The racial wealth gap never ceases to amaze. Black and Latino families hold pennies of accumulated assets compared to every dollar of the average white family’s investments, retirement savings and home equity. Wealth matters a lot. It’s what families use to buttress against hard times—say a period of joblessness—and it’s what parents pass onto their kids to pay for college and avoid taking out big loans. This means that families without wealth actually pass on a future of debt.
So it’s particularly enraging to observe, once again, that the racial wealth gap is the product of very clear and deliberate public policy. Ta-Nehisi Coates has a post at the Atlantic on a foul 1950’s housing market practice that sprang up because the federal government refused to insure loans for black families. In the space left by this legal exclusion, housing speculators bought cheap properties, jacked up the prices and sold the homes to black families. If the families missed a single payment, the broker could terminate the contract, take all the money the family already invested and kick them out of the home. Coates explains:
Buying on contract meant that you made a down-payment to a speculator. The speculator kept the deed and only turned it over to you after you’d paid the full value of the house — a value determined by the speculator. In the meantime, you were responsible for monthly payments, keeping the house up, and taking care of any problems springing from inspection. If you missed one payment, the speculator could move to evict you and keep all the payments you’d made. Building up equity was impossible, unless — through some Herculean effort — you managed to pay off the entire contract. Very few people did this. The system was set up to keep them from doing it, and allow speculators to get rich through a cycle of evicting and flipping.
Coates posted a chart mocked up by 1960s advocates to show the kinds of markups we’re taking about. The first column reads, “Documented Price Paid By Speculator.” The second: “Documented Price Change To Negro Buyer.” In one case, a home listed on the chart is sold to a black family at nearly three times the purchase price, not including interest.
“In that chart you can literally see black wealth leaving one neighborhood and migrating to another,” Coates writes. “It was not just legal. It was the whole point.”
It’s a prime example, Coates writes, of why “the wealth gap is not a mistake. It is the logical outcome of policy.” And it’s upon this policy history that new forms of predation emerged. The subprime loans of the last decade were targeted to black families who’d been denied affordable and regulated lending services. These losses are part of the reason the wealth gap is now growing. And as I wrote earlier this week, the very same communities appear to be the targets of new schemes, this time in the form of totally unregulated “pension advances” that saddle elderly folks with mammoth interest rates. Some of these borrowers are pushed to advance companies because an earlier foreclosure tanked their credit score and all hope of getting a bank loan.