All the houses on Creecy have inviting front porches, and that’s where Janice was sitting when I met her and Isaiah in the summer of 2020. A consumer attorney I’ve known for nearly two decades, Mike Calhoun, introduced me to them and connected us by a video call on their porch instead of the trip I’d planned to take to visit them, due to the pandemic. Janice told me about her introduction to the neighborhood: One night before they moved in, she was in the house painting over the dreadful lime green the previous owners had chosen for all the rooms, when she needed to make a call. The Tomlins’ phone wasn’t hooked up yet, but a nice white lady who lived next door offered to let her come in and use hers to call Isaiah. “And I thought, ‘Gee, this is so nice. This is so kind,’ ” she recalled.
Her soon-to-be neighbor was out on the porch when Isaiah arrived later that night. Tall and deep mahogany–skinned, Isaiah was decidedly not what the white neighbor was expecting to see. Janice is fair-skinned and had just pressed her hair straight. “If you could have seen her face.” Janice whistled as Isaiah laughed at the memory. “I will tell you that she was gone within months. Never spoke to us again, and was gone within months…and I thought, ‘Oh, did we do that?’ ” She nodded to herself. “We did.”
More Black families moved in, and by the late 1990s, Janice said, it was a Black neighborhood. Janice and Isaiah were raising two children and kept improving their dream house. As the equity grew and the neighborhood changed, the phone calls started coming in from people marketing refinance loans. It just so happened that Janice was determined to send her children to parochial school, and like many parents, she looked to their nest egg to help finance the tuition.
In the early spring of 1998, a company called Chase Mortgage Brokers had called the Tomlins multiple times, so Janice made an appointment to go in. “The very first meeting, the lady was so—I look back now—exceptionally kind. Just overbearing with kindness and patience,” Janice recalled. “And I’m a question person. I ask a lot of questions. And she sat and she listened to me.”
For all Janice’s questions, however, there were some answers she wouldn’t get from Chase—not until they showed up as evidence in a class-action predatory lending lawsuit. It turns out that Chase held itself out as a broker, someone a borrower hires to find them the best loan and who has a fiduciary duty to the borrower under North Carolina law. But Chase had a secret arrangement with just one lending company, Emergent. The exceptionally kind salesperson received kickbacks for every Emergent loan she sold, and no matter how low an interest rate a borrower might have qualified for, if the salesperson could sell them a higher-priced loan, she received even more of a kickback.
The salesperson at Chase also hid from Janice the extent of the high-cost fees that would be taken out of the Tomlins’ home equity at signing. The included costs amounted to 12 percent of the loan on day one. Unbeknownst to them, the Tomlins had refinanced their dream home with a subprime mortgage with an annual interest rate in the double digits, unrelated to their credit scores.
This last point was important, because the official justification for the exorbitant cost of subprime mortgages was that higher costs were necessary for lenders to “price for the risk” of defaults by borrowers with poor credit. But lenders have no duty to sell you the best rate you qualify for—the limit is whatever they can get away with. I asked Janice, “Had you ever been late on your payments or missed a mortgage payment?”
Her warm voice turned firm. “Never.”
“Never,” I repeated. “That was very important to you?”
“Very important. Never late,” she said, shaking her head emphatically.
Subprime would become a household word during the global financial crisis of 2008. I first came across the term when I started working at Demos in 2002 and when, as part of my outreach about our consumer debt research, I went to community meetings with dozens of borrowers just like the Tomlins, disproportionately Black homeowners who were the first to be targeted by mortgage brokers and lenders. The loans are called subprime because they’re designed to be sold to borrowers who have lower-than-prime credit scores. That’s the idea, but it wasn’t the practice. An analysis conducted for the Wall Street Journal in 2007 showed that the majority of subprime loans were going to people who could have qualified for less expensive prime loans. So, if the loans weren’t defined by the borrowers’ credit scores, what did subprime loans all have in common? They had higher interest rates and fees, meaning they were more profitable for the lender, and because we’re talking about five- and six-figure mortgage debt, those higher rates meant massively higher debt burdens for the borrower.
