The Recession’s Racial Divide

By BARBARA EHRENREICH and DEDRICK MUHAMMAD
New York Times Op-Ed Contributors
Published: September 12, 2009

Note: This piece is absolutely essential reading if we are to fully comprehend and appreciate the meaning and impact of the current economic crisis on black people as individuals, black families, and the black community as a whole-RP

What do you get when you combine the worst economic downturn since the Depression with the first black president? A surge of white racial resentment, loosely disguised as a populist revolt. An article on the Fox News Web site has put forth the theory that health reform is a stealth version of reparations for slavery: whites will foot the bill and, by some undisclosed mechanism, blacks will get all the care. President Obama, in such fantasies, is a dictator and, in one image circulated among the anti-tax, anti-health reform “tea parties,” he is depicted as a befeathered African witch doctor with little tusks coming out of his nostrils. When you’re going down, as the white middle class has been doing for several years now, it’s all too easy to imagine that it’s because someone else is climbing up over your back.

Despite the sense of white grievance, though, blacks are the ones who are taking the brunt of the recession, with disproportionately high levels of foreclosures and unemployment. And they weren’t doing so well to begin with. At the start of the recession, 33 percent of the black middle class was already in danger of falling to a lower economic level, according to a study by the Institute on Assets and Social Policy at Brandeis University and Demos, a nonpartisan public policy research organization.

In fact, you could say that for African-Americans the recession is over. It occurred from 2000 to 2007, as black employment decreased by 2.4 percent and incomes declined by 2.9 percent. During those seven years, one-third of black children lived in poverty, and black unemployment — even among college graduates — consistently ran at about twice the level of white unemployment.

That was the black recession. What’s happening now is more like a depression. Nauvata and James, a middle-aged African American couple living in Prince Georges County, Md., who asked that their last name not be published, had never recovered from the first recession of the ’00s when the second one came along. In 2003 Nauvata was laid off from a $25-an-hour administrative job at Aetna, and in 2007 she wound up in $10.50-an-hour job at a car rental company. James has had a steady union job as a building equipment operator, but the two couldn’t earn enough to save themselves from predatory lending schemes.

They were paying off a $524 dining set bought on credit from the furniture store Levitz when it went out of business, and their debt swelled inexplicably as it was sold from one creditor to another. The couple ultimately spent a total of $3,800 to both pay it off and hire a lawyer to clear their credit rating. But to do this they had to refinance their home — not once, but with a series of mortgage lenders. Now they face foreclosure.

Nauvata, who is 47, has since seen her blood pressure soar, and James, 56, has developed heart palpitations. “There is no middle class anymore,” he told us, “just a top and a bottom.” Plenty of formerly middle- or working-class whites have followed similar paths to ruin: the layoff or reduced hours, the credit traps and ever-rising debts, the lost home. But one thing distinguishes hard-pressed African-Americans as a group: Thanks to a legacy of a discrimination in both hiring and lending, they’re less likely than whites to be cushioned against the blows by wealthy relatives or well-stocked savings accounts. In 2008, on the cusp of the recession, the typical African-American family had only a dime for every dollar of wealth possessed by the typical white family. Only 18 percent of blacks and Latinos had retirement accounts, compared with 43.4 percent of whites.

Racial asymmetry was stamped on this recession from the beginning. Wall Street’s reckless infatuation with subprime mortgages led to the global financial crash of 2007, which depleted home values and 401(k)’s across the racial spectrum. People of all races got sucked into subprime and adjustable-rate mortgages, but even high-income blacks were almost twice as likely to end up with subprime home-purchase loans as low-income whites — even when they qualified for prime mortgages, even when they offered down payments.

According to a 2008 report by United for a Fair Economy, a research and advocacy group, from 1998 to 2006 (before the subprime crisis), blacks lost $71 billion to $93 billion in home-value wealth from subprime loans. The researchers called this family net-worth catastrophe the “greatest loss of wealth in recent history for people of color.” And the worst was yet to come.

In a new documentary film about the subprime crisis, “American Casino,” solid black citizens — a high school social studies teacher, a psychotherapist, a minister — relate how they lost their homes when their monthly mortgage payments exploded. Watching the parts of the film set in Baltimore is a little like watching the TV series “The Wire,” except that the bad guys don’t live in the projects; they hover over computer screens on Wall Street.

It’s not easy to get people to talk about their subprime experiences. There’s the humiliation of having been “played” by distant, mysterious forces. “I don’t feel very good about myself,” says the teacher in “American Casino.” “I kind of feel like a failure.” Even people who know better tend to blame themselves — like Melonie Griffith, a 40-year-old African-American who works with the Boston group City Life/La Vida Urbana helping other people avoid foreclosure and eviction. She criticizes herself for having been “naïve” enough to trust the mortgage lender who, in 2004, told her not to worry about the high monthly payments she was signing on for because the mortgage would be refinanced in “a couple of months.” The lender then disappeared, leaving Ms. Griffith in foreclosure, with “nowhere for my kids and me to go.” Only when she went public with her story did she find that she wasn’t the only one. “There is a consistent pattern here,” she told us.

