Let’s be honest. Many people are feeling a little hopeless and cynical about whether anything can change how Wall Street banks run roughshod over the economy and our democracy. We’ve marched, rallied, sat-in and thousands have been arrested—and yet bankers have remained unrepentant, unpunished, unindicted and seemingly untouchable. But the wheels of history are turning and Wall Street’s incredible greed and arrogance may have finally handed us the tools and leverage we need to challenge and break the death grip Wall Street has on struggling people and communities around the country.
Two critical tools—the LIBOR fraud scandal and the potential to start exercising eminent domain to seize bank-owned properties—can supercharge the ongoing campaigns focused on Wall Street. For the first time we can align moral and legal arguments with real leverage to demand that banks renegotiate the debt that is bankrupting communities and drowning homeowners around the country. The single most important step we can take to address local budget deficits is to force banks to renegotiate toxic deals held by local government and to rewrite mortgages for underwater homeowners. Combined, this would pump hundreds of billions into local economies.
First some definitions:
The LIBOR fraud scandal may seem confusing, but it is really pretty simple. Over $800 trillion in loans, derivatives and other financial deals are based on LIBOR (the London Interbank Offered Rate). The banks fixed the rate to increase their profits at our expense and now everyone all over the world is trying to figure out how much it has cost the rest of us.
Whatever the ultimate number is (there are estimates of hundreds of billions in damages), this scandal has permanently torpedoed the notion that there is “moral hazard” in debt relief for regular folks. We can now prove what we’ve always suspected—that the big banks have rigged the game in their favor and that our deals with them are inherently unfair and should be renegotiated. Oakland, California has taken a first step by demanding Goldman Sachs renegotiate a toxic swap the city is trapped in, saying it will boycott Goldman Sachs in the future if the bank won’t renegotiate.
Eminent Domain. Government has long seized property to create room to build shopping malls and stadiums. Those same laws can be used to seize underwater mortgages from banks and then rewrite them at their real value so homeowners can stay in their homes at greatly reduced mortgage costs. If banks are unwilling to reset mortgages at fair market value, then local governments can lawfully seize their property for the common economic good. They would merely have to pay the banks fair market value for the mortgages, which would force the banks to take significant writedowns. San Bernardino County and Berkeley, California have already started down this road.
It is time to REBEL, against Wall Street and the big banks and to start fixing the economy and reclaim our democracy. There are five steps to this:
1. Renegotiate public and housing debt. We need to lift up the demand loud and clear that we want to renegotiate public debt and that it is unfair and illegal to hold local governments and public services hostage to Wall Street’s toxic loans. It is estimated that banks have already sucked more than $50 billion out of local communities through toxic loans, fees and tricky deals that cities are locked into.
2. Exercise eminent domain. There are 16 million underwater homes, worth $2.8 trillion, that are $1.2 trillion underwater. Resetting those mortgages to fair market value would save the average underwater homeowner $543 per month, pumping $104 billion into the national economy every year. This would create 1.5 million jobs nationally.* If just five of the most severely underwater cities used eminent domain they could seize $140 billion worth of underwater homes from banks, forcing banks to take a $30 billion haircut on underwater loans.
3. Boycott big banks and move public money. One of the key profit centers for banks is their government business. And it isn’t just LIBOR they cheated on. There are investigations and growing scandals around price fixing on municipal bonds as well. Furthermore, banks are holding cities hostage on Letters of Credit (LOC’s) by ratcheting up the cost knowing if cities refuse to pay they may be forced to pay huge termination fees. If increasing numbers of cities, pension funds and other holders of public capital chose to boycott certain big banks and moved money out of those banks, it could be a huge financial hit for them.
4. Enact resolutions at local governments and pension funds. There is a simple way to get started that will send chills down Wall Street banks’ spines. Let’s start moving resolutions in cities and counties big and small around the country, demanding that local government and pension funds explore suing banks over LIBOR and prepare to use eminent domain to seize underwater mortgages from banks if they won’t renegotiate debt. This sample resolution is a first step in raising the issue locally and starting to build a campaign to force local governments to hold Wall Street accountable.
5. Litigate and legislate. But it isn’t enough just to pass resolutions—that is only a first step. If the banks refuse to renegotiate the debt than we need to litigate and legislate in our local communities. Our pension funds need to sue to recoup their losses. Local government needs to sue to get out of bad deals and claw back money banks unfairly made off of local taxpayers. And we need to follow the lead of Oakland, Los Angeles and other cities that have passed laws saying they will divest from banks that engage in unfair banking practices.
Since the financial crisis hit in 2008, community groups like National People’s Action, ACCE, New York Communities for Change, the New Bottom Line, the Alliance for a Just Society and Right to the City, to name a few, have joined with unions, Occupy Wall Street, Occupy Our Homes and hundreds of thousands of people who have stood up to Wall Street greed. Wall Street and banking royalty are no longer untouchable. We have the tools and we have the leverage—let’s start using them to start winning for our communities and families. It is our responsibility to REBEL. All of our futures depend on it!
*These figures represent updated estimates from last year’s report, The Win-Win Solution, from the New Bottom Line, which investigated the effects on the economy of writing down all underwater mortgages to current market value.