If you sell someone a prime-rate, 5 percent annual percentage rate (APR) thirty-year mortgage in the amount of $200,000, they’ll pay you back an additional $186,512—93 percent of what they borrowed—for the privilege of spreading payments out over thirty years. If you can manage to sell that same person a subprime loan with a 9 percent interest rate, you can collect $379,328 on top of the $200,000 repayment, nearly twice over what they borrowed. The public policy justification for allowing subprime loans was that they made the American Dream of homeownership possible for people who did not meet the credit standards to get a cheaper prime mortgage. But the subprime loans we started to see in the early 2000s were primarily marketed to existing homeowners, not people looking to buy—and they usually left the borrower worse off than before the loan. Instead of getting striving people into homeownership, the loans often wound up pushing existing homeowners out. The refinance loans stripped homeowners of equity they had built up over years of mortgage payments. That’s why these diseased loans were tested first on the segment of Americans least respected by the financial sector and least protected by lawmakers: Black and brown families.
In the latter half of the 1990s, the share of mortgages that were subprime nearly doubled. By 2000, half of the refinance loans issued in majority-Black neighborhoods were subprime. Between 2004 and 2008, Black and Latinx homeowners with good credit scores were three times as likely as whites with similar credit scores to have higher-rate mortgages. A 2014 review of the pre-crash mortgage market in seven metropolitan areas found that when controlling for credit score, loan-to-value, debt-to-income ratios, and other risk factors, Black and Latinx homeowners were 103 percent and 78 percent, respectively, more likely to receive high-cost mortgages.
Janice saw that her interest rate was high, but the sales rep reassured her. “She told me…that I could come back in and we could lower the interest rate once I had paid on it for a certain amount of time. [I]t was like a perk for me; the interest rate will be lower. So, I thought, ‘Well, this is good. It sounds like she’s doing everything on my behalf.’ ”
Then there was the God part. Janice’s sweet voice grew an edge as she said, “She had figured me out.” Janice had told the broker that they were looking to refinance in order to free up money to pay for their children’s Christian schooling. “And so, she talked about her Christian faith, which resonated with me. I remember the crosses that she had in the office.”
The sales rep had touched Janice’s hand and told her, “I know that God must have sent you to us. We’re here for you.”
Janice shook her head at the memory of “this person who is talking about God…and is trying to show me that she’s giving me probably the best deal that I can get…
“I wasn’t taught to doubt people who presented themselves as God-fearing people. So, I didn’t doubt.” She and Isaiah signed the paperwork.
Soon after, the address the Tomlins sent their monthly payments to began to change, frequently—the loans were being repeatedly sold—but, Janice says, “we were just trucking along and making the payments.” It wasn’t until Isaiah had a chance encounter with a local attorney that the Tomlins learned just how predatory their refinance loan was. That lawyer, Mallard “Mal” Maynard, was helping Isaiah recover a stolen tractor when Isaiah mentioned his refinance loan. (Unlike his wife, Isaiah had never had a good feeling about the salesperson or Chase.) Maynard asked if they still had the paperwork, and Janice did. “Of course I do,” she’d told her husband. “I’m a schoolteacher. I keep papers.”
Mal Maynard had joined our conversation on the porch. “I got copies of his paperwork and it just blew me away,” he told me.
“What blew you away about it, Mal?” I asked. “It wasn’t the monthly payment, right, because it sounds like the monthly payment was reasonable.”
“It was the equity stripping. It was the yield-spread premiums. It was the origination fee. It was the duplicative fees. They had lots of duplicative fees with words that really made no sense as to what they were for.” Chase had even charged the Tomlins a discount fee, which is what a borrower might pay a broker to get a lower rate than they qualify for—which was absurd, given that the Tomlins’ rate was higher than they qualified for.
“But Mal, they weren’t the only ones, right?”
