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Dollar on a Fishhook: The Black Experience

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“My name is Fountain Hughes. I was born in Charlottesville, Virginia. My grandfather belongs to Thomas Jefferson. My grandfather was a hundred and fifteen years old when he died…Now, I'm a hundred years old and I don't owe nobody five cents, and I ain't got no money either. And I'm happy, just as happy as somebody that's oh, got million. Nothing worries me.” (Hughes, 1949).


These are the words of an African who has experienced a life of enslavement and had lived long enough to see the physical chains of slavery removed, but was wise enough to see the new form of bondage which his people were being lured into.


“So many of colored people is head over heels in debt…They getting something or other or else they wouldn't trust you. But I can't just say what they getting. But they getting something or other else they wouldn't want your credit.” (Hughes, 1949).


The “they” Mr. Hughes is referring to are the unscrupulous lenders who more often then not provide their services with intentions set on exploiting the borrower, especially those like Mr. Hughes who many times are Black, illiterate, and/or financially uneducated, therefore easily taken advantage of.


Exploitation of the African in America is by no means a new phenomenon; in fact it was the means by which the United States catapulted itself to become the most powerful nation of its time. (Williams, 1994). I would argue that this same exploitation has never ended but simply transformed with new methods employed. This is what I will venture to demonstrate with this discourse, examining the various ways by which Africans in America have been disproportionally affected through lending practices of a variety of lenders. My main focus will be on the recent financial crisis experienced in the United States, and illustrating the implications and lasting effect it is having upon Africans in America. I will also examine other forms of predatory lending that negatively affect Africans. Ultimately I aim to exhibit how lenders, time and time again, have continually exploited Blacks, which is an illustration of racism operating in the financial sector.


For clarity I must state that I will be using the phrase “Africans in America” or “Blacks” interchangeably to refer to Black people in the United States, as oppose to the terms “minority” or “African-American” that much of the research utilizes, which the author considers misnomers. The reasoning behind this position being that Africans on the continent and in the diaspora (i.e. Central and South America, the Caribbean, Asia, etc.) constitute the second largest racial group in the world, and I believe it is erroneous to classify this population as such, even if they are a minority group in a national sense.


It has been said that, “When White America catches a cold, Black America catches pneumonia.” (Oliver, 2008). This metaphor remains in accordance with the facts when surveying the American landscape in regard to the financial housing crash. When considering the “housing bubble burst” many never contemplate the implications in racial terms, but without a doubt it is significant enough to spur a plethora of articles and research on this very subject. In fact according to Monique W. Morris’ book “Black stats: African Americans by the Numbers in the Twenty-First Century”, she found that “African Americans are nearly twice as likely as all Americans to have been affected by the mortgage lending crisis; up to one-quarter of all African Americans who purchased a home in the years leading up to the 2008 recession may ultimately lose it.” Morris also went on to state that, “Between 2009 and 2012, African Americans were projected to lose $194 billion in wealth and assets during the great recession and the subsequent fallout from imbalanced recovery efforts, foreclosures, and the economic deterioration of communities deeply affected by high concentrations of loan defaults, home loss, and abandonment.” (Morris, 2014). This revelation is even more injurious considering that, “home equity is the most important reservoir of wealth for average American families and disproportionately so for African Americans. For black households, home equity accounts for 63 percent of total average net worth. In sharp contrast, home equity represents only 38.5 percent of average white net worth”. (Oliver, 2008).


