frankly if Wells Fargo can get $150K for a $200K mortgage in Richmond, they ought to take the money and run.
I assumed this was going to be another case of eminent domain abuse until I found out that the bank's argument seems to be "Writing down our loans to market value would disrupt our entire industry". I don't think "this would interfere with my accounting fraud" is a legally sound reason to block an eminent domain taking.
if there is accounting fraud, the bank should be prosecuted and penalized for that, and the city should not use a back-door mechanism to punish wrongdoing. This is not what eminent domain is supposed to be used for, and so fundamentally it's eminent domain abuse.
Eminent domain isn't a punishment. The lender's interest is solely financial so they should be theoretically indifferent so long as they are compensated at market value.
The reason they care (and the reason the situation doesn't resolve itself without outside intervention) is that they're dependent on reporting improbably high property and loan values in order to not appear insolvent. The city doesn't care about this and is uninterested in punishing it, but they are interested in getting a large chunk of their tax base out of legal limbo and they have the legal right to do so.
This is a great way of holding the banks accountable and asserting fairness in the citizen's fight against the corprotacracy that has a chokehold on our nation at the moment. If the banks that have received huge amounts of taxpayer money in the form of bailouts refuse to right the abuses that they created then it is incumbent upon a free people to stand up or continue to be run over. It is unfortunate that our federal legislators have allowed things to get to this point. Local governments are going to have to do something as the legislators at the federal level are unwilling to go against or are themselves corrupted by the corporate lobby. This is why we should not allow for career politicians.
How about this. We should let the NSA spy on all domestic corporate transmissions. This would be a great way of holding the banks accountable and asserting fairness in the citizen's fight against the corporatocracy that has a chokehold on our nation. If the banks that have recieved huge amounts of taxpayer money in the form of bailouts refuse to right the abuses that they created then it is incumbent upon a free people to stand up or continue to be run over.
Do you not see the problem with inventing a new power out of whole cloth to fight wrongdoing? Surely, the banks have done wrong - and should be prosecuted. But the exact thing that you rail against - "banks recieving huge amounts of taxpayer money" was ITSELF the product of exactly the same thinking that you are engaged in - "let's invent a clever new government power. for the public benefit [to save the economy]". problem is, these "public benefits" are so often really just to help out some private consortium - and you don't have to look too hard to figure out who that is in this case.
Where was the opposition to all these houses selling at over-inflated rates 7-8 years ago. Cities weren't complaining then at all of the new tax revenues being brought in by new construction sales. They were rubber stamping new housing developments left and right. Cities have to be accountable for the mess that they share responsibility for letting happen (not just blaming the banks).
Is fun comparing two of the arguments being put forward by the bank people here -
"The banks argue the plan would "severely disrupt the United States mortgage industry" because many other cities would likely adopt the same program to help homeowners who owe more on their mortgages than their houses are worth."
and -
"Cameron said pension funds, banks and other groups that made loans in Richmond stand to lose millions if the city is allowed to use eminent domain to force lenders into accepting less than the original terms of the loan.
He also predicted that cities using eminent domain will make lenders wary of doing business there.
"There's a domino effect in play here," he said."
If many other cities decide to do this, then the financial services industry is not going to be able to avoid doing business in those cities. One or two cities maybe, but not if many cities do this.
The financial services industry is always fond of threatening that it is going to take its ball and go home if it doesn't like the decisions being made, but really it can't actually afford to.
Why ever would they play a game that's rigged for them to lose? Who can afford to go into deals knowing they'll lose money? How will they explain that to their investors?
They aren't losing money. The sales price of a home after foreclosure is usually much lower than it's valuation before foreclosure. Over the short term they will make more money. They are losing the option to make even more money in the future however, assuming that over a long enough timeline the price will go back up when the economy recovers.
I am not sure that the way that this is being done is sensible, however I do not think that it will drive business from the city, at least not in comparison to a housing crisis.
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[ 0.20 ms ] story [ 126 ms ] threadRoper: So now you'd give the Devil benefit of law!
More: Yes. What would you do? Cut a great road through the law to get after the Devil?