“Oh, no. That was just the tip of the iceberg when I ran into Janice and Isaiah. Started looking at the Registered Deeds Office and tracking down dozens and then hundreds of other similar loans,” Maynard said. He pointed to Janice. “She’s being modest. She was the lead plaintiff [for] thirteen hundred folks [whose homes] she helped save…who had gone through this same thing.”
Overcoming their shame to be named plaintiffs in a class-action lawsuit wasn’t easy for Janice and Isaiah. “In the courtroom…there would be someone to make a mockery of my ignorance. That was really hard to swallow,” Janice admitted. “But I knew that, in the end, there would be others who would benefit from it.”
As I listened to their story, my mind kept wandering back to what I’d seen early in my career, and to the millions of families who weren’t so lucky. The way the Tomlins’ story began—an American Dream deferred by segregation, white flight, a Black neighborhood targeted by unscrupulous lenders, and the steering of responsible Black homeowners into equity-stripping predatory mortgages—could have been cut and pasted from a report of hundreds of Black middle-class neighborhoods across the country in that era. In the early 2000s, the economy had recovered quickly from the tech bubble and 9/11–related recession, housing prices seemed to know no limit, and financial sector profits were soaring. At Demos, when we did our first visit to Congress with copies of our research report on debt called Borrowing to Make Ends Meet, a Democratic senate staffer told us point-blank not to bother, that the banks “owned the place.” We were laughed out of the offices of Republican members of Congress with our passé talk about regulation. The consensus to loosen the rules on Wall Street investment houses and consumer banks had become bipartisan during the Clinton administration, and the proof, it seemed, was in the profits. But through my job, I had a front-row seat to what was really driving it all, a tragedy playing out in Black and brown communities that would later take center stage in the global economy.
I’ll never forget a trip I took to the Mount Pleasant neighborhood in Cleveland, Ohio. On a leafy street, residents told me how, a few years back, house by house, each homeowner—over 90 percent of them Black, with a few Latinx and South Asian immigrants—had opened an envelope, answered a knock on the door, or taken a call from someone with an offer to help consolidate their debt or lower their bills. In the ensuing years, with quiet shame and in loud public hearings—with supportive aldermen, pastors, and lawyers outmatched by the indifference of bankers and regulators with the power to help them—residents had fought to keep their homes. But by 2007, the block I was on had only two or three houses still in the hands of their rightful owners. I excused myself from the group and walked around the corner, barely getting out of their eyesight in time to fall to my knees, chest heaving. It was the weight of the history, the scale of the theft, and how powerless we had proven to change any of it. These were properties that meant everything to people whose ancestors—grandparents, in some cases—had been sold as property. To this day, it’s hard for me to think about it without emotion.
That’s why, as I looked at the Tomlins smiling at each other on their porch more than a decade later, it was like I’d slipped into the world as it could have been—as it should have been. With the relative rarity of a lightning strike—an available and dogged lawyer, a well-timed suit in a state with good consumer protections, and a particularly corrupt and inept defendant—the Tomlins had saved their home and protected more than a thousand other working- and middle-class homeowners in their state. Had more Black families targeted by subprime lenders in those early years found the Tomlins’ happy ending, history would have turned. The mortgage market would have learned its lesson about subprime mortgages earlier in the 2000s, and the worst excesses would have been checked before they spun out of control and toppled the entire economy, causing $19.2 trillion in lost household wealth and eight million lost jobs—and that was just in the United States. The earliest predatory mortgage lending victims, disproportionately Black, were the canaries in the coal mine, but their warning went unheeded.
downturn of 2020, the financial crisis of 2008 (and the ensuing Great Recession) was widely considered to be the single most traumatic event in the financial life of the nation since the Great Depression. Less commonly known is that we’re beginning to understand how the tail effects may even eclipse those of the Depression in terms of lost wealth. In 2017, the country had four hundred thousand fewer homeowners than in 2006, although the population had grown by some eight million households since then. Homeownership rates reversed their historic pattern of steady increases, shrinking from 69 percent in 2004 to less than 64 percent in 2017. More than a decade after the crash, the typical family in their prime years has still not recovered the level of wealth held by people the same age in previous generations. Families headed by Millennials, who entered adulthood during the Great Recession, still have 34 percent less wealth than previous generations. They will likely never catch up.
