The Color of Money

by Mehrsa Baradaran

  104. See generally Richard Sanders and Stuart Taylor, Mismatch: How Affirmative Action Hurts Students It’s Intended to Help and Why Universities Won’t Admit It (New York: Basic Books, 2012).

  105. Louis Hyman, Debtor Nation: The History of America in Red Ink (Princeton, NJ: Princeton University Press, 2011), 232.

  106. These CDOs had “very high and imperfectly understood embedded leverage, creating positions in the trading books of banks which were hugely vulnerable to shifts in confidence and liquidity." Financial Services Authority, “The Turner Review: A Regulatory Response to the Global Banking Crisis," March 2009, http://www.fsa.gov.uk/pubs/other/turner_review.pdf.

  107. This is due to the yield-spread premium that a lender pays out to the loan originator. The premium is tied to the rate or terms of the mortgage; thus, the higher the rate the more money a broker is able to earn. For further discussion, see Lynnley Browning, “New Fed Rule for Mortgage Brokers," New York Times,

  February 17, 2011, http://www.nytimes.com/2011/02/20/realestate/20mort .html?_r= 0 .

  108. David Schmuddle, “Responding to the Subprime Mess: The New Regulatory Landscape," Fordham Journal of Corporate and Financial Law 14 (2009): 727729. Baradaran, How the Other Half Banks, chaps. 2 and 4; 12 U.S.C. § 226 (1980); 12 U.S.C. § 226 (1982).

  109. Massey and Denton, American Apartheid, 108.

  110. Commercial banks rejected equally qualified black applicants twice as often as whites nationwide, and in some cities, the rate was three times more than whites. The Boston Globe reported in October 1991 that “It can no longer be doubted that banks are discriminating against blacks." In 1989, reporters from the Atlanta Journal-Constitution used the Freedom of Information Act to acquire over 10 million loan applications to S&Ls between 1983 and 1988 and found that even when they controlled for income and neighborhood, blacks were significantly disadvantaged in the loan process. In fact, high-income blacks were rejected more often than low income whites in thirty-five metropolitan areas. Oliver and Shapiro, Black Wealth/White Wealth, 20.

  111. HUD, “Unequal Burden: Income and Racial Disparities in Subprime Lending," https://archives.hud.gov/reports/subprime/subprime.cfm.

  112. Oliver and Shapiro, Black Wealth/White Wealth, 20. One reason for the discrimination in lending could have been established relationships with banks and bankers. For example, “11.8 percent of white [loan] applicants have had previous business with the bank to which they applied, in contrast to only 2.4 percent of their African American counterparts." Conley, Being Black, 41; Massey and Denton, American Apartheid, 108-109.

  113. See generally Jacob S. Rugh and Douglas S. Massey, “Racial Segregation and the American Foreclosure Crisis," American Sociological Review 75(5) (2010), http:// journals.sagepub.com/doi/pdf/10.1177/0003122410380868.

  114. A 1983 study found that “almost two-thirds of all poor blacks bought their household appliances either exclusively or primarily on credit, often on terms that exceed market credit rates by over 100 percent." Marable, How Capitalism Underdeveloped Black America, 162.

  115. Hyman, Debtor Nation, 243.

  116. According to Louis Hyman, “the gap between what was loaned and what was repaid increased seven times, to $35 billion a year." Ibid., 219.

  117. Rob Wells, “Bank Mired in Loan Bias Scandal," Register-Guard, December 27, 1992, D1.

  118. See Baradaran, How the Other Half Banks, chaps. 1-3.

  119. Charles Duhigg, “The Future of Superbanks," Frontline, June 16, 2009, http://www .pbs.org/wgbh/pages/frontline/breakingthebank/themes/future.html.

  120. Black banks were failing over the course of several decades, from a total of forty-eight in 1980, to thirty-four in 1990, to thirty in 2004. Nicholas A. Lash, “Black-Owned Banks: A Survey of Issues," Journal of Developmental Entrepreneurship 10 (2005): 191. Fifty-nine new black banks were started between 1963 and 1990, twenty-two of them after 1980. E. C. Lawrence, “The Viability of Minority-Owned Banks," Quarterly Review of Economics and Finance 37 (1997): 1-21.

