Newsweek: How Dubious Lenders
Created a Blighted Cleveland Slum
'How did it all start? How did distressed properties like these become 'collateral' for loans that were bundled into high-priced securities, then bought by huge banks and pension funds around the world? How did Slavic Village contribute to a global credit crunch?...Slavic Village seemed, at first glance, an unlikely spot for investors in mortgage securities to place their bets. The childhood home of Rep. Dennis Kucinich, it was for decades a chronically depressed steel-mill town noted for its kielbasa shops. But like other rust-belt cities, Cleveland was trying to rehabilitate itself, pouring money into revitalization programs. Yet insidious forces were at work in the neighborhood. After the mortgage-refinancing boom of 2003–04, demand for fresh subprime "product" grew so intense that lending standards nationwide disintegrated. To meet Wall Street's demand for a steady supply, lenders kept reaching lower and lower down the scale of quality in both property and borrowers, until the street hustlers jumped in to offer up their "product." Not surprisingly, the once shunned inner city became a prime lending spot across America. That, in turn, led to the phenomenon of reverse redlining. More than a decade ago, the big story was the redlining of low-income, often African-American, neighborhoods by banks that refused to lend there. Now the opposite happened.'
--From an article in the current issue of Newsweek. Cuyahoga County Treasurer Jim Rokakis (recently mentioned here) chimes in with one of his patented well-crafted sound bites: "More people have left Cuyahoga than any other county in the U.S. with the exception of New Orleans. They had a hurricane; we had lenders."