The blast radius of foreclosures from the explosion on Wall Street was far-reaching and permanent. By means of comparison, in 2001, about 183,000 home foreclosures were reported across the nation. By 2008, a record 983,000. In 2010, a new record: more than 1,178,000. An accounting on the tenth anniversary of the crash showed 5.6 million foreclosed homes during the Great Recession. Although homeowners of color were represented out of proportion to their numbers in society, the majority of these foreclosed homes belonged to white people.
From lost homes, the losses cascaded out. Nearby houses lost value: some 95 million households near foreclosed homes lost an estimated $2.2 trillion in property value. Local communities brought in less tax revenue, which led to widely felt cuts in school funding, vital services, and public jobs. It was a contagion, and not just metaphorically. Even the dispossessed homes themselves spread sickness, as demolitions of vacant houses sent decades-dormant lead toxins as far as the wind would carry them; in Detroit, a surge in childhood lead poisoning would mark the decade after the recession. One study identified home foreclosures as the likely cause of a sharp rise in suicides during 2005–2010, while another found that the Great Recession triggered “declining fertility and self-rated health, and increasing morbidity, psychological distress, and suicide” in the United States. In 2017, an examination of all third through eighth graders in the United States revealed “significantly reduced student achievement in math and English language arts” linked to the Great Recession. Between December 2007 and early 2010, 8.7 million jobs were destroyed.
a white woman whose life has been forever changed because of the Great Recession. In 2001, she and her husband bought their first home, a three-bedroom house she describes as funky and long on character. She had her own savings and the money her late parents had left her ($50,000) to put into the purchase to keep their mortgage payments modest. By 2005, Amy had a great job for the first time in her life, one with a good salary and benefits, working for her county government. Then she discovered that without her knowledge, her husband had pulled all the equity out of the house and used it for his own purposes. Shocked, she began divorce proceedings. In 2007, the divorce became final, and Amy got the house refinanced in her own name. But she had to buy out her husband’s debt to do so. “Having had the house for seven years,” she said, “we owed more than we had paid. I took on $275,000 or so of debt.”
As it turns out, the booming county Amy worked for was the home of the city whose fortunes had risen with the rise of the financial sector in the 1990s and 2000s, nicknamed “Banktown.” Charlotte, North Carolina, was the headquarters for large national banks that were growing by leaps and bounds in the lead-up to the crisis, including Bank of America and Wachovia. But the year after her divorce became final, all the construction of houses and office towers ground to a halt. The city began to cut back. By 2009, government employees like Amy were feeling it hard. “The first thing they did was reduce our benefits, and take away our holidays, and put us on furlough without pay. Then they gave us pay cuts. Then, after amputating us one limb at a time, I got fired.”
She was able to get COBRA to extend her healthcare, but the monthly cost soared from a subsidized $80 to $779. Her mortgage payment, on a conventional thirty-year mortgage, stayed at $1,200 a month—manageable, but just barely, based on unemployment insurance, alimony, and the little bits of income she could pull together through freelance jobs.
As part of its belt-tightening, the local government reassessed properties and revalued Amy’s $255,000 house at $414,000, which almost tripled her property taxes. Six months after she was laid off, Amy realized she wasn’t going to be able to manage both her mortgage and her increased property taxes. Things were “starting to snowball,” she said.
She called the owner of her mortgage, Wells Fargo, and told them that although she had not yet been late with a payment, her financial situation had changed and she wanted to sign up for one of the programs it offered to reduce borrowers’ mortgage payments. “Then they start putting me through the wringer,” Amy said.