Roper: I'd cut down every law in England to do that!
More: Oh? And when the last law was down, and the Devil turned round on you - where would you hide, Roper, the laws all being flat? This country's planted thick with laws from coast to coast - man's laws, not God's - and if you cut them down - and you're just the man to do it - d'you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake.
And it's an old American tradition to consider bankers as "the Devil" or strongly in that direction. This has even provided what's very possibly our best bit of political rhetoric, "You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold." (http://en.wikipedia.org/wiki/Cross_of_Gold_speech)
Not too far from where I live is a house that Deutsche Bank took possession of a year and a half back. They haven't made any moves to sell since. The lot is overgrown, the roof will start leaking soon, it's an eyesore that's getting worse every month.
A few years back I had the misfortune to rent from an absentee landlady from one of the poorest ZIP codes in Brooklyn who had bought that property at the height of the boom. The high point of the tenancy was the heating failing in early October. When the code inspector showed up I could show him the garbage that hadn't been collected for three weeks and send him down to the basement where the lady, her husband and her useless cousin had torn the boiler apart, attempting to fix it, and couldn't put it back together again. She had arranged for the plumber to come, cancelled it a day later, and then went out from Brooklyn to do this cock-up of a cowboy job.
The backstory was that her bank had asserted rights the day the plumber was cancelled. The garbage was there because the garbage hauler had gone unpaid for that month. I moved out soon after, and the move was a pain.
That was in 2008. The state of the house is uncertain. Lis pendens was filed in 2008, as I said, and there has been no court date until now.
What I'm saying here is that unmaintained housing stock and housing stock without a clean title has real effects on the people that live in them and nearby, the public that is. You can make a good case that eminent domain is justified here. No one has done it yet, this is uncharted territory as far as the law is concerned, but it's heartening to see Richmond take a shot at it.
Kelo notwithstanding, "benefit of the public" is not "public use"; the former can be stretched infinitely, to the ending of the rule of law.
You're also ignoring that they admit they're seizing the property for less than it's value:
"Richmond, working with San Francisco-based Mortgage Resolution Partners, offers $150,000 to buy a $300,000 bank loan on a house that is now worth $200,000 and is in danger of foreclosure.
If the bank agrees, the city and the company then obtain the loan at $150,000. Richmond and the company then offer the homeowner a new loan of $190,000, which, if accepted....
If the bank refuses to sell the loan to Richmond, then the city invokes its power of imminent domain and seizes the mortgage. It would then offer the bank a fair market value for the home."
See the Naked Capitalism posting that cynicalkane brought to our attention for more details and a view from a very different angle: http://www.nakedcapitalism.com/2013/08/beware-of-private-equ...
Also mentions that California has a property owner friendly way of establishing "just compensation".
What is always troubling is the interaction between municipal authorities and venture capital; their interests do not intersect, and there is little experience in municipalities with complex financial deals. The showcase piece is the Birmingham, AL sewer disaster.
The idea of eminent domain is appealing, and the real-world implementation is another problem.
That's the fifth amendment.
It was the 7th as passed by the Congress, just not as ratified by the states: https://news.ycombinator.com/item?id=6274204 ....
The Supreme Court has ruled that the government can take property from one private party and give it to another private party for "economic development" [1]. So it's already been stretched pretty far.
[1] http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London
No. The Constitution provides that property taken for the public good must be fairly paid for. Property can be taken for private use without compensation. For example, the adverse possession laws in many jurisdiction.
I didn't see that mentioned in the article. Are you sure you are not thinking of that article someone linked to in a comment here on HN rather than the submitted article?
That's consonant with the plain language of the 5th Amendment, Kelo notwithstanding: "nor shall private property be taken for public use, without just compensation."
I take the article's language as the author knowing this is scamming the Constitution's provision for eminent domain, even if it's pretty clear he doesn't care. Hence the quote starting this thread.
Not so sure about that... the Supreme Court has given wide leeway to municipalities in their interpretation of eminent domain. This is just one of the slippery slope side effects of their earlier decisions.
But your point about this slippery slope is well taken.