Mortgage lenders like Countrywide and Wells Fargo sought out minority homebuyers for the heartbreakingly simple reason that, for decades, blacks had been denied mortgages on racial grounds, and were thus a ready-made market for the gonzo mortgage products of the mid-’00s. Banks replaced the old racist practice of redlining with “reverse redlining” — intensive marketing aimed at black neighborhoods in the name of extending home ownership to the historically excluded. Countrywide, which prided itself on being a dream factory for previously disadvantaged homebuyers, rolled out commercials showing canny black women talking their husbands into signing mortgages.

At Wells Fargo, Elizabeth Jacobson, a former loan officer at the company, recently revealed — in an affidavit in a lawsuit by the City of Baltimore — that salesmen were encouraged to try to persuade black preachers to hold “wealth-building seminars” in their churches. For every loan that resulted from these seminars, whether to buy a new home or refinance one, Wells Fargo promised to donate $350 to the customer’s favorite charity, usually the church. (Wells Fargo denied any effort to market subprime loans specifically to blacks.) Another former loan officer, Tony Paschal, reported that at the same time cynicism was rampant within Wells Fargo, with some employees referring to subprimes as “ghetto loans” and to minority customers as “mud people.”

If any cultural factor predisposed blacks to fall for risky loans, it was one widely shared with whites — a penchant for “positive thinking” and unwarranted optimism, which takes the theological form of the “prosperity gospel.” Since “God wants to prosper you,” all you have to do to get something is “name it and claim it.” A 2000 DVD from the black evangelist Creflo Dollar featured African-American parishioners shouting, “I want my stuff — right now!”

Joel Osteen, the white megachurch pastor who draws 40,000 worshippers each Sunday, about two-thirds of them black and Latino, likes to relate how he himself succumbed to God’s urgings — conveyed by his wife — to upgrade to a larger house. According to Jonathan Walton, a religion professor at the University of California at Riverside, pastors like Mr. Osteen reassured people about subprime mortgages by getting them to believe that “God caused the bank to ignore my credit score and bless me with my first house.” If African-Americans made any collective mistake in the mid-’00s, it was to embrace white culture too enthusiastically, and substitute the individual wish-fulfillment promoted by Norman Vincent Peale for the collective-action message of Martin Luther King.

But you didn’t need a dodgy mortgage to be wiped out by the subprime crisis and ensuing recession. Black unemployment is now at 15.1 percent, compared with 8.9 percent for whites. In New York City, black unemployment has been rising four times as fast as that of whites. By 2010, according to Lawrence Mishel of the Economic Policy Institute, 40 percent of African-Americans nationwide will have endured patches of unemployment or underemployment.

One result is that blacks are being hit by a second wave of foreclosures caused by unemployment. Willett Thomas, a neat, wiry 47-year-old in Washington who describes herself as a “fiscal conservative,” told us that until a year ago she thought she’d “figured out a way to live my dream.” Not only did she have a job and a house, but she had a rental property in Gainesville, Fla., leaving her with the flexibility to pursue a part-time writing career. Then she became ill, lost her job and fell behind on the fixed-rate mortgage on her home. The tenants in Florida had financial problems of their own and stopped paying rent. Now, although she manages to have an interview a week and regularly upgrades her résumé, Ms. Thomas cannot find a new job. The house she lives in is in foreclosure.

Mulugeta Yimer of Alexandria, Va., still has his taxi-driving job, but it no longer pays enough to live on. A thin, tall man with worry written all over his face, Mr. Yimer came to this country in 1981 as a refugee from Ethiopia, firmly believing in the American dream. In 2003, when Wells Fargo offered him an adjustable-rate mortgage, he calculated that he’d be able to deal with the higher interest rate when it kicked in. But the recession delivered a near-mortal blow to the taxi industry, even in the still relatively affluent Washington suburbs. He’s now putting in 19-hour days, with occasional naps in his taxi, while his wife works 32 hours a week at a convenience store, but they still don’t earn enough to cover expenses: $400 a month for health insurance, $800 for child care and $1,700 for the mortgage. What will Mr. Yimer do if he ends up losing his house? “We’ll go to a shelter, I guess,” he said, throwing open his hands, “if we can find one.”

So despite the right-wing perception of black power grabs, this recession is on track to leave blacks even more economically disadvantaged than they were. Does a black president who is inclined toward bipartisanship dare address this destruction of the black middle class? Probably not. But if Americans of all races don’t get some economic relief soon, the pain will only increase and with it, perversely, the unfounded sense of white racial grievance.

Barbara Ehrenreich is the author of the forthcoming “Bright-Sided: How the Relentless Promotion of Positive Thinking Has Undermined America.” Dedrick Muhammad is a senior organizer and research associate at the Institute for Policy Studies.