  121. Volbert Alexander and Hans-Helmut Kotz, Global Divergence in Trade, Money and Policy (Cheltenham, UK: Edward Elger, 2006) 97.

  122. Between 1985 and 2013, 85 percent of community banks holding less than $100 million assets failed or were consolidated by larger banks. FDIC Quarterly Report, “Community Banks Remain Resilient among Industry Consolidation" 8(2) (2014): 36, https://www.fdic.gov/bank/analytical/quarterly/2014_vol8_2/article.pdf.

  123. When the bank failed in 1990, it had $101.9 million in assets, 22,000 depositors, ninety-seven employees, and two Brooklyn branches. Andrew L. Yarrow, “Freedom Bank’s Failure Hits Harlem Like a Death in the Family," NewYork Times, November 12, 1990, http://www.nytimes.com/1990/11/12/nyregion/freedom -bank-s-failure-hits-harlem-like-a-death-in-the-family.html.

  124. Today, the cap is $250,000. FDIC, “Deposit Insurance at a Glance," https://www .fdic.gov/deposit/deposits/brochures/deposit_insurance_at_a_glance-english .html.

  125. Andrew F. Brimmer, “The Dilemma of Black Banking: Lending Risks vs. Community Service," Review of Black Political Economy 20 (1992): 18.

  126. Anthony D. Taibi, “Race Consciousness, Communitarianism, and Banking Regulation," University of Illinois Law Review 1992 (1992): 1103.

  127. Yarrow, “Freedom Bank’s Failure Hits Harlem Like a Death in the Family."

  128. Taibi, “Race Consciousness," 1103.

  129. The FDIC did decide that two other black-owned banks, Unity Bank in Boston and Detroit’s Bank of the Commonwealth, were essential to the community. Alexander and Kotz, Global Divergence in Trade, 191.

  130. Murray Kempton, “Freedom National Bank Was Killed by Greed, Not Racism," Atlanta Journal-Constitution, December 21, 1990.

  131. Yarrow, “Freedom Bank’s Failure Hits Harlem Like a Death in the Family."

  132. Studies showed that their problems were completely unrelated to poor management. See Timothy Bates and William Bradford, “An Analysis of Portfolio Behavior of Black Owned Banks," Journal of Finance 35 (1980): 753-768, https://www.jstor.org/stable/2327496?seq= 1#page_scan_tab_contents.

  133. John T, Boorman and Myron L. Kwast, “The Start-Up Experience of Minority-Owned Commercial Banks: A Comparative Analysis," Journal of Finance 29 (1974): 1123-1141, https://www.jstor.org/stable/2978388?seq= 1#page_scan_tab _contents.

  134. Bates and Bradford, “Analysis of Portfolio Behavior of Black Owned Banks," 753.

  135. FIRREA, 12 U.S.C. 1821(e) (2013).

  136. Bates and Bradford, “Analysis of Portfolio Behavior of Black Owned Banks," 760-762.

  137. Alexander and Kotz, Global Divergence in Trade, 192. See generally Gregory Price, “The Cost of Government Deposits for Black-Owned Commercial Banks," Review of Black Political Economy 23 (1994).

  138. Harriet T. Taggart and Kevin W. Smith, “Redlining: An Assessment of the Evidence of Disinvestment in Metropolitan Boston," Urban Affairs Quarterly 17 (1981): 91-92. Bankers responded to Taggart and Smith’s findings by stating that “capital export" was not a result of intentionally discriminatory policies, but rather the result of lower demand for residential loans in inner-city areas.

  139. Kenneth T. Jackson, Crabgrass Frontier: The Suburbanization of the United States (Oxford: Oxford University Press, 1985), 217.