As a study entitled “The End of the American Dream for Blacks and Latinos”, done by the William C. Velasquez Institute White Paper puts it, “The contours of the current crisis, in terms of who was targeted with subprime loans and who is currently suffering foreclosures, is clearly rooted in a long history of radicalized discrimination and inequality in the U.S. housing market. This history of discrimination and inequality was facilitated and maintained by a pattern of selective government-to-industry subsidies largely benefiting European Americans, while marginalizing non-white groups. The resulting inequality helped create both the conditions for sub-prime financial abuse as well as the current foreclosure crisis, a vicious cycle that remains highly concentrated by racial, ethnic and economic status”. Prior to the Great Depression, irrespective of race, few Americans owned a home. As a result new federal government policies were implemented to enable people to purchase homes through longer-term mortgages with lower payments. Between 1940 and 1960 homeownership numbers rose from 44 percent to 62 percent, however due to prejudicial lending practices this increase overwhelmingly excluded Blacks. As the study went on to state, “While the Federal Housing Act of 1934 brought home ownership within reach of millions of citizens by placing the credit of the federal government behind private lending to home buyers, overtly racist categories in the Federal Housing Agency’s ‘confidential’ city survey’s and appraisers’ manual channeled almost all of the loan money toward Whites and away from communities of color.” To illustrate, of the $120 billion the Federal Housing Administration (FHA) distributed between 1934 and 1962 less than 2 percent was made available to non-white families. (Ojeda, 2009). The study also indicates that FHA officials financed the flight of low income Whites out of inner city neighborhoods while simultaneously aiding realtors in the sale of substandard housing to “minorities” desperate for homeownership. “The resulting sales and mortgage foreclosures brought great profits to lenders most of them White, whose actions between 1968 and 1972 led to price fixing and a subsequent inflation of housing costs in the inner city by more than 200 percent. Bankers then foreclosed on the mortgages of thousands of these uninspected and substandard homes, ruining many inner-city neighborhoods. In response, the Department of Housing and Urban Development essentially “red-lined” inner cities, making them ineligible for future loans, a decision that destroyed the value of inner-city housing for generations to come.” This goes to show the initial approach of the financial market when dealing with Blacks seeking homeownership.


Statistically the disproportionate damage of the recent financial crisis to the Black population in the United States is unmistakable. Even more insidious is the way by which lenders targeted Black populations with sub-prime mortgage loans, even in instances where they qualified for more preferable conventional loans. In an article entitled “Sub-Prime as a Black Catastrophe”, author Melvin Oliver asserts, “in addition to being the target of mortgage companies specializing in sub-prime lending, minorities were steered away from safer, conventional loans by brokers who received incentives for jacking up the interest rate…households of color were more than three times as likely as white households to end up with riskier loans with features like exploding adjustable rates, deceptive teaser rates, and balloon payments. Good credit scores often made no difference, as profit trumped sound policy…even many upper-income African Americans were steered into sub-prime mortgages.” To spell it out even more explicitly Oliver declares, “Changes in the mortgage market, of which the current sub-prime meltdown is the most visible part of a larger pattern, were not racially neutral. Sub-prime loans were targeted at the African American community.” (Oliver, 2008).


Jacob Rugh and Douglas Massey put it even more succinctly in a study entitled “Racial Segregation and the American Foreclosure Crisis” stating, “By concentrating underserved, financially unsophisticated, and needy minority group members who are accustomed to exploitation in certain well-defined neighborhoods, segregation made it easy for brokers to target them when marketing subprime loans.” They went on to emphasize that, “Before the 1980’s, lenders avoided inner-city minority neighborhoods through a combination of fear, prejudice, and institutional discrimination. The invention of securitized mortgages, however, changed the calculus of mortgage lending and made minority households very desirable as clients.” (Massey, 2010). The rise of mortgage-backed securities revolutionized home lending in the United States. This financial innovation enabled the splitting apart of the origination, servicing and selling of mortgages into detached transactions. This made it possible for banks to earn money faster by originating and then selling bundled loans. This was preferable to banks that in the past would lend out money and have to wait to collect interest payments over a period of time. Therefore nearly any mortgage, no matter how risky, could be bundled and sold as a part of a collateralized debt obligation. “They simply generated mortgages and immediately sold them to banks and other financial institutions, which in turn capitalized the shaky subprime instruments as securities and sold them to third-party investors who ended up assuming the risk” (Massey, 2010) .


