Lawsuit against banks may hurt Valley

These days, we have Fantasy Football, Fantasy NASCAR, and now even Fantasy Life (Second Life? — I can barely handle my first life). My old friend, Doctor Mike, and I once came up with an idea for Fantasy Government, where we can choose the leaders in our little world and keep score of their performance.

After reading that the mayor of Cleveland is suing 21 financial institutions for the subprime mortgage crisis in his city, I think I would be trading him for a somebody who actually thought about what this lawsuit would accomplish. It will do more harm to Cleveland, Youngstown, Columbus, and the state of Ohio than it could benefit anybody.

For the sake of disclosure, I am banker. And I will be one of the first to say that banks should share in the blame for the current mortgage mess. Originally, the ability to pool together mortgages and sell them off in a secondary market was good for society.

As banks became more sophisticated in their risk management practices, they were able to lend money to people with borderline credit who maybe needed a break in life. Those people were able to afford buying a house instead of paying rent. But then bankers got carried away. They could lend to anybody, generate the fees and then sell the risk to someone else. It’s a glorified game of hot potato, but who has gotten singed the most?

Banks unfairly singled out

What I find amazing about the lawsuit is that it is throwing all the blame for the subprime mess onto the banks (except, as it seems, banks headquartered in Ohio). When did average Americans lose their ability to determine what they can and cannot afford? I think it’s when people began to think that the American Dream no longer has to be earned, it can be charged. I suspect that if “the Greatest Generation” had the ability to take out large ARMs in the 1950s, they would have asked, “Why would I put myself in that type of risk down the road?”

But what upsets me the most is the damage to Ohio’s economy and image that this lawsuit will cause. For the good companies who are headquartered in Ohio, when financial institutions suffer, credit becomes scarcer and companies lose their ability to expand and remain globally competitive. I am sure that many of the 21 banks listed in the lawsuit have been reliable partners to companies in Ohio for years. Making them suffer further will only make economic growth in Northeast Ohio harder.

This lawsuit immediately made headlines nationwide, including in The Wall Street Journal. For multinational companies that are thinking about expanding, Cleveland and Ohio probably dropped a few points in their fantasy relocation targets.

Insults hurt development

I know there are so many who are working to construct an Ohio that has a proclivity for growth. They should be upset when the mayor of Cleveland calls the providers of capital “organized crime.” It makes their job of attracting new business that much harder.

Besides Doctor Mike, I am privileged to have several good friends native to the Valley who, like me, share a desire to see the Valley grow in its economy and vibrancy. We pitch ideas from artisan incubators to the Homeland Defense back-offices to men like Tom Humphries because we care about the place we once called home. That makes seeing such a lawsuit so disheartening, so insular. These types of suits do nothing but attract all the wrong types of publicity, toppling some of the building blocks for the future that have been laid.

In my fantasy government, my mayor would have long ago been educating the public on the pitfalls of adjustable rate mortgages that could become unaffordable. He or she would have supported legislation to curtail excessive lending when the signs of a crisis were looming (and there were signs). And finally, my mayor wouldn’t spend time with lawyers, but with business and community leaders addressing the next steps in the future of my city, so my fantasy Ohio could one day be a reality.

X Eric Planey, a Mahoning Valley native, is vice president, U.S. Corporate Banking Group, Bank of Tokyo-Mitsubishi in New York City. The views expressed in this piece are solely those of the author.