Billions Stolen From Black Families by Predatory Lending

June 20, 2019

White Collar criminologist Bill Black analyzes the new study, "The Plunder of Black Wealth in Chicago," opening the way for a fruitful conversation about reparations and our future

White Collar criminologist Bill Black analyzes the new study, "The Plunder of Black Wealth in Chicago," opening the way for a fruitful conversation about reparations and our future


Billions Stolen From Black Families by Predatory Lending

Story Transcript

MARC STEINER Welcome to The Real News Network. I’m Marc Steiner. It’s great to have you all with us. As many of you know, we broadcast from Baltimore, Maryland. One of our most heinous legacies is that this is a city that gave birth to what is known as redlining— intentionally and legally segregating neighborhoods and steering African Americans to buy homes in those neighborhoods at exorbitant prices through lending contracts, not federally secure mortgages, so you could never really own the home. You’ll be in debt forever and can’t create wealth, though it created wealth in the white world and increased poverty in the black world. A group of researchers at the Samuel Dubois Cooke Center for Social Equity produced a report about redlining and the seriousness of its consequences.

The report’s entitled The Plunder of Black Wealth in Chicago: New Findings on The Lasting Toll of Predatory Housing Contracts. It not only tells the history but details its consequences and its financial toll. It’s part and parcel of the underpinning for many of the arguments on reparations and I hope this is just the beginning of our conversations about this report and similar things in the coming months. The study was brought to our attention by our guest today, Bill Black, who is Associate Professor of Economics and Law at the University of Missouri Kansas City, white-collar criminologist, former financial regulator, author of The Best Way to Rob A Bank is to Own One, and, of course, a regular contributor here at The Real News. Bill, welcome back. Good to have you with us, as always.

BILL BLACK Thank you.

MARC STEINER So this report is pretty stunning— both in terms of history, which I think I’m going to give more details to the history that maybe some of us knew because of their research, but I think the real importance of this work is to show its consequences. Talk about this because this happens across the country. I always feel there’s a synergy between Baltimore and Chicago— one’s large, one’s small, but have a really similar history. So go to the heart of why you thought this is such an important report.

BILL BLACK Yeah. So this is important in essentially every metropolitan area that had any meaningful black population. Redlining may have begun in Baltimore, but it was a nationwide phenomenon. It was introduced by the US government. It gets its name because literally they would draw with a red pen on a map and not loan, or not provide a federal mortgage protection to any mortgages issued in that portion of the city. What it was particularly aimed at was not neighborhoods that were already majority or almost exclusively black, but any change from an area that used to be overwhelmingly white to an area that was desegregated. The theory of this was, oh my god, prices will collapse because of white racism. If somebody who is black moves into the neighborhood and we, the federal government, are guaranteeing the lenders against losses, the lenders will suffer significant losses, they’ll pass them on to us. And so, you know, we don’t have anything against blacks. We just don’t want to lose money, and we realize that many whites are racist, so this is how we’re going to protect ourselves.

MARC STEINER But the reality is that this is in many ways, when you look at the history of this, this was really a conspiracy in many ways involving the Federal Reserve, involving the federal government, involving people who sold real estate, and, you know, they did hate black people. I mean, they really disliked black folks and that was pretty clear to me that these were not do-gooders trying to help the world, and they were— [laughs]. Right?

BILL BLACK [laughs] In fairness, they never claimed to be do-gooders to protect the world, but yes, there’s a very good book, a little dated now— American Apartheid.

MARC STEINER Yes.

BILL BLACK It is filled with this history and a number of the consequences, but this study says, okay, what kind of predation occurred taking advantage of this redlining. All right. And economists are finally starting to take predation seriously. Predation is where you do something that is incredibly slimy, but you have the political juice that it’s never defined as criminal. All right. Predation in this sphere is not something that is less nasty than a crime, it’s more nasty. It’s both the actions that are substantively equivalent to crimes, and the political juice to be able to do it with absolute impunity. This is an area where in Chicago—The reason this article and this study exists is because blacks fought back, and they fought back twice with lawsuits. Now, they lost, but they, in the course of creating those lawsuits, they created what is now a database that researchers could go and see what happened to the people who were subjected to these land contracts. What’s a land contract? All right. It isn’t that you will never own, it’s that you are very unlikely to ever own, and you will also pay enormously more.