The proliferation of this scheme took place during the Bush administration’s time in office. President Bush made a major push toward home ownership among “low income minorities”. A quote from a New York Times article entitled “Bush Drive for Home Ownership Fueled Housing Bubble” states, “Bush pushed hard to expand home ownership, especially among minority groups”. While Bush’s presidency was primarily preoccupied with “terrorism”, war, and debates over tax cuts, the housing market’s home values were steadily rising, keeping homeowners contented. Bush’s administration continued the drive to facilitate home ownership for those who were less able to do so prior. The article goes on to say, “For Bush, it was part of his vision of an ‘ownership society’, in which Americans would rely less on the government for health care, retirement and shelter. It was also good politics, a way to court black and Hispanic voters”. As a result of this vision, Bush left mortgage brokers and lenders to their own devices to bring it to fruition with a, “proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment”. (Becker, 2008). Bank regulators relaxed much of their regulation to promote this process. Furthermore, it is reported that mortgage brokers and bankers contributed nearly $850,000 dollars to George Bush’s 2004 re-election campaign, which was more than triple the contributions made in his year 2000 campaign. I would suspect this was money given to deter any potential regulations that would mess up a “good thing”. Many states tried to bring lawsuits against predatory lenders using consumer protection laws, only to be blocked by the comptroller of the currency, stating that States had no authority over national banks.


This ignoble undertaking benefitted a few at the expense of the majority. Many within the financial industry were complicit in this fraud. Massey and Rugh’s study goes on to say, “These lucrative subprime lending and securitization practices did not suddenly appear ‘at the fringes of finance,’ but were produced and legitimated by the financial industry using new, high-tech tools such as credit scoring, risk-based pricing, securitization, credit default swaps and variable rate mortgages that were billed as rational, scientific and safe”. Therefore you have financial services firms like Standard & Poor, who from 2004 to 2007 falsely claimed its ratings of mortgage securities were objective and independent, when in fact they were cooperating with banks by rating risky debt favorably in order to “keep the ball rolling”. The Department of Justice brought civil fraud charges against S & P accusing them of failing to warn investors that the housing market was collapsing in 2006 in order for the firm to save face. In January of 2015, S & P had to pay more than $77 million settling charges over allegations that they falsified ratings of mortgage securities. S & P recently reached settlements with the Department of Justice and the California Public Employees Retirement System, paying $1.4 billion and $125 million, respectively (Whitehouse, 2015). Many feel these settlements aren’t enough, citing that the punishment does nothing to deter this behavior from continuing in the future, furthermore S&P neither admitted nor denied any wrongdoing.


Subprime mortgages aren’t the only form of lending that Black people are the victims of. For-profit colleges are also in the business of exploiting and financially gouging the most vulnerable of society. According to a study done by The Center for Responsible Lending, “African-Americans enroll more frequently in for-profit colleges than white students”, and tend to “default within their first few years of repayment [higher] than their peers from other types of schools”. Of all the Black students enrolled in post-secondary colleges, 28 percent are enrolled in a for-profit institute. Furthermore college tuition at a for-profit college tends to be higher than that of a public university (Smith, 2014). Take Garvin Gittens, who became the poster child for a New York City led campaign warning potential students of the dangers of debt scams. This individual racked up more than $57,000 in debt for a two-year associate’s degree in graphic design at the for-profit Katharine Gibbs School in Manhattan. Ultimately there seemed to be no return on Mr. Gittens’ investment in his education. Even when he decided to continue working toward his bachelor’s degree, no legitimate school would accept his credits based on the schools inadequate performance. Katharine Gibbs is now owned by the Illinois based Career Education Corporation, a publicly traded firm with locations throughout the U.S. and Europe. Career Ed has been under scrutiny by the New York and Florida state attorney generals, as well as two national accrediting bodies, for falsifying job placement rates. Nearly 28 percent of the students who attended Career Ed’s health services school in New York defaulted on their loans after three years, an indicator that these degrees aren’t leading to jobs with decent salaries. As Mr. Kai Wright puts it so plainly, “what all of the industry’s players have in common is a business model that targets desperate people”. A brief examination of a for-profit schools advertisements pinpoints who their target demographic is. Often times the ads play on working-class frustrations, offering a way out through the attainment of a degree via their institute, which more often than not is an empty promise.


