News Column

Detroit Free Press Rochelle Riley column

August 10, 2014

By Rochelle Riley, Detroit Free Press



Aug. 10--A federal judge and lawyers for some of the city's major creditors toured Detroit on Friday to open their eyes to its challenges and see its progress.

But I couldn't help but wonder: Why didn't the creditors do this before loaning the city money?

Did they really not come see what shape Detroit was in before they made the loans or allowed the credit in the first place?

-- Tom Walsh: Was bankruptcy bus tour Detroit reality -- or just surreal?

Did they really not know the risks? And if they did, why did they loan the city money anyway?

As the layers of Detroit's financial onion were peeled back over the past year, two things became clear:

First, the city was broke long before emergency manager Kevyn Orr said it was.

Second, creditors had no problem loaning money to Detroit when the city was spending money like Kim Kardashian and using loans to pay operating expenses, a definite no-no financially. Did the banks and other companies decide to ignore that they were loaning to a city that was already living on borrowed time and borrowed dimes?

-- Map: Detroit bankruptcy bus tour

What institution would loan money to people whose tenuous financial condition might make it impossible for them to pay it back?

Countrywide.

Time magazine put it best: Countrywide Financial Corporation offered "exotic mortgages to borrowers with a questionable ability to repay them."

The company, founded by the son of a butcher in 1969, became the largest mortgage lender in the U.S. But its legacy, sadly, is its contribution to the housing bust. Its "all-out embrace of such sales (to under-qualified applicants), Time said, legitimized "the notion that practically any adult could handle a big fat mortgage."

(While some criticized American dreamers who took a chance on buying homes for their families, the Justice Department took a closer look at Countrywide and found that it also forced minority applicants to take sub-prime loans even when they qualified for prime loans. Justice reached a $335 million settlement with Countrywide in the case.)

Detroit's creditors have not been accused of doing anything wrong. They did plenty right for Detroit. As a matter of fact, where debt was concerned, it appeared to be the bigger the better.

But greed may have clouded their judgment. They should have paid attention to the city's rising debt, declining revenues and population losses. Or were they waiting for this day, for bankruptcy, when they could come and scavenge the city, even suggesting that a nationally renowned museum sell its art to pay them?

It was fine for Judge Steven Rhodes and the creditors to tour the city, to see the good and the bad. But the city is quite changed from what it was a decade ago, even seven years ago, when some loans were made.

I contend that creditors should have taken that real tour before signing on the dotted line. They should have had a better sense of what they were getting then. And they should settle for what they can get now.

And in the future, if a city's finances are in turmoil and its officials ask for a loan: Just say no.

Contact Rochelle Riley: (313) 223-4473

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(c)2014 the Detroit Free Press

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Source: Detroit Free Press (MI)


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