Here is first the economics and then, how it fits with the law. The economics were that when blacks would first move into a neighborhood that was overwhelmingly white because of white racism and white flight, housing prices would fall sharply, but that was a very short-term phenomenon. Over any medium to long-term, prices typically recovered, but that meant that sleazy developers could buy up homes and they would go in and they would stir up white racism and fear. Oh, your property values are going to collapse. Let us buy your home now while you can still get 70 cents on the dollar and many, many white householders would sell. They would, these sleazy developers that were called blockbusters in my day, would be able to buy the properties at maybe 50 to 70 cents on the dollar. They would then turn around, because it was more difficult because of all this redlining for blacks to be able to get homes in areas they preferred, and be able to charge a premium price. All right. The increase in home prices over what they purchased was often in the magnitude of 80 percent. In other words, these guys are basically flipping houses, right, with a huge margin.

On top of that, because you couldn’t get the FHA insurance— that’s what we’ve been talking about— you would not make a conventional sale of the home to the black family. You would make this contract of sale and that contract of sale was really pernicious. In addition to being massively overpriced, the typical contract said, if you miss any payment, you lose everything. You don’t build up equity as you make your monthly payments. It’s just a contract. So unless and until you pay every single one, and you never have a single month where you can’t pay because, you know, you had to repair the car or the kids had an emergency visit to the hospital, and so you’re late paying. Boom. Your entire equity could be gone in the home, so this is just absolutely, quintessential predation. It was massively profitable for the real estate developers. The real estate developers were almost exclusively white.

And so, this was a direct transfer from black people to white people and it was done in an utterly outrageous fashion. Even when blacks fought back, organized leagues against this, brought civil suits, they lost those civil suits in the courts because there was no effective justice for predation. That, by the way, is why Elizabeth Warren tried to create the Consumer Financial Protection Bureau— to finally have some kind of body that would protect us against predatory finance. You can see that became an absolute top priority of the Trump administration to destroy.

MARC STEINER No accidents there either and I think that if you look at the map that’s in this report, I mean, literally these red zones were hazardous areas. They put them where they did not want people to move to— white people to move to— and where they saw the investments happening. I mean, literally, when you look at the maps, you see how they divided up the city. One of the really interesting things—

BILL BLACK And the cities are divided up even today along lines that are very recognizable from the maps of literally 70 years ago.

MARC STEINER Yes. And that’s why these kinds of historic roots are important. There’s this one graph in there which says a great deal, this graph that was in the document about where the wealth is now. So, I mean, one of the things that’s referred to in this report is this really interesting graph from the part of the report that talks about how much money was lost in the black community. They’re talking about three to four billion dollars. If you look at this graph here, that they called this as average race tax, sixty thousand odd homes that— and you can explain what all this means— but we’re talking about over $4 billion-worth of wealth that’s lost by the black world. This is, I mean, we’re talking about this now in the midst of these reparations discussions going on in Washington DC that Real News is also covering. I mean, what we haven’t seen before is a report that actually details what that cost has been to the black world.

BILL BLACK Right. And it wasn’t lost. Of course, it was taken.

MARC STEINER Taken. Exactly, stolen. Exactly, right. Right.

BILL BLACK [laughs] It was taken by white people. It was reverse reparations. So, yes. Again, there are two big things happening. One, is that they are selling the homes to blacks at inflated prices. And two, they’re selling the homes in a manner where you often didn’t actually end up with a home and often paid what should have been huge amounts of equity into the home and lost all of it. If you combine those two flows—And remember, we’re just talking about one city, albeit a large city with a large black population, but also only a portion where we actually knew the names to be able to study them because of this lawsuit. The actual losses, even in Chicago, are dramatically larger than the 4 billion and the losses nationwide to the black community— meaning, again, it’s not like you just lose the money in a rathole; it’s going to rats who happened to be white— is going to be vastly larger than that of some partial sum for Chicago.