Another form of predatory lending gouging Black neighborhoods throughout the U.S. is the infamous “Payday Loan”. According to the Huffington Post, “Payday loan centers tend to concentrate in minority neighborhoods underserved by mainstream banks, capitalizing on economic vulnerabilities brought on by decades of discriminatory legislation, financial deregulation and a decline in savings” (Muhammad, 2012). Proponents of this form of lending argue that they’re helping underserved people solve temporary cash shortage inconveniences, yet these loans are creating more headaches than they relieve. These short-term, high interest loans are used to supplement a low income, providing temporary relief for day-to-day expenses. Yet what more often than not ends up happening is the borrower gets caught in what consumer advocates coin the “Debt Trap”. Lenders often deceive unwitting borrowers by advertising a fixed rate for borrowing, rather than the actual annual percentage rate borrowers are charged. To give an example of the extremity of these loans, the lender Western Sky offers a loan of $5,075 that can lead to a staggering $40,872 in repayment. A study done by the Pew Charitable Trust states, “the payday lending market does not function as advertised. First, payday loans are sold as two-week credit products that provide fast cash, but borrowers actually are indebted for an average of five months per year. Second, despite its promise of “short-term” credit, the conventional payday loan business model requires heavy usage to be profitable—often, renewals by borrowers who are unable to repay upon their next payday. These discrepancies raise serious concerns about the current market’s ability to provide clear information that enables consumers to make informed decisions”. This inability of the borrower to understand the burden they’re taking on is what lenders bank on and exploit.


As was shown with S&P having to make settlements for their misbehavior, the government is compelled to intervene in the financial industries affairs. On March 26, 2015, at Lawson State Community College in Birmingham, Alabama, President Obama gave a speech about implementing stricter guidelines for payday loan lenders when making loans. Interesting enough Alabama has four times as many payday lenders as there are McDonald’s restaurants. The new regulations would require lenders to ensure that borrowers are able to repay the short-term loans, and restrict the frequency that a borrower can take out loans. The potential legislation would also apply to vehicle title loans and other high-cost consumer installment loans. While this is a commendable initiative, I personally am not so optimistic that it will be effective.


From the days of reconstruction when the Freedman’s Bureau was established to aid the African in transition from an enslaved laborer to a free man with a stake in his own destiny, financial chicanery was the order of the day when dealing with the ex-slave. Sharecropping became the new means of enslavement for the planter, who resisted the new economic order of having to pay wages to the same group he previously proclaimed ownership of. As Devon DB puts it, sharecropping “allowed the exploitation of the small farmer by the monopolistic financial structure dominated by the local merchant”, “as the farmer was unable to access alternative sources of credit to acquire needed supplies and thus the farmer was forced to use his future crop as collateral to finance the loan which bound the farmer to the merchant and restricted his options to buy elsewhere or dispose of his crop in the most advantageous manner”. Due to this arrangement the Black farmer focused on farming cash crops such as cotton, and neglected food production. This gave the merchant further opportunity to exploit the vulnerable African by charging exorbitant interest for an additional loan for purchasing food, which the farmer had no other option but to take. “Thus, the farmers stayed in perpetual debt and slavery perpetuated itself, but rather than a physical slavery, it was an economic bondage that held black people to the land” (DB, 2013).


My eighty-five year old grandfather often says, “The more things change, the more they stay the same”. In my estimation not much has changed fundamentally since the days of reconstruction. In essence, Africans in America have the same relationship to their former slave masters as their enslaved ancestors did, granted at times less physically apparent, but none the less an extremely exploitative one. Some may not agree with some of the correlations I draw, but I would argue that this is a result of a myopic view. The exploitation of the African may change form over time, but the constant remains that of one group capitalizing on the other. In the beginning of this essay I made a point to address and clarify the connection of racial Africans the world over, even when many of those groups do not see their indisputable commonality. However I maintain that the exploiters of Africans do not distinguish based upon national location, but rather racial classification. Take Africa for example, which has been exploited directly by Europeans and Arabs for centuries through the slave trade and colonization. Yet today the major exploitation comes by way of financial institutions such as the World Bank and International Monetary Fund (IMF). The great Pan-Africanist head of state Kwame Nkrumah in his “Handbook of Revolutionary Warfare” stated, “The principle of mutual inter-imperialist assistance whereby American, British, French and West German monopoly capital extends joint control over the wealth of the non-liberated zones of Africa, Latin America and Asia, finds concrete expression in the formation of interlocked international financial institutions and bodies of credit”. (Nkrumah, 1968).


