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‘Consent decree’ puts fox in charge of henhouse

Published Mar 25, 2012 10:33 PM

Michigan Gov. Rick Snyder on March 12 proposed a “consent agreement” between the state and the city of Detroit for oversight of the city’s finances in place of the state imposing an emergency manager over the city. This “consent agreement,” just like the Emergency Manager Act, would guarantee that the banks have direct control over the city’s budget.

Article 11 of the consent agreement states: “This agreement shall remain in effect until (a) the earlier of (i) the end of the third consecutive fiscal year of the City in which … (ii) the City has achieved and maintained for at least two calendar years a credit rating by two or more nationally recognized securities rating agencies … on the City’s outstanding long-term unsubordinated debt in either of the two highest long-term rating categories of such rating agency.”

These “rating security agencies,” which will determine the city’s financial solvency, are for-profit corporations that earn their revenues through payments from the banks and ancillary institutions. By giving the financial institutions the ratings they want to hear, regardless of whether these ratings are justified, these agencies maximize their own revenues and profits.

A report by the U.S. Senate Permanent Subcommittee on Investigations called “Wall Street and the Financial Crisis,” dated April 13, 2011, documented how, in their drive for profits in collusion with the banks, these agencies gave subprime and other exotic mortgage securities the highest ratings, despite knowing they were fraudulently created and doomed to fail.

The Senate report noted how analysts from Moody’s and Standard & Poor’s, two of the largest rating agencies, continued to give subprime mortgage securities the highest AAA rating during the years 2004 to 2007, despite knowing “of increased credit risks due to mortgage fraud, law underwriting standards, and unsustainable housing price appreciation.” The reason? “Competitive pressures, including the drive for market share and need to accommodate investment bankers bringing in business, affected the credit ratings issued by Moody’s and S&P.”

Detroit was the city hardest hit by the predatory lending practices endorsed by these rating agencies. Approximately 85 percent of the city’s mortgage loans were subprime, leading to 150,000 foreclosures between 2005 and 2010, loss of one-quarter of the city’s population, and leveling of the city’s tax base.

Halt debt payments to banks!

If the consent decree is implemented, these rating agencies will be in position to ensure that the same banks — the ones they collaborated with in destroying Detroit with their criminal foreclosures — will continue to get first lien on the city’s tax dollars.

A 2011 Ernst & Young report on the city’s finances noted that for the current fiscal year, Detroit will pay $226.3 million to the banks for debt service out of its general fund and an additional $399.3 million in debt service from the water, transportation and parking departments. By holding the power to extend the consent decree indefinitely, the ratings agencies can ensure that their sponsors, the criminal banks, get full payment on the debt service, even if it means city services are destroyed, city workers are laid off, and the city’s assets are privatized.

This is consistent with Public Act 4, the Emergency Manager Act, which guarantees the banks “payment in full of the scheduled debt service requirements on all bonds, notes and municipal securities.”

Rather than going along with the governor’s consent agreement or with the imposition of an emergency financial manager on behalf of the banks, Detroit Mayor Dave Bing and the City Council should declare a moratorium — a halt — on all debt service payments to the banks.

A suspension in debt service payments would immediately resolve the city’s fiscal crisis and allow for restoration of city services and recall of laid-off city workers. It would give time for the city to go after the banks to repay the billions they have stolen from the people through their fraudulent lending practices.

Goldberg is an organizer of the upcoming National Conference for a Moratorium on Foreclosures and Evictions to take place March 31 in Detroit.