Thomas Jefferson had this to say about it, per Wikipedia:
"You seem to consider the judges as the ultimate arbiters of all constitutional questions; a very dangerous doctrine indeed, and one which would place us under the despotism of an oligarchy. Our judges are as honest as other men, and not more so. They have, with others, the same passions for party, for power, and the privilege of their corps.... Their power [is] the more dangerous as they are in office for life, and not responsible, as the other functionaries are, to the elective control. The Constitution has erected no such single tribunal, knowing that to whatever hands confided, with the corruptions of time and party, its members would become despots. It has more wisely made all the departments co-equal and co-sovereign within themselves."
The subsequent history has shown he was spot on. Given that the Switch In Time That Saved Nine waved through FDR's New Deal, and most subsequent gross violations of the Constitution, shows in practice they're really bad at what they arrogated to themselves, and they've far too often given the other branches of government cover. E.g. "sure, this might be unconstitutional, the Supreme Court will decide!" Fairly often the "might" is really "is", and later politicians who depending on a saving throw from the Supremes got disappointed. E.g. McCain-Feingold.
Can you point out where the article mentions that it's "flatly unconstitutional?" The only reference I could find to constitutionality (mentioned also in the photo caption) is:
"first-in-the-nation plan to use the government's constitutional power of eminent domain to ..."
The article does mention that "The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain", but every legal opposition to eminent domain seizure makes that claim.
I won't get into the much more complicated usury argument, since that's now settled in (post)Christendom, else we wouldn't be having this argument.
For "flatly unconstitutional", see https://news.ycombinator.com/item?id=6273984
I read the link you pointed to. It affirms that the plantiff's claim is "consonant with the plain language of the 7th Amendment."
There must be a typo there, as the 7th is right to a trial by jury, while the given quote about "nor shall private property ..." is from the 5th.
I don't see though how this is an effective argument. Every single lawsuit filed in opposition to an eminent domain seizure must claim that the seizure is violation of the 5th amendment. So of course this lawsuit is "consonant with the plain language of the 5th Amendment" as otherwise it would be thrown out as being unjustified.
A more effective argument would point to existing legal cases, to show how the courts have previously ruled. But the comment you linked to dismissed Kelo - a case which gives some idea of how much the Supreme Court may defer to local governments - without giving any reference to other more relevant cases.
I addressed your other points here: https://news.ycombinator.com/item?id=6274067, in brief the Constitution != Supreme Court.
Specifically, you said: What they're doing is flatly unconstitutional, as the article mentions.
The article, as far as I can tell, says that the plaintiffs claim that it's unconstitutional, but as I've pointed out, every such plaintiff must make the same point.
As you write, this is your interpretation. It's not the same as "flatly." Another, and in my opinion better, interpretation is that the author is reminding the reader what eminent domain means. Let's see if I can provide evidence for my view.
For reference, the original quote is "The banks have filed two lawsuits alleging that the plan is an illegal abuse of eminent domain, which allows governments to seize private property for public use — like a house in the path of a new highway or a piece of land needed for a new park."
What do other newspapers say when they describe eminent domain?
1) "Another option would be for the county to acquire the property under eminent domain, the process by which a municipality can take over private property for a public good, for a price." http://www.miamiherald.com/2013/03/01/3262043_p2/um-county-c... (The private University of Miami wants to build a pedestrian bridge across a major road, where 8 students have died since 1989. The city doesn't have the budget for an eminent domain claim.)
2) "There's a new partner in the mix as Aberdeen officials work to buy the now-closed federal courthouse under eminent domain, which allows government entities to take possession of private property if it is in the public interest." http://articles.aberdeennews.com/2013-08-06/news/41141473_1_...
3) "As with the Trans-Texas Corridor, the pipeline dispute seems certain to reopen a legislative debate over eminent domain powers, which governmental entities and so-called common carriers such as utilities and pipelines use to acquire land for public projects after compensating the owner." Fort Worth Star Telegram, reprinted in http://www.mcclatchydc.com/2012/02/22/v-print/139579/texas-b... . (On the question of if an oil pipeline counts as a common carrier under Texas law.)
