Michigan’s Big Banks Must Do Their Part

The economic crisis has taken a deep toll on Michigan. Families have lost their life savings, income, quality of life, and in many cases, even their jobs and homes. Across the state, neighborhoods are reeling from devastating cuts to vital services like health care, education and public safety. Loss of public service affects all communities, but it especially impacts the most vulnerable—seniors, children, the disabled, low-income households and communities of color.

While Michigan was struggling to make ends meet, Wall Street paid out astronomical bonuses again this year. JPMorgan Chase, Comerica, and Bank of America—three of Michigan’s largest banks—paid a staggering $64 billion in bonuses, benefits and compensation this year, enough to cover the budget gaps of 38 states in FY 2012. In fact, 38 cents out of every dollar these three banks took from our communities in 2010 went straight towards banker pay. Even as every Michigander is being asked to carry the yoke, the state’s largest banks continue to horde their wealth. The big banks broke our economy and caused our budget crisis. They are the reason we have to choose between funding education and public services. It is time for the banks to start pulling their weight.

Not Paying Taxes

Bank of America 2009 profit: $6.3 billion

Bank of America 2009 domestic taxes: $0

Comerica 2009 profit: $17 million

Comerica 2009 domestic taxes: $0

Even though Michiganders pay a third of their salary in state and federal income taxes to help pay for critical services, Michigan’s big banks refuse to pitch in. Bank of America and Comerica are two of Michigan’s largest banks, but neither of them paid taxes in 2009, even though both companies raked in big profits. Instead, the two paid out nearly $30 billion in bonuses and compensation, just a fraction of which could have bridged Michigan’s $1.8 billion budget gap.[1]

Gouging State and Local Governments with Toxic Swaps

Michigan State University’s Loss on Toxic Swap Deals: $10.4 million

MI State Housing Development Authority’s Loss on Swap Deals: >$23.8 million

Detroit’s Loss on Toxic Swap Deals: >$94.0 million

Highland Park’s Loss on Toxic Swap Deals: $1.2 million

L’Anse Creuse Public Schools’ Loss on Toxic Swap Deals: $2.8 million

Since the financial crash in September 2008 banks have raked in more than $250 million in profits through risky derivatives called “interest rate swaps” that have greatly increased taxpayers’ cost of borrowing. Through 2012, these deals will cost Michiganders more than half a billion dollars.

Michigan State University. These toxic swap deals have hit the pocketbooks of students at Michigan State University. MSU is losing $10 million a year to banks like JPMorgan Chase, UBS, Deutsche Bank, and Barclays on interest rate swaps. That comes to about $230 for each of the university’s 46,000 students. Meanwhile, the school-raised in-state tuition by 5.2% last year, or $580 per student.[2] That means that for in-state students, nearly 40% of their tuition hike went directly to the banks to pay for these swap deals. The credit rating firm Moody’s has a negative outlook on MSU in part because of “concern about risks embedded in the university’s debt and swaps portfolio,”[3] which means these swaps could cause the university’s interest rate on future borrowing to shoot up, further increasing the costs to students.

MSHDA. The Michigan State Housing Development Authority is also losing at least $23.8 million, and likely a lot more, on its interest rate swap deals. This is money that could be spent solving the housing crisis in Michigan, but instead it’s going to the same banks that helped create it.

Detroit. The City of Detroit faced down bankruptcy in 2009 when banks like UBS threatened to terminate eight of its swap deals and hit the city with more than $400 million in penalties. To avoid bankruptcy, the city had to agree to increase its swap payments to the banks, and to commit to paying $4.2 million of its casino revenue every month for the next 20-25 years to the banks before spending a dime on schools, infrastructure, or other critical services.[4] All together, the City of Detroit is losing more than $93 million a year on its 30 swap deals.

Defrauding taxpayers? The U.S. Department of Justice and Attorneys General in three states are investigating potential illegal behavior by the banks in connection with these deals.[5] JPMorgan Chase, which holds one of MSU’s swaps, has already agreed to pay more than $700 million in fines to settle an SEC lawsuit alleging that the bank paid off officials in Jefferson County, AL in order to get government business.[6] Bank of America recently admitted criminal anti-trust behavior with respect to municipal derivatives and agreed to pay $137 million in fines.[7]

Cheating Counties out of Recording Fees

Total loss to counties as a result of MERS: $XX million

Loss to counties on Bank of America mortgages: $XX million

Loss to counties on Bank JPMorgan Chase mortgages: $XX million

Loss to counties on Comerica mortgages: $XX million

Whenever a mortgage is sold, city or county clerks’ offices charge a fee to record the transaction. The banking industry created the Mortgage Electronic Registration System (MERS) to avoid paying these recording fees to local governments. 60% of all mortgage assignments nationally are now registered through MERS, cheating communities out of revenues they need to support critical neighborhood services. Bank of America and JPMorgan Chase have the two largest portfolios of mortgage-backed securities in the country and were two of the largest mortgage originators in Michigan. Together they own $410 billion worth of securitized mortgages, more than the next nine banks combined.[8] Since 2005, the banks have cheated Michigan counties out of $XX million in recording fees through MERS.