Although she had no credit problems, Wells Fargo told her she needed to attend credit counseling. “Okay, fine, I go,” Amy said. “I went to the ‘Save Your Housing’ fair. I went to the Housing Finance Agency. I went and did every single thing that was out there to do. Wells Fargo had me jumping through hoops for three years.” The Obama administration had started a number of programs, she recalled, to enable people to extend the term of their mortgage or, in some cases, reduce the interest rate or even the principal. “I went for everything,” Amy said. “And everywhere I went, they blocked me and said, ‘You can’t apply for this [program] if you’re under consideration for that. You can’t apply for that while you’re under consideration for this. Oh, that program is over.’ And it went around and around for months and months and months.
“The minute you go and you ask for help, even if you’re not late [making your payments], your credit score drops one hundred points. So, what that meant was that my Exxon card that I’d had since 1984, [which] had six or seven hundred dollars on it for oil changes and tires—all of a sudden, they jack up the interest rate to thirty-five percent. I’ve never been late, but I’m now a ‘high-risk borrower.’
“My unemployment’s running out, and I’m selling jewelry to make the mortgage payments. And I realize they’re going to take the house anyway.” Amy put her home up for sale. “I owed altogether two hundred seventy-five thousand, and we brought them offers within ten thousand of that, and Wells Fargo turned every one of them down.” The bank would not accept a sale price any less than the full amount owed, nor would they take possession of the house instead of foreclosing on it.
“I did everything I could to avoid foreclosure,” said Amy, “knowing what that would do to my credit and my employability. So, [at this point,] I’m fifty-five years old. I’m doing piecemeal work everywhere and paying self-employment tax and COBRA and just going down in flames.”
In 2013, Wells Fargo finally foreclosed on Amy Rogers. She was one of 679,923 Americans to experience foreclosure that year. But the shocks didn’t end there. When her house went up for auction, Wells Fargo bought it—from itself—for $304,000. Why such a high price for a house that was selling for $275,000? “Because every time they sent me a letter from a lawyer or made a phone call, they billed me,” Amy said. “They wanted to recoup all their costs to foreclose on me.”
As the final step in the foreclosure process, “the sheriff in his big hat and his big car drives up to your house in broad, damn daylight, comes and knocks on your door and serves you with an eviction notice,” said Amy. “That is a dark day.”
She sold or gave away most of her belongings and moved into a small rental condo, where she lived until she had to move again in 2017. When Amy shared these details a year later, she said the rent on her new place was affordable, but the rundown neighborhood was gentrifying, so she feared the landlord would soon raise the rent. “I pay over ten thousand dollars a year in rent,” she said. “I earn about twenty-four thousand.”
“When they foreclosed on me for the house,” said Amy, “they got [everything]. I got zero. They ruined my credit. And they ruined my employability, because any employer you go to work for now does a credit check on you. I couldn’t get a job for ten dollars an hour in Costco. I tried.
“I paid into that house for thirteen years. I’ve worked every day of my life since I’m seventeen years old. And now, today, I’m sixty-three years old, I’m unemployable, I work three part-time jobs, and I’m praying I can last long enough to get Medicare so I’ll have some health coverage.”
Every part of Amy’s story was one that I knew well from my research and advocacy at Demos, from the jacked-up credit card rate, to the insufficient foreclosure prevention programs (I lobbied staff at the U.S. Treasury Department to improve them), to the job discrimination against people with weak credit (we wrote a bill banning the practice). Not a single part of her story surprised me, but it moved me still. I was grateful that she’d been willing to share her story with me, knowing it would be made public. There’s so much shame involved in being in debt. In my experience with the bankers on the other end, however, shame is hard to find, even over their discriminatory and deceptive practices. Amy sighed. “I’ve kept it under wraps for ten years,” she said, “too afraid of the way the world would perceive me.”
“If I could leave anybody who’s gone through this with one message,” she said, “it is this: Do not say, ‘I lost my house.’ You did not lose your house. It was taken away from you.”
