Monday, April 28, 2008

The Value of Life: The Sean Bell Verdict

Angela Stanley, Research Associate at the Kirwan Institute

In the wake of the acquittal of the three New York City police officers in the shooting of Sean Bell, the issue of race has yet again been thrust into the forefront. This time however, the focus is not on a presidential election; rather, it is about the treatment of people of color in America. Specifically for me, the question is whose lives are considered valuable in the United States?

What we saw happen to Sean Bell is not a new occurrence for New York City or the United States. For those who remember Amadou Diallo, he suffered a similar fate. Acquittal aside, it’s hard to sell the story that shooting an unarmed man 50 times (41 in the case of Diallo) is justifiable and expect every single person—including those of us who are Black and brown—to buy it. Unfortunately, so many of us have heard the story so many times that the ending is no longer a surprise. It’s frustrating, sad, and infuriating even, but one thing it is not is new.

We’ve gotten used to the news coverage of missing White women, while stories of missing women of color go unmentioned. It’s become expected that people of color receive longer sentences for committing the same crimes as their felonious White peers. The double standards, the blind eyes, the inconsistencies, the excessiveness…they have all become themes that, for many, are far too common in the American tale and reinforce the reality that some lives are deemed more valuable than others. Whether or not the verdict was right in the eyes of the law, I hope the humanity in individuals uncovers something different.

Below is an interesting op-ed written by activist Kevin Powell entitled “The Sean Bell Tragedy.” In it he states, “[U]ntil America recognizes the civil and human rights of all its citizens, systemic racism and police misconduct, joined at the hip, will never end. That is, until White sisters and brothers realize they, too, are Sean Bell, this will never end.” Every life is valuable, even when it is a stranger’s or belongs to someone who doesn’t look exactly like you.

Monday, April 21, 2008

Banking is a Social Compact

by Denis R. Rhoden, Jr., Research Associate at Kirwan Institute

In fifteen years, when we look back and observe how people and financial institutions engage each other today, this moment will matter. My claim is tongue in cheek, however, because we can argue that every moment fits that description. For many Americans, today’s economic conditions will serve as an anchor for their life events going forward. Enough has been written about the sluggish economy and solutions of all flavors, so I will focus on the practice of financial inclusion as today’s convention to reaffirm the social compact between bank, people and place.
First, financial inclusion is a practice and an orientation to society. The social compact is embedded in every financial act, from savings deposits to structured finance. Consider the power consumers confer to these institutions: A study of why people change banks in 1968 found 75% of people who switched did so because they moved. Recently, consumer research found customers were more likely to divorce than change their bank. So as we sit at the foot of history, an observation by Ferdinand Braudel came to mind:

“The key problem is to find out why that sector of society of the past, which I would not hesitate to call capitalist, should have lived as if in a bell jar, cut off from the rest; why was it not able to expand and conquer the whole of society?”

Two countries leading the way in practicing financial inclusion are India and the UK. ‘Universal Banking’ began as a partnership between UK Banks and the Government in 2003 to increase access to Britons who found themselves on the outside of the mainstream system. Before the program began the government estimated that 3 million people (5% of the population) were without an account and thus outside the bell jar.
Domestically the momentum to rid the financial system of irresponsible practices should bear witness to lessons learned about the sheer size and geographic scale of those needing interventions going forward in the US. If the UK underbanked experience is comparable, the US has 15 million people who may fit this condition, yet institutional responses is opaque and some argue non-existent.
People will remember these times, because of how it made them feel as much as for what happened. Bill Maher has a provocative but simple way of capturing today’s sentiment “If you default on your mortgage you are a loser, but if you default on a million mortgages you get a government bailout.”
Web Sites to Review:
Financial Inclusion Taskforce
British Banking Association
HM Treasury
BBC, “Universal banking launched”
Boston Consulting Group, “Next Billion Consumers”

Monday, April 14, 2008

Racism: More than Meets the Eye

By Becky Reno, Senior Research Associate at the Kirwan Institute

Racism is typically presented in one of two ways: personal, which considers racial animus to be the source of discrimination and therefore disparities, and structural, which examines how our social structures and institutions are arranged to confer opportunity inequitably. Along the lines of the former, there are a number of online tests such as the Shooter Effect quiz or Implicit Association Test (IAT) that purportedly determine if one is racist, and precisely to what extent. While these tests are interesting and I can’t resist taking them myself, I also recognize there is one serious component missing that is typically required in any psychological experiment- processing. Now to be fair the IAT has a blurb on the gateway page which directs the test taker to more information about the test, and cautions that they make no claim regarding the validity of the interpretations they present at the end, but otherwise the subject is left with little or no opportunity to explore his or her results, and the larger implications they have in society.