Destroying Communities through Foreclosures

Projected Foreclosures, 2009-2012[9] 325,917

Cost of Foreclosures to Michigan Taxpayers: $6.3 billion

Underwater Mortgages:[10] 524,478 (38%)

Economic Impact of Resetting Principal & Interest to Market Value: +$3.1 billion

Big banks like Bank of America and JPMorgan Chase are destroying neighborhoods across the state with record foreclosures. More than 325,000 homes are expected to go into foreclosure in Michigan by the end of next year, putting families out on the street and depleting the local tax base. Abandoned homes are a public hazard and create a whole host of costs to local governments for maintenance and upkeep. A typical foreclosure can cost a local government more than $19,000 for maintenance, upkeep, and lost tax revenues. Michigan taxpayers are going to have to pay $6.3 billion to clean up after the banks’ 325,000 foreclosures.

Furthermore, foreclosures drag down property values of nearby homes and can cause entire neighborhoods to owe more on their mortgages than their homes are worth. 38% of Michiganders are under water on their mortgages. Underwater homeowners are much more likely to default on their loans. Experts agree that the only real way to stem the tide of foreclosures and rebuild our communities is for banks to write down the principals on underwater mortgages. If banks like Bank of America and JPMorgan Chase reduced all underwater Michiganders’ principals and interest rates to market value, it would pump $3.1 billion into the local economy every year, which would help create new jobs and replenish the state and local tax base.

Not Lending to Small Businesses

Bank of America SBA 7(a) loans in Michigan in FY 2010: 6 (-91% from 2007)

Comerica SBA 7(a) loans in Michigan in FY 2010: 25 (-56% from 2007)

JPMorgan Chase SBA 7(A) loans in Michigan in FY 2010: 150 (-76% from 2007)

Total statewide SBA 7(a) decline, FY 2007-FY 2010: -55%

Jobs lost in Michigan Jan 2008-Dec 2010: 417,200

Even though the big banks took $18 trillion in taxpayer bailouts and backstops to the get the economy going again, they are refusing to lend it out to Michigan’s small businesses. Small business lending in Michigan has plummeted since the start of the financial crisis. Lending through the Small Business Administration’s flagship 7(a) program was down 55% in FY 2010 from three years ago. Bank of America, Comerica, and JPMorgan Chase all saw steep declines. In fact, since the start of the bailout, Bank of America has only made 12 SBA 7(a) loans in Michigan, even though it paid out a record $35 billion in bonuses and compensation last year.

Meanwhile, Michigan has lost more than 417,000 jobs since the start of 2008. Small businesses “employ roughly one-half of all Americans and account for about 60 percent of gross job creation,” according to Federal Reserve Chairman Ben Bernanke.[11] In a National Small Business Association survey, 56% of small businesses that had problems finding available credit reported having to lay off employees as a result.[12] The decline in small business lending has had a dramatic effect on unemployment in Michigan.

Charging Michiganders Millions in Fees

JPMorgan Chase Deposit Fees in 2010: $154 million

Comerica Deposit Fees in 2010: $113 million

Bank of America Deposit Fees in 2010: $108 million

JPMorgan Chase, Comerica, and Bank of America together squeezed Michigan customers for $416 million in fees on their checking and savings accounts in 2010. That is money that Michiganders could have spent stimulating the economy by buying groceries, fixing up their homes, or expanding their small businesses. But instead, this is money that the banks sucked out of our wallets so they could fatten up their own paychecks. 38 cents out of every dollar these three banks took from Michiganders in 2010 went straight towards bankers’ bonuses and compensation. That means JPMorgan Chase, Comerica, Bank of America took $158 million out of Michiganders’ bank accounts in 2010 and gave it directly to their top bankers.


Endnotes

[1] http://detnews.com/article/20110107/POLITICS02/101070366/Republicans-ready-to-tackle-Michigan-s-budget-deficit

[2]

[3]

[4] http://www.businessweek.com/magazine/content/09_48/b4157034230199.htm

[5] http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a852NJ_VtI1U&refer=munibonds

[6] http://www.huffingtonpost.com/2009/11/04/jpmorgan-settlement-bank-_n_345889.html

[7] http://www.nytimes.com/2010/12/08/business/08muni.html

[8] http://www.americanbanker.com/rankings/bt-largest-mbs-portfolios-1030562-1.html

[9] http://www.responsiblelending.org/mortgage-lending/tools-resources/factsheets/michigan.html

[10] CoreLogic Negative Equity Report for 2Q10

[11] Shahien Nasiripour, “As Lending to Small Businesses Plummets, Bernanke Implores Banks to Do More, Huffington Post, 12 Jul 2010, http://www.huffingtonpost.com/2010/07/12/as-lending-to-small-busin_n_643450.html.

[12] 2009 Small Business Credit Card Survey, National Small Business Association, http://www.nsba.biz/docs/09CCSurvey.pdf.