  140. Brimmer, “Dilemma of Black Banking," 14.

  141. The greatest wealth gap between blacks and whites existed in 1989, when whites had seventeen times the wealth of black households. Rakesh Kochhar and Richard Fry, “Wealth Inequality Has Widened along Racial, Ethnic Lines since End of Great Recession," Pew Research Center, December 12, 2014, http://www .pewresearch.org/fact-tank/2014/12/12/racial-wealth-gaps-great-recession/.

  Chapter 8 The Color of Money Matters

  1. David Jackson, “Ten Years Ago: Obama Makes National Debut," USA Today, July 27, 2014.

  2. Sarah Pulliam Bailey, “A Startling Number of Americans Still Believe President Obama Is a Muslim," Washington Post, September 14, 2015.

  3. “We f
ind that while economic dissatisfaction was part of the story, racism and sexism were much more important and can explain about two-thirds of the education gap among whites in the 2016 presidential vote." Brian F. Schaffner, Matthew MacWilliams, and Tatishe Nteta, “Explaining White Polarization in the 2016 Vote for President: The Sobering Role of Racism and Sexism," Paper presented at the Conference on the U.S. Elections of 2016: Domestic and International Aspects, January 8-9, 2017, Interdisciplinary Center Herzliya, Herzliya, Israel, 2-3, http:// people.umass.edu/schafihe/schaffner_et_al_IDC_conference.pdf; “Since 1988, we’ve never seen such a clear correspondence between vote choice and racial perceptions." Thomas Wood, “Racism Motivated Trump Voters More than Authoritarianism," Washington Post, April 17, 2017, https://www.washingtonpost.com /news/monkey-cage/wp/2017/04/17/racism-motivated-trump-voters-more -than-authoritarianism-or-income-inequality/?utm_term= .d1d5050f98d3.

  4. Thomas B. Edsall, “The Not-So-Silent White Majority," New York Times, November 17, 2016, quoting Mary D. Edsall and Thomas Byrne Edsall, Chain Reaction: The Impact of Race, Rights, and Taxes on American Politics (New York: W. W. Norton, 1992), 182.

  5. Robert I! Jones, Daniel Cox, Betsy Cooper, and Rachel Lienesch “Anxiety, Nostalgia and Mistrust," Public Religion Research Institute, 5, http://www.prri.org /wp-content/uploads/2015/11/PRRI-AVS-2015-Web.pdf; Michael L. Norton and Samuel R. Sommers, “Whites See Racism as a Zero-Sum Game That They Are Now Losing," Perspectives on Psychological Science 6(3) (2011): 215-218, http://www.people.hbs.edu/mnorton/norton%20sommers.pdf.

  6. Ben Fountain, “American Crossroads: Reagan, Trump and the Devil Down South," The Guardian, March 5, 2016.

  7. The White House, “Remarks by President Trump in African American History Month Listening Session," February 1, 2016, https://www.whitehouse.gov/the -press-office/2017/02/01/remarks-president-trump-african-american-history -month-listening-session.

  8. Tim Hains, “Trump Proposes ‘New Deal for Black America’ in Charlotte," Real-Clear Politics, October 26, 2016.

  9. Donald J. Trump, “Donald J. Trump’s New Deal for Black America," October 31, 2016, https://www.donaldjtrump.com/press-releases/donald-j.-trump -announces-a-plan-for-urban-renewal.

  10. David Leonhardt, “In Climbing Income Ladder, Location Matters," New York Times, July 22, 2013.

  11. Jeff Chang, We Gon’ Be Alright: Notes on Race and Resegregation (New York: Macmillan, 2016), introduction and chap. 3.

  12. Median household income was $37,000, which was $10,000 less than the rest of the state. Malcolm Gay, “White Flight and White Power in St. Louis," Time, August 13, 2014.

  13. Stephen Gandel, “The Economic Imbalance Fueling Ferguson’s Unrest," Fortune, August 16, 2014.

  14. “Video: Protester Justifies the Looting in Ferguson," Fox 2, August 11, 2014, http://fox2now.com/2014/08/11/video-protester-justifies-the-looting-in -ferguson/.

