Los Angeles Times

Harold Meyerson*, Los Angeles Times, 15.05.2011
The U.S.: Where Europe comes to slum
Its leading companies are investing in the U.S. because they can do things here they would never think of doing at home.

The newest slumlord in Los Angeles is a pillar of German capitalism. Earlier this month, the city attorney's office filed suit against Deutsche Bank, the world's fourth-largest bank, for letting many of the more than 2,000 L.A. homes it has foreclosed on descend into squalor and decay.

A yearlong city investigation of the properties on which Deutsche Bank foreclosed turned up tenants compelled to live in crumbling apartments the bank would not fix, houses taken over by gangs, faucets from which water either wouldn't flow or wouldn't stop, and the occasional unidentified dead body. Nothing, in other words, that would be allowed to happen to bank holdings in Frankfurt, the neat-as-a-pin German city that is home to Deutsche Bank and much of the rest of German finance.

Deutsche Bank responded to the suit by blaming the loan servicers that were supposed to have maintained the bank's properties. But City Atty. Carmen Trutanich insisted the blame belonged with the owner. "We are not going to allow them to play the shell and nut game," he said.

But slumming in America is fast becoming a business model for some of Europe's leading companies, and they often do things here they would never think of doing at home. These companies — not banks, primarily, but such gold-plated European manufacturers as BMW, Daimler, Volkswagen and Siemens, and retailers such as IKEA — increasingly come to America (the South particularly) because labor is cheap and workers have no rights. In their eyes, we're becoming the new China. Our labor costs may be a little higher, but we offer stronger intellectual property protections and far fewer strikes than our unruly Chinese comrades.

Don't take my word for it. Check out the study released this month by the Boston Consulting Group, which concludes that when you compare China's soaring wages and still-low levels of productivity with our stagnating wages and rising levels of productivity, the price advantage of manufacturing in China instead of the U.S. will shrink to insignificance by 2015. Investment in the U.S., says the group, "will accelerate as it becomes one of the cheapest locations for manufacturing in the developed world."

Those investments are well underway. The auto companies of Europe and Japan have opened factories in the nonunion South over the last couple of decades. Not one of them has agreed to refrain from waging a union-busting campaign should their workers wish to organize. Their stance could not be more different from their attitude toward workers and unions in their home countries.

As a report released by Human Rights Watch late last year documents, companies that routinely welcome unions, pay middle-class wages and have workers' representatives on their corporate boards in Germany and Scandinavia have threatened their U.S.-based employees with permanent replacement by other workers as the penalty for protesting wage cuts (that was the German manufacturer Robert Bosch), ordered workers to report on fellow workers' pro-union activities (that was T-Mobile, a subsidiary of Deutsche Telekom) and disciplined workers who couldn't show up for unscheduled weekend shifts announced on Friday night (that was IKEA, according to an L.A. Times story).

In Germany, Robert Bosch, according to Human Rights Watch, has never threatened a single worker with losing his job for protesting wage cuts, and Deutsche Telekom repeatedly touts its "social partnership" with its union. In Sweden, IKEA, like the vast majority of Swedish companies, is unionized and affords its workers a range of rights and benefits that are all but unimaginable to American retail workers.

German manufacturing workers, making the world's most sophisticated products and machinery, earn on average $1.50 for every dollar that American manufacturing workers make. (Despite that, because it's German policy to foster high-end manufacturing and highly skilled labor, Germany also has a huge trade surplus, while we have a mammoth trade deficit). In the new global pecking order, the decline of American unions and the steady downward mobility of American workers are making us the destination of choice when European companies want to get the job done on the cheap.

America as the beacon for the workers of the world? No more. If anything, our relationship with Europe has become a latter-day version of the one that characterized the years leading up to the Civil War, when our Southern states provided cheap, slave-produced cotton to the mills of Manchester. (That's why British and French business favored the Confederacy.) Once again, we're where Europe comes to slum — in the low-wage factories of the South and the run-down houses of South Los Angeles.

* Harold Meyerson is editor at large of the American Prospect and an op-ed columnist for the Washington Post.



Jessica Garrison & Kate Linthicum, Los Angeles Times, 05.05.2011
L.A. suit calls Deutsche Bank a slumlord
Officials charge world's fourth-largest bank with letting foreclosed properties lapse into disrepair. Bank officials say loan servicers are to blame.

Los Angeles prosecutors are calling Deutsche Bank one of the city's largest slumlords, accusing it of allowing hundreds of properties it owns to fall into disrepair and breed crime.

The Los Angeles city attorney's office filed a civil lawsuit Wednesday against the world's fourth-largest bank, seeking hundreds of millions of dollars in penalties and restitution and an injunction forcing it to clean up its foreclosed properties in Los Angeles.

The Frankfurt, Germany-based bank has foreclosed on more than 2,000 homes over the last four years in neighborhoods across the city, according to the suit — many concentrated in the northeast San Fernando Valley, northeast Los Angeles and South Los Angeles.

