There’s been so much corruption on Wall Street in recent years, and the federal government has appeared to be so deeply complicit in many of the problems, that many people have experienced something very like despair over the question of what to do about it all.

But there’s something brewing that looks like it might be a blueprint to effectively take on the financial services industry: a plan to allow local governments to take on the problem of neighborhoods blighted by toxic home loans and foreclosures through the use of eminent domain. I can’t speak for how well the program will work, but it’s certainly been effective in scaring the hell out of Wall Street.



  1. noname says:

    I hope this truly becomes a silver stake of good through the Vampires heart and expose them to the sunlight of justice.

    However, I fear WallStreet in the name of free speech will easily buy off local officials or judges for a few million and stop a billion(s) dollar loss.

  2. Sea Lawyer says:

    Local government were more than happy to see home prices assessed to enormous highs when they were raking in the property tax revenue, and this didn’t shy away from approving the construction permits for the glut of oversize, overpriced houses being built; and now they are going to fix this mess they are complicit in? Ha!

  3. Sea Lawyer says:

    And I’m also not sure I like a neighborhood with a high number of foreclosures being labeled “blighted” as this will just establish a new precedent to ease future property confiscation by local governments.

  4. Ah_Yea says:

    Sea Lawyer is real close!

    This will never happen because for eminent domain to work, the property has to be blighted, that is abandoned by the “homeowner” and the bank and allowed to rot. (Remember, the bank is the actual homeowner until the mortgage is paid off).

    Since the homeowner is still occupying the property and making payments, by definition the home is not “blighted” and the city has no legal standing to touch it.

    End of story.

    • Mextli: ABO says:

      I am not sure they need to use “blighted”. The New London case makes me think they can get by with anything.

      Land war goes before Supreme Court
      The New London case tests the muscle of local and state governments to raise what they see as much-needed revenue, which they argue serves a greater “public purpose.”

      http://tinyurl.com/cz8jqb3

    • What? says:

      Yea, you are wrong.

      Property has been taken by eminent domain because they decided they had to have it. Happened in my family.

      Blight isn’t required.

      If you “own” your home, it is more likely to be seized. A bank owned home, with little equity, is probably prevented from seizure because of the political pull the banks have.

  5. Egon Ruuda says:

    another krugman article. That man is a moron.

  6. Derek says:

    HAHAHA! So in the name of “making homes affordable” they destroy the housing market, but do make homes affordable. Now that you can buy a $300,000 house for $100,000, they want to destroy all the affordable homes to bump the prices back up. Seriously, Government, you people are complete and total retards.

    Honestly, people. How much longer are you going to be ruled by altruistic idiots?

    • CrankyGeeksFan says:

      There are companies buying homes by the thousands in order to rent them out and to take the existing homes off the market right now.

  7. bobbo, are we Men of Science, or Devo says:

    All the news is that we are on the cusp of a double dip recession which depending of Europe could be another depression.

    Its fun to think complicated layered problems may actually have a workable solution. I fear the current multiple challenges, NOT JUST A HOUSING COLLAPSE, are not so easily resolved, even in theory much less practice, not even addressing the will/capability/resources to implement such partial plans.

    Who knew rife criminality from top to bottom in financial and governmental affairs would affect an economy?

    Silly Hoomans.>>>yes–any of YOU who listen to much less read any Austrian/Chicago school of economic fantacists.

    For shame.

    • ReadyKilowatt says:

      Ah, but there IS an easy answer: hit the reset button on society.

      Europe (and the Middle East) did it with World War 1. Then the rest of us got involved in WW2.

      If we see massive crop failures this year (not likely given that the crop yields of successful farmers will offset any losses), it will throw the US into a depression, much like the dust bowl of the 1930s contributed to the overall negative health of the country.

      I don’t think that will happen. However I do think we’ll see an insurance company or two need a bailout from underfunding their policies on crop insurance. The media will continue to show us tear jerker stories about farmers loosing all their crops, their farms, etc. and the insurance companies will cry to congress about how they are bankrupt because they “couldn’t possibly have known” a drought of this magnitude could be possible. All will be compared to the dust bowl years, with footage taken from the movie version of “The Grapes of Wrath” like it was a documentary or something. John “Cougar” Melincamp will get some airplay.

    • Sea Lawyer says:

      oh bobbo. As your understanding of keynesian economics is based on the handful of wikipedia articles you’ve skimmed through, I doubt you have any serious grasp of austrian theories and models.

  8. Mr Clever says:

    i love articles like this, and posters like Uncle Dave. it reminds me to give thanks and praise for the wealth and stupidity of your average american and the bounty they have granted.
    and to make them feel better, just tell them it’s the boogie man from wall street that’s responsible, they’ll keep believing that one til the cows come home.

    • bobbo, are we Men of Science, or Devo says:

      Mr Not Clever at all says:

      The Wallstreet Crash that almost took down the World Economy was caused by excessive regulation from Obama. This has a ring of truth to it given that the Vulture Capitalist has shown us you can effect social important business elements retroactively.

      Ha, ha. Who really does call themselves clever?

      …………could it be……………………..?

      …………………………………….could it be………………………

      Mr Opposite!

