First there were the bank bailouts. But hey, the alternative was fiscal Armageddon, they said.
Then there was news of lavish bonuses for execs at the very banks we had bailed out. But hey, you’ve got to pay big money to hold onto big talent, they said.
Then, before we could ask if by “talent” they meant the kind of talent that had just wrecked our economy, we started hearing about other acts of banking mischief, such as money hoarding, illegal foreclosures and spending zillions ($27.3 million in the second quarter of 2010 alone) on high-powered lobbyists to torpedo even the most tepid banking reforms of Dodd-Frank.
No doubt about it, the banks have had America’s chump-meter pinned at “ten” for quite some time. However, as hard as it’s been to accept the banks raking in record profits while unrepentantly fighting reforms that might protect the world from a repeat of its greed orgy, the latest bank news from Los Angeles could very well slam the meter’s needle to “eleven.”
At issue is the Responsible Banking Program, a measure passed by the City Council in 2010 that ranks banks doing business with the city and rewards high-ranking banks with increases in lucrative city business. High numbers go to banks that engage in such good-neighbor practices as lending to small businesses and restructuring home loans to prevent foreclosures. Of course, banks not willing to be good neighbors score lower and banks perpetrating out-and-out fraud against the city or its residents don’t get to play at all.
As an article in Time Magazine points out, fraudulent dealing by banks in Los Angeles is no idle fear. A 2008 lawsuit still pending against 35 banks alleges that the banks engaged in bid rigging while trying to secure debt-management deals with the city.
Onward to Responsible Banking
But that was old news. Los Angeles was now off and running with its new, innovative bank-ranking system guaranteed to make banks behave, right?
Well, not exactly. After the measure passed in 2010, it languished unimplemented in the city hall dungeon for two years. Apparently, city officials thought Responsible Banking was a good idea in principal only… until Occupy Los Angeles came to town.
As part of the City Council’s endorsement of Occupy L.A., Responsible Banking was not only resurrected, it was the centerpiece of the council’s Occupy Los Angeles resolution: “… the City of Los Angeles hereby stands in support for the continuation of the peaceful and vibrant exercise in First Amendment Rights carried out by “Occupy Los Angeles” and urges the City Departments responsible for completing the implementation plan associated with the Responsible Banking measure (CF 09-0234) that was approved by the Council on March 5th, 2010, which would address some of the concerns of the “Occupy Los Angeles” demonstrators by demanding accountability and results from the Banks we invest taxpayer dollars in, to bring the Responsible Banking measure for a final vote to the Council by October 28, 2011.”
Okay, now L.A. is ready to make the banks behave, right?
Not so fast. On October 18, City Administrative Officer Miguel Santana warned the council, “Severing agreements with major lenders could trigger sizable termination fees and lead to higher interest rates.” In other words, implementing Responsible Banking could cost the city as much as $58 million, which could mean a reduction in planned city improvements and services.
Suddenly, voices at city hall that had been supportive of the resolution were now beginning to whimper a different tune.
“I don’t think we ever want to stand here at the mike and say to the public, ‘We showed Bank of America. We just cost you $2 million because we didn’t use them,’” Councilmember Bernard C. Parks told the Los Angeles Times. “The city may not have the capacity to rate and regulate the banks,” he added.
Councilmember Paul Koretz echoed the concern. “If it costs us $20 million or $30 million or $40 million to do the right thing, then we’re probably doing the wrong thing,” he said.
However, sponsor of the measure, Richard Alarcon, disagrees. “I think it costs us money to allow them to defraud us. The question in my mind is how much did they rip us off?” said Alarcon. “If these companies have ripped us off, we should at least put them through additional hurdles before they can do business with us again.”
When, if Not Now?
The most troubling aspect of all this is that Parks and Koretz have a good point. A nearly $60 million hit to the city’s pocketbook at this time could be devastating, especially to lower income Los Angelenos who depend more on city services.
But Parks, Koretz and their fellow wafflers should understand that there will never be a good time to take back control of the system. The system is designed with built-in safeguards to prevent exactly the kind of mutiny Responsible Banking and Occupy L.A. represent. Like a moat guarding a castle, the surrender/termination fees and higher interest rates are meant to keep the peasants from storming.
Large investment banks have been operating with near impunity for so long it feels natural to them. As Senator Dick Durbin put it in 2009, the banks “frankly own the place.” The place Durbin was referring to, of course, was Congress. If Parks and Koretz thought the banks were going to let a mere city council interfere with nature, they hadn’t thought about it enough.
It may not be a good time, but it’s the best time L.A. will ever have to show some spine and inject a little sense into its relationship with the banks. Thanks to Occupy L.A. and the entire Occupy Movement, people have never been more tuned into the inequities of the system and they will be paying close attention to how their council member votes on this issue.
Will they stick to their guns and vote to implement Responsible Banking… or once again, climb back aboard the Chump Express?