The Week in Ethics: Deutsche Bank Sued as a Slumlord

Los Angeles, CitySealPrint

Deutsche, was sued this week by the City of Los Angeles who called the world’s fourth largest bank one of the city’s largest slumlords.

Deutsche foreclosed on more than 2,000 properties throughout Los Angeles in a four-year period; the suit alleges that  many tenants were evicted illegally, water and power shut off, and the bank allowed properties to sit and deteriorate, becoming magnets for squatters and criminal activity.

Disputing the allegation, Deutsche argues that loan servicers, not the bank as trustee are “contractually responsible for both the maintenance of foreclosed properties and any actions taken with respect to tenants of foreclosed properties.”

Also this week Deutsche was sued by the federal government for fraud and lying to benefit from mortgage insurance issued by the Federal Housing Administration (FHA). The suit alleges that Deutsche carried out fraud through MortgageIT – which it acquired in 2007.

Deutsche responded that it was reviewing the lawsuit, but believed the claims against the bank and MortgageIT to be “unreasonable and unfair.” The spokesman indicated that nearly 90 percent of the activities described in the lawsuit happened before Deutsche bought MortgageIT, which, the bank pointed out, had been a FHA lender operating under government oversight.

Blame the bank? Blame the contractor? Blame the subsidiary? Blame the federal government?  Blame those who wanted mortgages?

Evading responsibility and dissociating one’s role from activities that have disastrous consequences is often a hallmark of crisis. Recall:

  • BP initially blamed Transocean ,who operated the rig,  when it exploded dumping 240 millions gallons of oil into the Gulf of Mexico.
  • Nike’s initial reaction regarding sweatshop allegations was that they didn’t own those factories  or were responsible for them.

Deflecting responsibility seems an endless marathon to outrun litigation, looking for escape hatches to avoid accountability for what was known or should have been known, what was done or should have been done, and whether a company is responsible or not  for who it hires on its behalf.

Deutsche is only one of many financial institutions accused of predatory lending practices. The tsunami of foreclosures has made these institutions property owners in a magnitude that they’ve not had to operate before and with repercussions that will probably continue to unfold. Los Angeles officials have indicated that they are looking to pursue legal action against other banks.

Predatory lending practices helped drive the financial crisis; a crisis sufficiently complex, it is still being unraveled, with wisdom and action plans to avoid reoccurrence still out of reach.

P. T. Barnum is credited with the line “There’s a sucker born every minute.”

That sentiment underscores how business is conducted at its worst. We create “suckers” without transparency. What we need to know to enjoy a circus is totally different from what we need to know to make financial decisions about a house or an investment that are right for us. Partial or misleading information in business is predatory. And it destroys trust — what business needs for long-term success.

Also at its worst, business objectifies the consumer. Not seen as real the way your family members, neighbors, or people you went to school with are. As strangers, they are faceless, less human, and more like a video character whose fate is just part of the game.

In the game of “suckers” and predators everyone loses… eventually.

Gael O’Brien  May 7, 2011

The Week in Ethics

Gael O’Brien is also a columnist for Business Ethics Magazine

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2 Comments on “The Week in Ethics: Deutsche Bank Sued as a Slumlord”

  1. Ethics Sage Says:

    Gail, I used to think that we have lost our moral compass as a nation. It’s clear now for all too many, including big business, the compass has been thrown away, buried, and long forgotten. Our capitalistic economic system depends on the morality of top executives that lead corporations. Adam Smith never intended the pursuit of self-interest to blind corporate decision makers to the effects of their actions on society. Only after carefully considering those efffects from an ethical perspective should decisions be made to truly have a free market. When the market is rigged; when decision makers manipulate the market for private gain; and when the regulators are in bed with those decision makers — well the result is what we have experienced going back to the early 1990s. First, there was deregulation of the natural gas industry and Enron followed by deregulation of telecommunications and WorldCom. Then, we had the repeal of the Glass-Steagall Act and passage of the Gramm-Leach-Bliley Act that allowed commercial banks, investment banks, securities firms and insurance companies to merge thereby spawning the mega-conglomerate, Citigroup. I could go on. Unfortunately, the recent rivival of derivatives trading, apparent manipulation of oil prices, and continued outrageous pay packages of chief executives under the guise of having created market value for their companies in 2010, all speak to the worsening of our moral crisis in America.

    • Gael O'Brien Says:

      Hi Steve/Ethics Sage,

      Thanks for taking the time to write such a thoughtful response.

      I have been thinking recently about a line from a poem by William Butler Yeats –“Things fall apart; the centre cannot hold”– perhaps you and other readers remember it?

      The line- is from “The Second Coming,” written by Yeats in 1919 right after World War I. We continually have times when the “center” has fallen away and then the center holds again.

      I am really interested in work that Kathryn Schulz is doing on Being Wrong, The Arbinger Institute has done on Leadership and Self Deception, and Margaret Heffernan’s work on Willful Blindness as ways of giving context to how we got where we are…..and then by deduction, how we can operate differently. I’m very excited about the research Joanna Barsh (from McKinsey) is doing on centered leadership, http://business-ethics.com/2011/05/02/6937-women-and-leadership-roadmaps-for-the-journey/ as well as Mary Gentile’s work which I wrote about in an earlier column, https://theweekinethics.wordpress.com/2010/08/16/the-week-in-ethics-avoiding-crises-by-giving-voice-to-values/

      I believe we want the “center” to hold…and the question is will we do the work to get us there?

      Here is the Yeats’ poem that I have been thinking of:

      THE SECOND COMING

      Turning and turning in the widening gyre
      The falcon cannot hear the falconer;
      Things fall apart; the centre cannot hold;
      Mere anarchy is loosed upon the world,
      The blood-dimmed tide is loosed, and everywhere
      The ceremony of innocence is drowned;
      The best lack all conviction, while the worst
      Are full of passionate intensity.

      Surely some revelation is at hand;
      Surely the Second Coming is at hand.
      The Second Coming! Hardly are those words out
      When a vast image out of Spiritus Mundi
      Troubles my sight: a waste of desert sand;
      A shape with lion body and the head of a man,
      A gaze blank and pitiless as the sun,
      Is moving its slow thighs, while all about it
      Wind shadows of the indignant desert birds.

      The darkness drops again but now I know
      That twenty centuries of stony sleep
      Were vexed to nightmare by a rocking cradle,
      And what rough beast, its hour come round at last,
      Slouches towards Bethlehem to be born?

      From the Collected Poems of William Butler Yeats


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