Do note how this points out that the Supreme Court isn't the only court to judge the constitutionality of an eminent domain seizure. State courts are also involved, and the Supreme Court usually defers to them, rather than making an overarching statement.
4) The Chicago Tribune articles I looked at never explain 'eminent domain.' I guess they expect their readers to know that already. But quoting from http://articles.chicagotribune.com/2006-01-03/news/060103024... , "Overwhelmingly, the eminent domain cases filed in Cook, Kane, DuPage, Lake, McHenry and Will Counties are for traditional public purposes, such as highways, schools, libraries, police stations--projects that will be owned by the government for the public use. / But a review of court cases filed since 2001 shows local governments have used eminent domain powers in many redevelopment projects where private companies end up in control of the land. / Municipal officials say this is nothing new and the current system should not be changed. Chicago area communities have used eminent domain in this way for decades to dream up new plans, they say."
That suggests that despite your rejection of Kelo, it is not completely out of line with the use of eminent domain over decades. Of course, it isn't, since you're really objecting to the court's decision in Berman ...
As a number of scandals have shown, they will be unable to do so for a significant fraction of the mortgages, and they know it. They will scream, but push come to shove negotiation will be in their interest. And they know it.
http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London
Which is an iffy opinion, on, I suppose, Justice Kennedy's opinion, who I don't know that well, and I would not be surprised to be proven wrong.
Note this is in part due to the fact that there's a lot more than "public use" at stake, e.g. the whole profitability of the deal depends on there being a difference between the price paid to the bank and a price of the new mortgage. The losers are more sympathetic than small time landowners, and the big winner is another "banker"/eeeevil Wall Street type firm (see the Naked Capitalism posting).
Given the federal government is going to do nothing about the problem, I applaud the mayor for creative thinking. I don't think it'll work, but maybe it will spur someone into a more reasonable action.
Heres the issue- Bankers created the housing collapse, as far as the homes value is concerned. By allowing many 'liar loans' that started defaulting, we exploded with foreclosures which flooded supply without demand. As a result, home prices went down. It does not change the fact that a percentage of the people getting hurt by foreclosures are those who lied in the first place. Yes, your home value went down. Provided they were in a 30 year fixed (the vast majority were, since they were being resold to fannie/freddie) your payments did not go down, OR up. If you could afford it on day one, you should still be able to today.
Basically, this is comprised of many people who lied to get their mortgage and as a result, their home values went down (but their payment is the same as day one) but since their homes are down in value they stop paying. The bank should have never loaned these people the money in the first place. You should have never been in this house if you are getting foreclosed on now.
*this comment is not applicable to all situations, but a common occurrence.
There's nothing stopping the state from using Eminent Domain to overreach and ruin businesses or move people out of their homes for their definition of "public good".
Some key points:
* The profits are being split among Richmond and a private investment firm named "Mortgage Resolution Partners, LLC".
* Seizing a mortgage for less than its fair market value is blatantly unconstitutional. The argument that the value of an underwater mortgage in repayment is worth less than the house is so obviously wrong, I have a hard time believing Richmond officials honestly buy it. A mortgage that is on track to be repaid is undoubtedly worth close to the future value of repayment, even if the house is worth $0.
* Big banks do not actually own most mortgages in general. So this is not a scheme to rob big banks, although Mortgage Resolution Partners, LLC certainly wants to spin it that way.
* Almost all housing mortgages are merely serviced by banks but owned predominantly by entites such as "state and local governments, hospitals, Fannie, Freddie, and to a lesser degree, foundations and endowments". The banks have a legal obligation to protect these mortgages, of course.
* Many of these loans are current--they're not distressed mortgages at all! They also plan to steer clear of houses with liens. Naked Capitalism comments that the plan only works financially if they go after the mortgages of those that need help the least.
In short, this is a transfer of wealth from a diverse array of investors to the city of Richmond and a bunch of investment banker types--theft under the cover of populist outrage. It would also severely damage the market for future homeowners in Richmond, anyone who wants to sell their home, anyone who wants to refinance... Oh, it's also a threat to fundemental notions of private property, rule of law, and market capitalism, but distressingly few people still care about that. The bit I want to emphasize is that it's Prince John pretending to be Robin Hood.