MARC STEINER And one of the things that is really important that you also said earlier on was that, you know, people think often that there is no agency in communes of color and black communities for the fight back in the past, when there always has been. This report also outlines groups that actually took this on and fought it. It wasn’t just—People were aware of it, but as you said, a lot of this was lost over the years. The facts were lost, and we really had to unearth this stuff because it was very difficult to find the proof to it. It just was not readily available.

BILL BLACK Right and the fightback was at times when their actions were incredibly unpopular, where they faced a judiciary that was pretty close to 100 percent white. Where even getting lawyers to be able to bring the actions was difficult. Where you faced immense hostility not just from the judiciary and of course the business community, but also from the serious people in the newspapers and such. So this was one of the absolute great scandals and, as I said, it absolutely has been determinative of much of what you see today in the modern urban landscape in the United States in terms of housing.

MARC STEINER Finally, I’m just curious, you know, as somebody who’s spent a lot of time inside of government and you know the workings of government very well. I wonder what you think this portends in terms of all these things coming to light? You know, the term “reparations” is not popular in much of the white world in this country. It’s really misunderstood, and people are still trying to wrestle with what the definition of that means. I’m curious what you think this sets up, I mean, when you’re talking about billions of dollars in wealth stolen, and the conditions that so many people live in the poorest parts of the black community in the inner cities of America, what do you think this allows us to do? What do we do with this information?

BILL BLACK Well, first, we combine it with other information. This is a very important part but remember, it’s part. So there are also studies by the Federal Reserve Bank of St. Louis, a very conservative group of economists, that finds that black and Hispanic households, where at least one member of the household had at least a two-year associate degree, on average during the peak of the great financial crisis— that 10 year-ish period— lost 80 percent of their wealth. Now, the comparable figure for whites is under 30 percent. There has been a catastrophic loss of black wealth, again, through systematic predation. We actually have, in a number of cases, the business plans on how they deliberately targeted not just blacks, but blacks, Latinos, and in particular, elderly black women for these kinds of predatory lending scandals that led to the great financial crisis.

There’s another study that just came out the day we’re filming this that says, you know, if you look 10 years after someone starts their college studies, the average student will have paid off 60 percent of their debt. Right. So they’ll only have 40 percent of their debt left. [laughs] You know, so this is of course absurd, scandalous, crazy, and self-destructive. But on top of that, the comparable figure for black women is that they are a further 12 percent in debt than when they started with these loans. Instead of saying, oh, you know, 100 cents on the dollar, they owe 112 cents on the dollar for whatever the original amount that they borrowed. What does that mean?

That means that many of these educational experiences, particularly for blacks, particularly for blacks and Latinos, are in these for-profit schools. Well, these for-profit schools are immensely predatory, and they aim at minorities and they are front-to-back frauds in many cases. They leave you poorly-prepared for getting that job. They have terrible reputations for trying to get a job. After you do everything right— you scrimp, you save, you work all night. Now, you know, you work all day at a paying job, then you work at night to get your degree, and then, you know, you get married like they tell you to do, and then you buy a home like they tell you to do, right? This is the responsible thing to do. You know, have good, white, middle-class values and all that stuff. It’s precisely those folks that are getting it in the neck in the black community the most.

MARC STEINER Well, this, I hope, is just the beginning of this conversation in depth over the coming months. It’s really important and I’m really glad you brought this report to our attention. Bill, it’s always great to talk with you and I appreciate you being with us all the time, Bill Black.

BILL BLACK Thank you.

MARC STEINER And I’m Marc Steiner here for The Real News Network. Thank you all for joining us. We’ll continue this. Take care.