Banking Apartheid, Debt Slavery, and Financial Lynching: Why People Riot

Kimberly Latrice Jones, a black author and screenwriter, was out filming anti-racism and anti-police brutality protests when she explained in a you tube video why the focus in all discussions on the rioting in the protests was wrong. We should not focus on the what they are doing, she said, but the why they are doing it:

“Let’s ask ourselves why in this country in 2020, why the financial gap between poor Blacks and the rest of the world is at such a distance that people feel their only hope and only opportunity to get some of the things that we flaunt and flash in front of them all the time is to walk through a broken glass window and get it,”

Jones continued: “Why are people that poor? Why are people that broke? Why are people that food insecure, clothing insecure that they feel their only shot is walking through a broken glass window and getting it?”

No doubt, that is the important question. Blacks live in an economic pressure cooker. Economists churn out cold statistics telling a tale of disparity between white and black median household net worth such as $171,000 whites and $17,000 for blacks. But how did this happen? It was no accident.

Home ownership is the key to amassing wealth in any community including the black community. For, not only can owners eventually reduce their housing costs, but pass on a considerable amount of capital to their children so they have a substantial down payment for a house themselves with easy to manage mortgage payments. Knowing this, the bankers and real estate agents have successfully subverted any and all government programs to help the Black community achieve home ownership, and the government regulators assist by turning a blind eye to their tactics.

Here is a story of financial lynching and the way it has been done, generation after generation.

The biggest shock I got in my first years as a lawyer came with the realization that there were people who could make money on the backs of the poor. Even if a poor person had saved only $100, they knew how to grab it. And these predators were not limited too small cons, they were an intricate part of the dirtiest market of all, the housing mortgage market. The predatory practices in payday loan companies pale in comparison to those in the real estate and mortgage lending businesses. There, they grab life savings.

Their vulture craft specializes in more than just perverting government programs designed to help the disadvantaged by creaming off the benefits. It includes blaming them for the failure of the program with a “you just can’t help these people.”

What I’m about to relate here applies to all those in the lower economic class, but 10 times over to African Americans.

The 2008 Cover Up

The 2008 crisis gives us a window on how bankers destroyed the financial future of the black community and how the powerful banker lobby covered it up so the bankers could do it again. Many commentators have exposed the racism in redlining, but there were far more destructive practices in mortgage lending that continued long after redlining was sidelined.

The media naïvely reported the bankers spin that the 2008 crisis was caused by poor people trying to live above their proper station in life by applying for mortgage loans they could never payback. The Internet was rife with memes mocking these undeserving poor as NINJAs–no income–no jobs–no assets. The bankers posed as soft-hearted fools who lent to these unworthies in the false belief that the housing market would always rise.

Not so!

The banker spin gives the impression there were no lending standards, or they were severely lessened, but there were the commonsense ones that everyone understands. The applicants needed to have a source of income adequate to cover the installment payments, a good job history, an acceptable credit score, and few debts and such. These lending standards, while lowered slightly, were never abandoned.

However, the loan officers were paid several thousand dollars a pop for successful applications. In her book, All the Devils Are Here, investigative journalist, Bethany McLean, reports interviewing some recent high school grad loan officers pulling down $30-$40,000 a month.

Mary Garvin, who ran a business that involved advising car dealerships, told me that starting in 1999, car salesman were jumping into the mortgage business as loan officers. She knew if they were doing to mortgage sales what they had done with car sales, “this won’t be some backdoor sale gone wrong, this will be a huge problem and show up on the national stage”. That proved to be an understatement.

Imagine the incentive when the pool of qualified applicants dried up.

Loan officers began to recruit unqualified applicants, dazzled the opportunity of buying a home in front of their eyes to get them to sign an application form; then the loan officers altered the applications to make it appear that the applicants met the lending standards.

Law professors Kathleen Engel and Patricia McCoy investigations how loan officers continued the fervor of this modern gold rush after the supply of credit worthy applicants dried up in The Subprime Virus:

“ Brokers and lenders perfected marketing strategies to find naïve homeowners and dupe them into subprime loans. Some hired “cold callers” who would contact homeowners to see if they were interested in a new mortgage . . . Brokers and lenders . . . scoured files at city offices to find homes with outstanding housing code violations, betting that the homeowners needed cash to make repairs. They read local obituaries to identify older women who had recently lost their husbands, surmising that widows were financially gullible.