The practice of the U.S. and other European nations is to structure loans to various nations so that it is assured they will default, and as a result restructure the loan to include the most resourceful land available, and dictate much of what will take place in that economy. The World Bank and IMF will force African countries to adopt “structural adjustment programs” (SAP) which cut government spending on basic services, reduce trade barriers, and opens markets to outside entities. This “structural adjustment” maintains these countries economies as cheap sources for raw materials and labor for corporations. The restructuring of economies imposed upon the African countries causes much of the poverty and health issues Africa is plagued with. An example of the way African nations are taken advantage of is the pact France has with fourteen of its historical colonies. In this system of “compulsory solidarity” the African states are required to put 65 percent of their foreign currency reserves into the French Treasury, along with 20 percent for financial liabilities. If any of these nations needs a loan, they have to borrow from the French at commercial rates. Even worse, “France has the first right to buy or reject any natural resources found in the land of the Francophone countries. So even if the African countries can get better prices elsewhere, they can’t sell to anybody until France says it doesn’t need the resources”. (Jabbar, 2014).


The point I am making is that the European and European-American has a solid history of far reaching exploitation of the African by various means, financial trickery being one of the latest methods employed. Time and time again the African have found themselves the victim of someone’s devious plot. Many continue to deny the racist impetus that drives these actions of powerful entities and nations, but the reality is undeniable. The phenomenon of “White Supremacy” is prevalent throughout the U.S. and the world, which mandates White on top and Black on bottom. Every method fathomable has been instituted to realize this worldview, and has constantly been resisted by the African, which has caused the oppressor to make some concessions in order to appear to make a change. However, fundamentally the status quo has never changed. Any opportunity racists get to further degrade the African they will indubitably do so. As the esteemed African scholar Dr. Bobby E. Wright puts so eloquently speaking on behalf of African people, “One of the realities is our condition. And this is where Blacks sort of get confused; this is where we get confused, our true condition. One of our true conditions is oppression, exploited; woman are exploited…No. We are enslaved! And the reason we are enslaved is because all of our life sustaining institutions are controlled by Whites…That’s slavery.” (Wright, 1980).


We have shown that the housing crisis was to a good extent the result of a proliferation of unfavorable home loans, primarily aimed at the Black population in the United States, and how the effects are still being felt. We have examined how for-profit schools target Black youth with dreams of attaining an education and burden them with unreasonable debt, while not even providing satisfactory training that leaves the student unemployable. Also we observed the trap known as a payday loan, and the hole they often lead the borrower into. These acts of the so-called “Dominate Culture” in terms of financial manipulation, is tantamount to a declaration of war against African people. Large numbers of Africans are suffering through the machinations of a group who can care less about their well-being, or even care for them to exist. This is a hard pill to swallow for many, but the evidence is irrefutable. I maintain that these examples of unfair treatment directed towards Blacks, whether through home loans, unsavory school loans, or payday loans, are but the expressions of the overall disdain, animosity, and contempt that an overwhelming number of Whites harbor against Blacks. Despite all the contemporary rhetoric of a “post-racial” society, racism has remained a constant since the days of colonial America, and is not subsiding but intensifying. Just consider the consistency of police murders of Black men caught on film that are displayed before the world, where more often than not the policeman is exonerated and the deceased victims bear the responsibility for their own murders. In all areas of people activity: economics, education, entertainment, labor, law, politics, religion, sex and war, Black people are under attack.


The point I am trying to make is that to address the issue of Blacks being disproportionally affected by predatory lending, you must first recognize the bigger issue of racial hatred that permeates all levels of society, and is expressed in a variety of manners. There is no solution to the ill treatment of Africans, in all its expressions, without confronting the underlying prevalence of racism. This calls for recognition of racism by the ones who perpetrate and perpetuate it. Yet, despite all the evidence history has provided, most Whites are reluctant to even acknowledge racism. Many make claims of reverse racism, as if a powerless people have the ability to practice such a thing, or that Blacks are pulling the "Race Card” when identifying racism and all its implications. This reflects the inability of Whites to deal honestly with racism from a historical point of view.