  15. Raj Chetty and Nathaniel Hendren, “The Impacts of Neighborhoods on Intergen-erational Mobility," NBER Working Paper No. w23001, May 2015, http://www .equality-of-opportunity.org/images/nbhds_exec_summary.pdf.

  16. “How Racism Doomed Baltimore," Editorial, New York Times, May 9, 2015; Michael Powell, “Bank Accused of Pushing Mortgage Deals on Blacks," New York Times, June 6, 2009.

  17. Scott Dance, “Riots Erupt across West Baltimore, Downtown," Baltimore Sun, April 27, 2015.

  18. Eddie S. Glaude Jr., Democracy in Black: How Race Still Enslaves the American Soul (New York: Crown, 2016), introduction; Chuck Collins, Dedrick Asante-Muhammed, Josh Hoxie, and Emanuel Nieves, “The Ever-Growing Gap: Failing to Address the Status Quo Will Drive the Racial Wealth Divide for Centuries to Come," Institute for Policy Students, 2016, 3, http://www.ips-dc.org/wp-content/uploads /2016/08/The-Ever-Growing-Gap-CFED_IPS-Final-2.pdf; Heather Beth Johnson, The American Dream and the Power ofWealth (London: Routledge, 2006), 9.

  19. Crystal Wright, “Barack Obama Has Done Zero for Black People," The Telegraph, August 3, 2015.

  20. Pew Research Center, “1. Demographic Trends and Economic Well-Being," June 26, 2016, http://www.pewsocialtrends.org/2016/06/27/1-demographic -trends-and-economic-well-being/#fn-21776-13; Collins et al., “Ever-Growing Gap," 3; Board of Governors of the Federal Reserve System, Financial Accounts of the United States: Third Quarter 2016, Federal Reserve Statistical Release, December 2016, https://www.federalreserve.gov/releases/z1/current/z1.pdf.

  21. The average net worth of white families with a college education in the United States is around $360,000. For blacks in the same position, it is $32,000. Without a college degree, whites have a net worth of $80,000 and blacks, $9,000. William R. Emmons and Bryan J. Noeth, “Why Didn’t Higher Education Protect Hispanic and Black Wealth?," Federal Reserve Bank of St. Louis, August 2015, 1, https:/ /www . stlouisfed. org/-/media/Publications/In-the-Balance/Images/Issu e_12/ITB _August_2015.pdf; Amy Traub and Catherine Ruetschlin, “The Racial Wealth Gap: Why Policy Matters," Demos, 2016, http://www.demos.org/publication/racial -wealth-gap-why-policy-matters; Rakesh Kochhar and Richard Fry, “Wealth Inequality Has Widened along Racial, Ethnic Lines since End of Great Recession," Pew Research Center, December 2014, http://www.pewresearch.org/fact-tank /2014/12/12/racial-wealth-gaps-great-recession/; Rakesh Kochhar, Richard Fry, and Paul Taylor, “Wealth Gaps Rise to Record Highs Between Whites, Blacks, His-panics," Pew Research Center, September 26, 2011, http://www.pewsocialtrends .org/2011/07/26/ weal th-gaps-rise-to-record-highs-between-whites-blacks -hispanics/.

  22. Collins et al., “Ever-Growing Gap."

  23. The wealth gap is best described as a “sedimentation of racial inequality," according to Oliver and Shapiro. Melvin Oliver and Thomas Shapiro, Black Wealth/White Wealth: A New Perspective on Racial Inequality (New York: Routledge, 1997), 5. William Julies Wilson called it “the accumulation of disadvantages . . . passed from generation to generation." William Julies Wilson, The Truly Disadvantaged: The Inner City, the Underclass, and Public Policy (Chicago: University of Chicago Press, 2012), 126.

  24. Dalton Conley, Being Black, Living in the Red: Race, Wealth, and Social Policy in America (Berkeley: University of California Press 2010), 115.