This is problematic because for test takers, the quiz situates racism solely in the realm of the psychological. Certainly it is beyond the scope of the tests to initiate a comprehensive dialogue on racial disparities, but my concern is that without processing their results or receiving additional information, test takers will walk away with the assumption that personal racism is the sole source of discrimination in society. This criticism works the other way too -- a narrow focus on structural racism will mask the role of the individual, psychological state on the construction of a racialized society. Instead we need to move one step further in understanding the link between the individual, psychological existence of bias, and the physical actualization of it in our society.

Just as we cannot separate structures and institutions from the individuals who construct and uphold them, we cannot examine individual’s conscious and subconscious thoughts on race without also understanding the physical context in which they were formulated. Understanding prejudice and bias as a circular, mutually constructive phenomenon between the psychological and the physical necessitates intervention on multiple levels. We must continue to work to create arrangements which equitably confer opportunity to all, but we also must simultaneously understand the role of our mental representations in constructing this racialized society. Without this multi-level understanding and intervention we’ll be left shaking our heads in surprise at our test results indicating the presence of racial bias in our psyche, while simultaneously wondering why racial disparities remain deeply entrenched in our society.

Tuesday, April 8, 2008

Fair Housing For All

By Stephen Menendian, Research Associate at the Kirwan Institute

As we pay tribute to the life of MLK Jr. and celebrate the anniversary of the Fair Housing Act, it is fitting to reflect on a new housing crisis that is affecting our cities and urban neighborhoods. A wave of foreclosures threatens not just the lives of Americans who are black or poor, but entire regions. The short-term profit making of financial institutions, mortgage brokers, and securities dealers now threatens the health of the entire economy.

Deregulation in the 1980s and a rise in real estate values led investment bankers, hungry for mortgage backed securities to sell to investors, to promote asset-based lending rather than income-based lending, a practice that fueled the subprime market. This phenomenon took off in 1994 when $10 billion worth of subprime home equity loans were securitized. By the end of 2005, the volume of securitized loans leaped to $507 billion. This arrangement let mortgage companies specialize in home equity lending and make a lot more money. They could make loans and quickly resell the loan into the secondary market. Mortgage brokers were acting like direct salesmen rather than agents of the homeowner, marketing subprime loans to would-be homeowners who might not be able to afford a home under a prime mortgage arrangement and even those who qualified for prime mortgages.

This ponzi scheme may have made sense if property values kept on rising. You could purchase a home with very low, interest-only, monthly mortgage payments and refinance a few years later with tens of thousands of dollars of equity due to home value appreciation.

The mortgage broker earned an origination fee, typically $2500, and then made that money again when the homeowner refinanced. The investment bank had already made their money selling these securities to investors. The originating mortgage lender had already sold the mortgages to the investment banks. In short, the banks and mortgage brokers set people up in loans they knew they would not be able to afford and passed the risk off to investors and to the home-buyer.

About 46% of Hispanics and 55% of blacks who obtained mortgages in 2005 got higher-cost loans compared with about 17% of whites and Asians, according to Federal Reserve data. Other studies indicate they would have qualified for lower-rate loans. The most recent estimate is that African American and Latino homeowners will lose a quarter of a trillion dollars in home equity in the next two years as a result of the crisis—the largest loss of home equity ever experienced in US history among African American and Latino homeowners.

It’s not too late to do something about it, but it won’t be easy. The servicers, the companies hired by the mortgage holders to manage the mortgage payments, are not particularly interested in the well being of the homeowner or the investors either. They make more money when the homeowner is saddled with late payments and other ancillary fees. Forbearance agreements are onerous and tend to accelerate foreclosure rather than stave it off.

The final result is foreclosure. The homeowner loses their house. The investors lose their collateral asset. Foreclosures lead to abandoned and vacant homes. This causes neighborhoods, especially ones already struggling, to decline rapidly by reducing the value of property of nearby homes. (A Fannie Mae study using Chicago found that every foreclosure is responsible for an average decline of 1% in the value of each single-family home within a quarter mile). This in turn results in lost tax revenue from property taxes, which makes it more difficult for the city to borrow funds because the value of the property tax base is used to qualify for loans. Communities lose property tax values with cities and states suffering. Schools lose revenue. Services have to be cut back. In Baltimore, for example, the total estimated costs for the city are about $34,199 per foreclosure.

The subprime implosion is fueling a cycle of foreclosures and economic loss that is as vicious as it is pernicious. I only hope that it is not too late to intervene, but the solution will not come by saving Bear Sterns, by corporate tax breaks, or by rescuing investors from bad investments. It will come by empowering homeowners to renegotiate the basic terms of predatory mortgages to reflect the real value of the home and a realistic ability to repay.