Los Angeles officials say the bank has been a dreadful landlord and neighbor. Prosecutors say that during a yearlong investigation, they found evidence that Deutsche Bank had illegally evicted some tenants, let others live in squalor and allowed hundreds of unoccupied properties to turn into graffiti-scarred dens for squatters, gang members and other criminals.

Police records show scores of alleged crimes committed on the properties, including vagrancy, possession of drugs for sale and assault with a deadly weapon. In December 2007, police found a dead body at a Deutsche-owned house on West 55th Street. In 2008, they discovered prostitution at a house on Evers Avenue.

Many Deutsche Bank properties have also wound up in a slum housing database, in which tenants pay rent into an escrow program while the city tries to get the properties fixed up.

"This particular bank is … helping to destroy communities," said Councilman Dennis Zine, one of six members of the Los Angeles City Council who joined City Atty. Carmen Trutanich at a news conference in which they excoriated Deutsche Bank and other banks that have foreclosed on properties in Los Angeles.

Trutanich said he wants the suit to send "a strong message to other banks" that the city might come after them too. Officials said they may soon take action against HSBC, the Bank of New York and U.S. Bank.

Deutsche officials said that Los Angeles was going after "the wrong party."

"As we have repeatedly advised the Los Angeles city attorney's office, loan servicers, and not Deutsche Bank as trustee, are contractually responsible for both the maintenance of foreclosed properties and any actions taken with respect to tenants of foreclosed properties," spokesman John Gallagher said in a statement.

Many banks accused of neglecting foreclosures have shifted blame to loan servicers, who are contracted to manage properties.

Trutanich insisted that Deutsche Bank, as owner of the properties, ultimately is responsible. "We are not going to allow them to play the shell and nut game," he said.

Renters living in some of the Deutsche-owned homes and residents living near others cheered the suit, saying they have been caught in the middle between the bank and its servicers and unable to find anyone to help them.

Maria Reyes was never sure who owned the Echo Park bungalow she rents with her disabled son. After the original landlord lost it in foreclosure, she paid her rent to the loan servicer. But she said the people she spoke to there turned a deaf ear on her repeated requests for repairs. City records show more than 50 code and habitability violations at the house, including faulty plumbing and a broken front window, which Reyes finally covered with plywood.

Other renters also have had to take matters into their own hands.

Jorge Jimenez, 30, got no response when he complained about a collapsed floor in the bedroom of his Deutsche-owned home on East 48th Street, so last year, he paid several hundred dollars for materials to rebuild it himself, he said.

"The floor was falling, and they wouldn't do anything" Jimenez said. "They wouldn't say anything when we complained."

In the bathroom of the two-bedroom stucco house he shares with his wife, son and another couple, the shower is missing tiles and the faucets won't stop dripping. Jiminez has wrapped plastic bags around them to try to stop the flow.

In the kitchen, he and his family have to use pliers to turn the water on and off because the handle is broken.

He's hopeful that the city will prevail so that the family can get compensation for its hardship.

City officials say Deutsche Bank has divested of many of the properties. The city's lawsuit notes that the bank never meant to be a landlord, but that after the financial crisis hit, bankers found themselves transformed from "detached investment brokers … to large-scale residential property owners."

City officials say they hope to be the first in the nation to actually collect a settlement from a bank for the conditions of foreclosed homes.

Cleveland sued Deutsche Bank and other financial institutions in 2008, but the suit was dismissed. Milwaukee took a different tack. With the backing of city officials, community groups sent representatives to Frankfurt to speak at a bank shareholders meeting about the conditions of Deutsche-owned properties back home.

Much of the criticism of banks' role in the foreclosure crisis has centered on their lending practices. On Tuesday, the U.S. attorney's office in New York filed a fraud lawsuit against Deutsche Bank, seeking more than $1 billion. The government alleged that the bank's New York-based home lender, MortgageIT, recklessly approved 39,000 mortgages for government insurance "in blatant disregard" of whether buyers could make the monthly payments.

Los Angeles' suit takes a different approach. It seeks to hold the bank responsible for what happened in the city after loans went bad and foreclosures rippled through neighborhoods.

"A lot of the focus has been on how [banks], in effect, sold people mortgages that weren't in their interest," said Michelle White, an economics professor at UC San Diego. "This is a different angle. This is really focused on the problems that come up when the lenders end up owning the properties.... The problem is when a lender takes over a property, they have the interests only of the lender in mind."

Kathryn Porter, a visiting professor at Harvard Law School, said she believes the city has a case in its contention that it is the responsibility of a property owner to make sure the servicers it hires do their jobs.

If the city is successful, many of the tenants living in substandard conditions could get compensation.

But those who live near run-down Deutsche-owned properties said their neighborhoods have suffered long-term damage.

In South Los Angeles, Richous Jackson lives next door to a Deutsche-owned vacant house on West 83rd Street. The frontyard of the white stucco home is wildly overgrown. The backyard is full of illegally dumped debris.

City records show 96 habitability violations, with dozens of pages of accompanying paperwork.

Jackson, who called the place an eyesore, was more succinct. "The stink is awful," he said. "What they need to do is bulldoze the whole place."