Professor Emma Coleman Jordan of Georgetown University Law Center painted a sweeping picture of racially tinged economics on November 12 when she presented the 14th annual Derrick Bell Lecture on Race in American Society, titled “Race and the New Economic Connection in the Subprime Crisis: A Paradox of Individualism and Community.”
Introducing Jordan’s talk, Visiting Professor Derrick Bell established a parallel between the topic of the lecture and the history of American race relations: “The ability and willingness of those in the fields of banking and finance to exploit communities of color is hardly different in result from their Jim Crow predecessors, for whom segregation and racial discrimination were both the vehicles of oppression and the sources of their riches and sense of superiority.”
Jordan argued that the global financial crisis, which began in earnest in September 2008 as behemoths including American International Group, Lehman Brothers, Fannie Mae, and Freddie Mac teetered on the brink of financial collapse, was about more than raw numbers and neutral market theory; she submitted that the subprime mortgage crisis that proved such a significant trigger had much deeper and more troubling roots.
“Ownership of land has always defined true freedom for African Americans,” Jordan said. “From the end of the Civil War to the middle of the subprime crisis, the psychic dividing line between slavery and freedom has been ownership of land.... Slaves could finally establish their agency with the move from being the subject of property to becoming the owners of property.”
This specific psychology of freedom, she argued, made African Americans particularly susceptible to predatory lending practices that promoted risky subprime mortgages, with, for instance, subprime refinancings in 51 percent of predominantly black neighborhoods but only nine percent of largely white neighborhoods: “It is only though the prism of the fractured yet persistent black obsession with ownership of land that one can truly make sense of the economic justice claims of homeowners, who signed predatory lending agreements that featured contractual trapdoors beneath a noose of predatory lending terms.” A mortgage might begin with a stable fixed rate for the first two years before an enormous loan-rate escalation took effect in the third year.
Jordan pointed to an anti-regulation ideology as the primary factor enabling the subprime mortgage crisis that triggered wider economic disaster. In 2000, then-Federal Reserve Governor Edward Gramlich had warned then-Chairman Alan Greenspan that subprime loans were growing in scope and without federal regulation. Greenspan chose to do nothing. Eight years later, in an infamous exchange with Representative Henry Waxman before the House Committee on Oversight and Government Reform, Greenspan belatedly admitted to “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.”
The way the world worked, Jordan said, included the disproportionate targeting of subprime mortgages to non-white communities. She highlighted the Williamsbridge section of the Bronx as a “representative ground zero for the subprime devastation that has wracked the nation.” With a 65-percent black population, Williamsbridge, which in 2006 had one of the highest homeownership rates in the Bronx, was devastated by the subsequent crisis; half of all its mortgages were subprime. With “block after block of broken windows and abandoned homes,” she said, residents “found that the community and their individual identities were, in fact, erased by these losses.” The subprime mortgage crisis, Jordan added, has only widened the already substantial wealth gap between blacks and whites.
Jordan indicated that fixing the deeply flawed system that led to widespread economic disaster has been a slow and frustrating process; credit default swaps, a major factor in the crisis, are still unregulated, although new regulation is in the works. The crisis, she maintained, “began with a systematic set of circumstances in which some people had houses and land and some people did not.... My work in economic justice is directed to addressing the deficit that we have in theory, in vocabulary, of outrage, and the mechanisms for adjusting these changes. The bonuses [to high-performing predatory lenders] are defended as contracts. The securitization agreements are defended as contracts. And I am here to tell you that we do have tools in the toolkit of the common law that can help us listen to the justice claims of our communities.... These claims are claims that deserve to be heard; they can be heard.”
Watch the full recording of this event (1 hr, 36 min):
Posted December 2, 2009