Heads (banks keep mortgages): You Lose, because the market value of your home is artificially high, and when the bottom goes out on the market again (unless you happen to be drinking the kool aid and equate a life time of mortgage payments as owning a home), you'll either find yourself on foreclosure or trying to refinance again.
Tails (City and PE get mortgages): You Still Lose, but now you have to pay a PE firm those monthly mortgage payments while the above still applies.
Am I missing something?
That's what they're selling. Whether it really happens...? It wouldn't be the first time a gov't entity promised a plan that would 'help' homeowners and that plan failed to actually do so.
As an aside, I wonder if it would just be better sign yourself onto a mansion, get your neighbor to burn "your" house down (using pgp to communicate this with temporal keys), collect insurance, cover neighbors bail and skip to the some emerging market (with no extradition treaty with the US or its allies) together with your "ill" gotten earnings in ones under luggage. </joke>
On the larger stage, the City of Richmond is cutting their own throat by doing this. It's doubtful that I'd ever buy any of their municipal bonds after this. If I were somehow persuaded to (fat chance), it'd cost them a much higher rate - something like what Detroit is paying.
Funny thing is, people probably own their munibonds and don't even know it.
>>> The other problem though, is that wealthy people always seem to have a way of passing the damage down to the working class.
There's no such thing as "wealthy people vs. working class", if they ever were. Look up how much money largest unions manage, how big are largest pension funds, how big are all pension funds combined. We're talking trillions here. Of course, there are some very rich people, but thinking that messing with economy you're only influencing those rich top-hat wearing monocle-donning monopoly men is completely wrong. Everything is connected, and "working class" is as interested in good investment climate as the wealthiest of the wealthy. Maybe even more - if Bill Gates loses 50% of his money, he'd be ok. If your average Joe's pension fund loses 50%, he's screwed.
> 40 to 50%
That would be very unusual in most of the US, as the lenders typically want a 28/36 front-end/back-end ratios. Obviously, during the bubble things were a little ... looser.
The problem with this is that a person makes an investment with a known risk profile. That needs to be known in order to just the worthiness of the investment: the higher the risk, the higher the return needs to be.
When someone comes in and changes the rules, that messes up everything. Suddenly those safe mortgage investments that you felt were a good investment at a 5% return become absolutely shit because you run the risk of taking a huge loss.
What is the impact? All those people that bought up the mortgages a while back now want another 5% in return to offset the risk of having the mortgages suddenly lose value.
Who loses? Homeowners because now you can only find mortgages at 10%, not 5%.
Which gets back to the root of the problem. Mortgage companies were not properly assessing (or outright lying about) the risk for some of these mortgages. A lot of those seemingly safe mortgages were in reality very unsafe.
Everyone needs to feel some pain on this one. Homeowners, mortgage companies, and investors - everyone who underestimated their risks should see some loss. If that risk wasn't properly assessed the first time around, then yes, it will cost more. Mortgages are at ridiculously low rates from a historical perspective, so it wouldn't be unreasonable to see those rates rise.
The people who really got screwed were those that had a properly sized mortgage, ability to pay it, but then had the value of their home drop when the rest of the market failed. If they were unable to ride out the collapse, it was brutal.
Banks - 75% of the house's market value is probably more than they would get from repossession and auction
Home buyers - they now owe what the house is worth, instead of more
City - has enough money to run, keeps citizens happy
Company - $5k (though this can be argued to be unfair and the middleman should be removed)
I'm not so sure that it is so obviously wrong... For the individual home, yes, it is a stretch to think that the value of an inflated mortgage is less than the value of the house. But, they are thinking in terms of the population of all underwater homes. There is an increased rate of default on underwater mortgages. So, you could argue (and they are), that the lost value when spread out among all underwater mortgages, makes the pool of them less valuable than the value of the homes themselves.