They also identified potential borrowers from consumer sales transactions. For example, in Virginia, Bennie Roberts, who could neither read nor write, bought a side of beef and over 100 pounds of other meat from a roadside stand on credit from the notorious subprime lender Associates First Capital. In talking with Mr. Roberts to arrange the consumer loan, the loan officer from Associates learned that Mr. Roberts had no mortgage on his home. He soon convinced his new client to take out a loan using the equity in his home. Associates refinanced that mortgage ten times in four years. The principal after the refinancings was $45,000, of which $19,000 was paid to Associates in fees.”

There’s lots of corroborating evidence to what Engel and McCoy described. To take a couple of examples: In 2005, the L. A. Times ran a story quoting former workers at Ameriquest, one of the largest U. S. sub-prime mortgage lenders until its dissolution in September 2007. One ex -employee, Mark Bomchill, told of relentless telemarketing to find dupes with the poorest credit. Once the victims were found, the loan officers fudged the applications: “ They forged documents, hyped customers’ creditworthiness and ‘juiced’ mortgages with hidden rates and fees.”

Another example: Eileen Foster was the vice president in charge of fraud protection at Countrywide Financial. She reported massive incidents of loan officer fraud regarding subprime mortgages to her Countrywide superiors — all ignored. In an interview on 60 minutes in December, 2011, she told Steve Kroft of a typical finding when she inspected offices: “All of the — the recycle bins, whenever we looked through those they were full of, you know, signatures that had been cut off of one document and put onto another and then photocopied, you know, or faxed and then the — you know, the creation thrown — thrown in the recycle bin.”

In her above mentioned book, McLean devotes an entire chapter, I Like Big Bucks and I Cannot Lie, to interviews with former employees from a range of banks with similar stories of loan officers fraudulently altering applications.

All this evidence of loan officer, not applicant, fraud was ignored by the commentators of influence who wrote the books and media columns about the 2008 crisis — for a purpose. The public had to believe that the underclass was to blame. It enabled the bankers to counter complaints from the left like the Occupy Wall Street movement by pointing to this fake homeowner deceit.

For a recent and thorough academic study exposing the serious extent of fraud in the 2008 crisis see: John Griffin, Ten Years of Evidence: Was Fraud a Force in the Financial Crisis?

The reforms after the Great Depression had directed the money to the homeowners and started an era of income equality that’s stretched until the Reagan years of the 1980s. In 2008, the Democrats had control of both House and Senate and passed the same relief, approving $700 billion to buy the mortgages then give relief to the home owners. The New York Times published the draft legislation. However, once the allocation was approved and Treasury had control of the money, Treasury Secretary Hank P aulson directed that the money go straight to the banks. There was no great outrage at the switch likely because the media and internet discussion focused on those irresponsible homeowners who had supposedly scammed the system to live beyond their means and didn’t see it happen.

Income inequality on a downward trend from 1913 to 2016

Owners into Tenants

Yet, when the Democrats got control of the presidency in 2009, 200 billion reamined that could have been redirected for homowner benefit. However, they let the Paulson directive stay in place. And, while another $96 billion had been earmarked for the homeowners, only 20% got to them. New Treasury Secretary, Democrat Timothy Geithner, intended that result. As special investigative counsel Neil Barofsky reported, Geithner slowed the disbursement of the funds to allow the banks to organize foreclosures. He had no intention of letting this money trickle down to the homeowners so they could save their homes.

This delay allowed some senior bankers, such as Steve Mnuchin, to form corporations to buy the mortgages at $.50 on the dollar, foreclose and evict to become super-sized corporate residential landlords. Black home owners were transformed into rent paying tenants. They could no longer amass wealth by owning a home; that capital increase would now go to the bankers.

Geithner went to his reward with a lucrative position at a private Wall Street bank. Mnuchin got to be Treasury Secretary as one of Trump’s appointees to clean out the Washington swamp.

History Repeated Itself and Then Repeated Itself and Then…

This was not the first time the banker-real estate industry cooperated in application fraud and blamed it on the homeowners. In her book, Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership, black academic Keeanga-Yamahtta Taylor details their tactics exposed during the early 1970s in the country wide fraud involving the Federal Housing Authority(FHA) initiative to provide insurance for low down payment home purchases.

It was a two-step process with two victims: the FHA (ultimately you the taxpayers, dear readers) and the black community. In the first stage, real estate speculators (often the real estate agent selling the house disguised by using a nominee) would buy a dilapidated house at a low price, do some cosmetic changes such as carpeting over rotting floors and painting over evidence of termites and the like, bribe an FHA inspector for a good report, and sell it at an inflated price — a manoeuvre known as flipping.

Then the agent would obtain a false credit rating from a credit agency. The bank would take the evidence at face value and submit this fraudulent application for FHA insurance. FHA officers took bribes to look the other way.