I am less than optimistic that the group that benefits from racism has the will to relinquish those benefits on their own volition. Africans in America historically, due to our circumstances, have had to fight for every benefit, privilege and right that many currently take for granted. The only way that predatory lending towards Blacks will come to a halt, is through a concerted effort by Africans to confront all the manifestations of racism that affect Black people negatively. As stated before predatory lending is a symptom of the overall sickness of racism, and to go after the symptom without going after the root cause, is equivalent to surgically removing a tumorous cancer without acknowledging the practice that created the ailment. In conclusion, I refer back to the insightful wisdom of Dr. Bobby E. Wright who stated unequivocally that, “We are in a race war. And we are the only one’s who don’t know it.” Even worse, he went on to note that, “We are in a race war and we refuse to accept it.” (Wright, 1980).


Works Cited

Becker, Jo, Sheryl Stolberg, and Stephen Labaton. "Bush Drive for Home Ownership Fueled Housing Bubble." The New York Times. N.p., 21 Dec. 2008. Web. 5 Feb. 2015.


Carruthers, Jacob H., and Leon C. Harris. African World History Project: The Preliminary Challenge. Los Angeles: Association for the Study of Classical African Civilizations, 1997. Print.


DB, Devon. "Debt Slavery in America: The Forgotten History of Sharecropping." Global Research. Centre for Research on Globalization, 04 Nov. 2013. Web. 22 Jan. 2015.


Hughes, Fountain. "Interview with Fountain Hughes, Baltimore, Maryland, June 11, 1949." The Library of Congress American Memory. Interview with Fountain Hughes, Baltimore, Maryland, June 11, 1949, n.d. Web. 22 Jan. 2015.


Jabbar, Siji. "This Is Africa." How France Lives off Africa with the Colonial Pact. This Is Africa, 24 Jan. 2014. Web. 30 Mar. 2015.


Morris, Monique W. Black Stats: African Americans by the Numbers in the Twenty-first Century. New York: New, 2014. Print.


Muhammad, Dedrick. "The Truth About Payday Loans." The Huffington Post. TheHuffingtonPost.com, 26 Nov. 2012. Web. 27 Mar. 2015.


Nkrumah, Kwame. Handbook of Revolutionary Warfare: A Guide to the Armed Phase of the African Revolution. New York: International, 1969. Print


Ojeda, Raul H., Albert Jacquez, and Paule C. Takash. The End of the American Dream for Blacks and Latinos: How the Home Mortgage Crisis Is Destroying Black and Latino Wealth, Jeopardizing America’s Future Prosperity and How to Fix It. Rep. N.p.: William C. Velasquez Institute White Paper, 2009. Print.


Oliver, Melvin. "Sub-Prime as a Black Catastrophe." The American Prospect. N.p., 20 Sept. 2008. Web. 22 Jan. 2015.


Parrish, Leslie, and Peter Smith. For-­‐Profit Colleges Saddle African-­‐American and Latino Students with Crushing Debt and Poor Employment(2014): n. pag. The Center for Responsible Lending, Apr. 2014. Web. 14 Apr. 2015.


Rugh, Jacob S., and Douglas S. Massey. "Racial Segregation and the American Foreclosure Crisis." American Sociological Review, 2010. Web. 22 Jan. 2015.


Whitehouse, Kaja. "Critics Blast Justice's S&P Settlement." USA TODAY 4 Feb. 2015: 1B. Print.


Williams, Eric Eustace. Capitalism & Slavery. Chapel Hill: U of North Carolina, 1994. Print.


Wright, Dr. Bobby E. "The Man and His Mission." Black Psychology and Mental Health Conference. Atlanta Junior College, Atlanta, GA. 10 Apr. 2015. Lecture.


"The Amazing, Surprising, Africa-Driven Demographic Future of the Earth." Africanglobe.net. N.p., 16 July 2013. Web. 22 Jan. 2015.


Written Spring 2015

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