To know the answer, you'd have to know the normal rate of default, the rate of default for underwater mortgages, and the average amount the bank looses when a mortgage defaults (as well as the average value of the homes and the inflated mortgage valuations).
It is very possible that when all of the numbers are calculated that offering below the appraised value of the home for the mortgage is approximates fair market value over the whole population of underwater homes. A loan wouldn't necessarily have to be distressed to fall into that statistical population.
If you think in terms of one house, this plan doesn't make sense. But, when you think in terms of an entire city, it starts to make more sense (if the numbers and rates line up). It's probably short sighted for other down-stream effects, like lack of future investment and loans, but for the short term, it might work.
If there was a CDO pool that included only mortgages based on houses in that particular town, perhaps the whole pool could be seized at once, based on the fair market value of all tranches of the CDO (although there might be tricky jurisdictional issues). However, that's not the case. The mortgages are spread across many many different such pools. So rather than one big eminent domain case, there needs to be a condemnation of each and every mortgage separately. That being the case, the city must pay the fair market value of each mortgage -- not the the FMV of an abstract average house.
The single biggest problem with the city's proposal is not that it is underpaying (though it likely is in most cases) but rather that it is trying to claim that every mortgage can be fairly valued using the same simple formula: 80% assessed value of the underlying asset. Simply put, that's nuts.
The second biggest problem is that Freddie and Frannie have already said that they won't refinance the written down mortgages. So the city would have to hold the mortgages to maturity. They don't seem to have anywhere near enough capital to do that, and I don't think the muni market would be terribly interested in financing such a scheme (or the litigation!). Especially not with Detroit making everyone nervous to begin with.
At least, that would be an arguable theory...
So what's the "fair market value" of that piece of paper? You assume it "is on track to be repaid" but that is a highly optimistic evaluation. The note represents a net future value of payments multiplied by a probability P that it _will_ be repaid. P is considerably less than 1.0 for a note whose face value is more than the present value of the property, and it shrinks every time another house in the same neighborhood is foreclosed or abandoned. At best the value of the note is the sale value of the foreclosed home (less the not inconsiderable costs of performing a foreclosure and prepping the property for resale) -- and the sale value of an abandoned foreclosed house in a city full foreclosed houses is a fraction of the original purchase price.
Frankly if Wells Fargo can get $150K for a $200K mortgage in Richmond, they ought to take the money and run.
The reason they care (and the reason the situation doesn't resolve itself without outside intervention) is that they're dependent on reporting improbably high property and loan values in order to not appear insolvent. The city doesn't care about this and is uninterested in punishing it, but they are interested in getting a large chunk of their tax base out of legal limbo and they have the legal right to do so.
This article makes a good rundown about how this is an unremarkable taking and likely to succeed in court: http://www.bloomberg.com/news/2013-08-16/eminent-domain-isn-...
Do you not see the problem with inventing a new power out of whole cloth to fight wrongdoing? Surely, the banks have done wrong - and should be prosecuted. But the exact thing that you rail against - "banks recieving huge amounts of taxpayer money" was ITSELF the product of exactly the same thinking that you are engaged in - "let's invent a clever new government power. for the public benefit [to save the economy]". problem is, these "public benefits" are so often really just to help out some private consortium - and you don't have to look too hard to figure out who that is in this case.
"The banks argue the plan would "severely disrupt the United States mortgage industry" because many other cities would likely adopt the same program to help homeowners who owe more on their mortgages than their houses are worth."
and -
"Cameron said pension funds, banks and other groups that made loans in Richmond stand to lose millions if the city is allowed to use eminent domain to force lenders into accepting less than the original terms of the loan.
He also predicted that cities using eminent domain will make lenders wary of doing business there.
"There's a domino effect in play here," he said."
If many other cities decide to do this, then the financial services industry is not going to be able to avoid doing business in those cities. One or two cities maybe, but not if many cities do this.
The financial services industry is always fond of threatening that it is going to take its ball and go home if it doesn't like the decisions being made, but really it can't actually afford to.
I am not sure that the way that this is being done is sensible, however I do not think that it will drive business from the city, at least not in comparison to a housing crisis.