Taylor’s investigation revealed that the false inspection reports we’re done in the black areas, White purchasers got accurate reports. The purchasers could barely afford the mortgage payments; they had nothing left for major repairs and soon defaulted on their mortgage.

The banks didn’t care because when the purchasers defaulted, they could claim the full amount of the loan from the FHA. The real estate agents benefited, not only from the blown up sale price, but because they would buy that house at foreclosure prices and use it in the same scam again. Taylor observes, as I have also seen, that the sharks look for people who are likely to default. As her research shows, their preferred victims were Black women.

Starting with the story of Janice Johnson, Taylor tells tales of a number of Blacks who were scammed in this way. For her “homeownership was not the fulfillment of the American dream; it was the beginning of an American nightmare. Within days of moving into her new home, the sewer line broke, spewing wastewater all over the basement floor. The electricity for the house was sporadic and haphazard. There were holes and other irregularities in the foundation of the home. All of the windows in Johnson’s new house were nailed shut and inoperable. The floorboards in her dining room were so rotten that she feared her dining room table would collapse through the floor. The compromised structure of the house was not the worst of it. On Halloween night, Johnson’s son, Edward, woke up to find a rat in his bed. Janice saw rats throughout her house, including in the kitchen and bathroom.”

Although, the real estate agent made a few minor repairs, he soon told her that the problems in her house were now her own. They were “homeowner’s business.”

There were a number of arrests, law suits and imprisonments across the country. For a while, those practices seemed to have diminished. But, in the lead up to the 2008 crisis, they reared their predatory heads once more. A 2001, Senate Committee headed by Carl Levin (D-Mich) warned the same process had re-surfaced in a report entitled, “Property Flipping: HUD’s failure to curb mortgage fraud.”

The regulators did nothing.

In 2004, the FBI warned a Senate committee of the extensive insider fraud in the banking-real estate industry at the application stage: “Representatives of American Home Loans were able to orchestrate the scheme by fabricating loan applications and the supporting documentation (W-2s, tax returns, employment/income and bank verifications). As a result, industry insiders were able to circumvent the safeguards of numerous finance companies.”

Assistant FBI Director Chris Swecker told CNN, “It has the potential to be an epidemic”.

The regulators did nothing.

In 2008, when that financial epidemic did strike, the regulators again did not investigate the fraud by the loan officers and the real estate agents. They let the public believe that fraud was not a significant factor and, anyway, it was the homeowners who had committed the little fraud that had happened and who had duped the reckless and foolish but criminally innocent bankers.

Mainstream economists assisted by publishing complicated analyses blaming a long laundry list of factors that buried the role of fraud — if it was even mentioned. Congress then passed the thousand page Dodd Frank Act as if complexity of legislation was proof of effectiveness — but with absolutely no mention of banker fraud.

This blaming the poor camouflaged a change from the equal transfer of assistance to the working and middle classes achieved by the reforms after the Great Depression, to the massive upward transfer of wealth through the banks in 2008, and presently through the corporations in the Covid 19 stimulus programs. At the present time the banks made high risk loans to corporations not home buyers. The corporations are getting the stimulus money to repay banks for loans that should never have been advanced in the first place. Details here.

The African Americans are told to be patient, just get out and vote. But they have been patient. It’s been 60 some years since the promise of civil rights advancements from the days of MLK jr. If there were any advancements, they have been undone. Voting is of no help. Neither of the Clinton or Obama administrations were effective in ending the serious income inequality that keeps so much of the Black community in poverty. The black community’s leaders and advocates need to be heard and given access to the bank-real estate industry, or else they’ll never be able to correct the problems therein and undo the damage it has done to them.

We have to reflect on what MLK Jr. said: That a riot is the language of the unheard. Peaceful protests and riots are both valuable. Both lend different forms of agency to oppressed groups, and we have no right to dictate to them how to voice discontent when we haven’t been listening in the first place.

Jan D. Weir is a lawyer who has advised international corporations, banks and accounting firms. He has taught business law at the University of Toronto, and is the co-author of The Critical Concepts of Canadian Business Law (6e) Pearson. Follow him for updates on laws that affect inequality @JanWeirLaw and at and Medium.com.

Acknowledgements:

Title Photo: Life Matters on pexel

Graph of Income Inequality by Gabriel Zucman Associate professor of economics, UC Berkeley

Photo of Paulson, Wikipedia commons licence

Photo of Geithner, Wikipedia commons licence

Trial lawyer, has taught Business Law at the University of Toronto, Author, Critical Concepts Canadian Business Law @JanWeirLaw | http://jdweir.com