  25. James Surowiecki, “The Widening Racial Wealth Divide," New Yorker, October 10, 2016.

  26. “Barack Obama, “‘83’s Keynote Speech at the 2004 Democratic National Convention, July 27, 2004, Boston," Columbia College Today, January 2005, http: / /www .college.columbia.edu/cct_archive/jan05/cover_speech.php.

  27. Melvin Oliver and Thomas Shapiro have explained that the disparity in basic wealth explains more than any other racial disparity because “the command over resources that wealth entails is more encompassing than is income or education, and closer in meaning and theoretical significance to our traditional notions of economic well-being and access to life chances." Oliver and Shapiro, Black Wealth/White Wealth, 2.

  28. Lawrence D. Bobo and Ryan A. Smith, “From Jim Crow Racism to Laissez-Faire Reaction: The Transformation of Racial Attitude," in Beyond Pluralism: The

  Conception of Groups and Group Identities in America, ed. Wendy F. Katkin, Ned Landsman, and Andrea Tyree (Champaign: University of Illinois Press, 1998).

  29. Charles Murray, Losing Ground: American Social Policy, 1950-1980 (New York: Basic books, 2008).

  30. Conley, Being Black, 90: Kathryn J. Edin, and Luke Shaefer, $2.00 a Day: Living on Almost Nothing in America (New York: Houghton Mifflin Harcourt, 2015).

  31. Census Bureau, Black-Owned Firms: 2002, August 2006, http: / /www2. census.gov /econ/sbo/02/sb0200csblk.pdf.

  32. Conley, Being Black, 59, 73; Thomas Shapiro, Tatjana Meschede, and Sam Osoro, “The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide,” Institute on Assets and Social Policy, Research and Policy Brief, February 2013, http://iasp.brandeis.edu/pdfs/Author/shapiro-thomas -m/racialweal thgapbrief.pdf.

  33. Yet voluminous research clearly demonstrates that welfare did not cause black poverty. Conley, Being Black, 116; Edin and Shaefer, $2.0
0 a Day, 14-18; Martin Gilens, “How the Poor Became Black,” in Race and the Politics of Welfare Reform, ed. Sanford F. Schram, Joe Soss, and Richard C. Fording (Ann Arbor: University of Michigan Press, 2003); Steve Chapman, “Whites Have a Role in the Plight of Black Families,” Chicago Tribune, February 25, 2015, http://www.chicagotribune.com /news/opinion/chapman/ct-whites-blacks-families-moynihan-report-perspec -0226-jm-20150225-column.html; Jill Quadagno, The Color of Welfare: How Racism Undermined the War on Poverty (Oxford: Oxford University Press, 1996).

  34. Ronald Angel and Marta Tienda, “Determinants of Extended Household Structure: Cultural Pattern or Economic Need?,” American Journal of Sociology 87 (1982): 1360-1383.

  35. Daniel Schneider, “Wealth and the Marital Divide,” American Journal of Sociology 117 (2011): 648-656; Michael Sherraden, ed., Inclusion in the American Dream: Assets, Poverty, and Public Policy (Oxford: Oxford University Press, 2005), 376; Oliver and Shapiro, Black Wealth/White Wealth, 126-127.

  36. Jeanne Brooks-Gunn and Greg J. Duncan, “The Effects of Poverty on Children,” Future of Children 7 (Summer / Fall 1997): 55-71.

  37. The experiment, designed by Stanford researcher Walter Mischel, presents children with the option of eating a marshmallow right away or waiting fifteen minutes to get two marshmallows. Mischel followed these children for decades and found that those who exhibited delayed gratification and waited for the two marshmallows were more successful than those who ate the one marshmallow right away. They made more money, had gotten better grades, and were less likely to be in prison. The experiment has been used by schools and motivational speakers for years to demonstrate the important lesson that self-control is the most important trait for success. American Psychological Association, “Delaying Gratification,” https://www.apa.org/helpcenter/willpower-gratification.pdf.