  9. Cursor_ says:

    And the fact that local politicians are even easier to corrupt than their federal counterparts does not play into effect?

    Nah it could never happen. They are so much more ethical than the guys in DC.

    Cursor_

  10. HG says:

    Given the reality of who controls the decisions this will be a wind fall for insiders, including those on wall street

    http://www.zerohedge.com/news/guest-post-eminent-domain-mortgage-heist

  11. NewformatSux says:

    Yea, local governments took the higher assessed values, and spent all the money. Now with lower housing prices they are having trouble adjusting to the loss of revenue.

  12. Uncle Patso says:

    I like the idea of someone having the power to do something like this whose kids go to school with my kids, who goes to a church I or someone I know goes to, whom I might run into at the grocery or the VFW, American Legion, Knights of Columbus, Masonic Temple, etc., etc., etc., rather than some clique who live in gated communities thousands of miles away with more than six degrees of separation from my daily life.

  13. John says:

    Not sure why we blame Wall Street or banks completely on the housing mess. One of the biggest holders of default mortgages is Fannie and Freddie. The real problem was loaning to people who in even the slightest hardships could not afford their homes. Its a fundamental problem of banks, mortgage holders and government to recognize that you cannot take on debt above and beyond your means just to keep the economy going and be nice and put more people into homes. Why are we blaming banks for people who walked away from mortgages because their house depreciated so much? My car depreciates? Should I just walk away from it? Because I cannot sell it for what I owe? Really? Whatever happened to personal responsibility? Banks and Wall Street paid the price for these failings? So now we blame them for not loaning money and doing it all over again? If I loaned you money and you never paid me back. Do you think I should loan you money again?

    • CrankyGeeksFan says:

      “The real problem was loaning to people who in even the slightest hardships could not afford their homes.”

      The lenders were “securitizing” the mortgages and selling those to investors. The lenders weren’t dependent on the borrower to pay pack the principle and interest in order to make a profit or avoid a loss.

  14. sargasso_c says:

    I hear that in California there is a “walk-away” law, which limits the mortgagee’s liability should they vacate a home? Basically, the bank can’t continue to screw them if they abandon their home. It means the bank owns the property, and the owner can start a new life. Can someone verify that?

    • NobodySpecial says:

      Yep, many states are non-recourse.
      Bank is prepared to lend anyone >100% of the value of the property, with no proof of income, with a 30year interest only mortgage and the government gives a tax break if you take a mortgage.
      And we all know that house prices can only go up – especially if you redecorate, we all saw the programs on Homes network !

      But this didn’t lead to a bubble, that was just a random market event.

  15. US says:

    Society built on debt is screwed in the long run. We need to realize that everyone can’t be doing everything on debt, it will always end up collapsing. People buy food, tv’s, vacations, homes, cars, education, pets, and more on credit. No surprise it all ended up this way.

  16. Joe P says:

    Lots of people screwed the banks by not paying on their mortgages because they thought they overpaid. Some of them even cashed out the equity making it more likely they could walk away without losing their own money.

    Let’s fix this going forward. Make Fannie Mae and Freddie Mac require minimum 10% down and change the mortgage interest deduction to only allow a deduction on the lowest amount from any loans which use the home as collateral. You take a second mortgage or home equity line of credit, you can only deduct the smallest amount of interest. This wouldn’t affect people with a single mortgage who don’t cash out equity so it would make the system more stable.

    This would prevent some economic stimulus from spending equity but it would also make it more expensive to walk away since you would have your own equity to lose, not the lender’s.

    • Sea Lawyer says:

      How about we just get rid of the deduction all together? The thousand different deductions and exemptions is what makes out tax codes so insanely complex… and easy to game.

  17. CrankyGeeksFan says:

    Here’s the story with a video interview with Aaron Task of the person whose company is in San Bernadino County:

    http://finance.yahoo.com/blogs/daily-ticker/eminent-domain-fix-housing-market-131011601.html

  18. mercadee says:

    QuotingIt is clear in this article that our federal government is corrupt and working to protect Wall St and let the rest of us rot in debt as the depression continues. “The federal government” includes President Obama and ALL MEMBERS OF CONGRESS. It is imperative that you do not vote for any of these contemptible people back to continue their evil deeds.that’s just plain inane. First thing, do you really think that romney is going to be anything but 10 times worse than obama on the issue? Second – the system is that, a complicated, intricate system, and to be fair you have to weigh each person’s involvement in that system SEPARATELY. There is real scum there, granted, but to generalize like you have done here is just as contemptible as it would be to, say, blindly vote tea party (or democrat, or republican).I’m not a personal fan of what Obama has done finance-wise, but I understand it. Larry Summers wanted a pound of flesh from the finance industry, a head on a plate of a bank CEO and massive prosecutions. Tim Geithner did not – he was afraid that the banking system was too weak to stand such vengeance, and it would lead to a follow-on crisis. Obama listened to Geithner. Lord knows, I wish he didn’t. We missed a grand opportunity to reign in wall street here, and to Obama’s shame, we let things slide. Nonetheless, a Romney presidency would be a dismal affair for fairly obvious reasons.Why you wish for it is beyond me.