The people who took Amy’s house could do so with impunity in 2013 only because they had been doing it to homeowners of color for over a decade already, and had built the practices, corporate cultures, and legal and regulatory loopholes to enable that plunder back when few people cared. Subprime mortgages and the attitude of lender irresponsibility they fomented would, we now know, later spread throughout the housing market. But to truly understand where the crisis began, we have to go back earlier than the 1990s, to the reason it was so easy for lenders to target homeowners of color in the first place.
free people of color from the mainstream American economy began as soon as Black people emerged from slavery after the Civil War. Black people were essentially prohibited from using white financial institutions, so Congress created a separate and thoroughly unequal Freedman’s Bank, managed (and ultimately mismanaged into failure) by white trustees. In the century that followed, the pattern of legally enforced exclusion continued in every segment of society, from finance to education to employment to housing. In fact, the New Deal era of the early 1930s—a period of tremendous expansion of government action to help Americans achieve financial security—was also a period in which the federal government cemented residential segregation through both practice and regulation.
“We think of the New Deal and all the great things that came out of it—and there were many—but what we don’t talk about nearly as often is the extent to which those great things were structured in ways that made sure people of color didn’t have access to them,” said Debby Goldberg, a vice president of the National Fair Housing Alliance. I worked closely with the advocates at NFHA back in the early 2000s. Debby is an advocate who spends her days fighting the latest attempts to roll back commitments to fair housing, and she has an encyclopedic knowledge of the history of American homeownership, and the housing policies that had paved the way for the subprime mortgage crisis.
In 1933, during the Great Depression, the U.S. government created the Home Owners’ Loan Corporation. Debby explained, “Its role was to buy up mortgages that were in foreclosure and refinance them, and put people back on their feet. It did a huge amount of that activity—billions of dollars’ [worth] within a short period of time in the thirties.”
Perhaps this agency’s most lasting contribution was the creation of residential security maps, which used different colors to designate the level of supposed investment risk in individual neighborhoods. A primary criterion for defining a neighborhood’s risk was the race of its residents, with people of color considered the riskiest. These neighborhoods were identified by red shading to warn lenders not to invest there—the birth of redlining. (A typical assessment reads: “The neighborhood is graded ‘D’ because of its concentration of negroes, but the section may improve to a third class area as this element is forced out.”)
The redlining maps were subsequently used by the Federal Housing Administration, created in 1934. In its early years, Goldberg explained, the FHA subsidized the purchase of housing “in a way that made it very easy for working-class white people, who had previously been renters and may never have had any expectation of becoming a homeowner, to move to the suburbs and become a homeowner because it was often cheaper than renting. Both the structure and the interest rate of the mortgage made it possible for people to do that with very little savings and relatively low income.
“But the FHA would not make or guarantee mortgages for borrowers of color,” she said. “It would guarantee mortgages for developers who were building subdivisions, but only on the condition that they include deed restrictions preventing any of those homes from being sold to people of color. Here we have this structure that facilitated…white homeownership, and therefore the creation of white wealth at a heretofore unprecedented scale—and [that] explicitly prevented people of color from having those same benefits. To a very large degree, this was the genesis of the incredible racial wealth gap we have today.” In 2016, the most recent available authoritative data, the typical white family in America had about $171,000 in wealth, mostly from homeownership—that’s about ten times that of Black families ($17,600) and eight times that of Latinx families ($20,700). That kind of wealth is self-perpetuating. I thought of Amy, who on a modest income had still been able to afford a house with a low monthly payment largely because of $50,000 from her parents.
Learning this history was crucial to me in my early days at Demos. In order to help craft new laws to change the world we inhabited, I needed to understand how government decisions had shaped it. I underwent a steady process of unlearning some of the myths about progressive victories like the New Deal and the GI Bill, achievements that I understood to have built the great American middle class. The government agencies most responsible for the vast increase in home ownership—from about 40 percent of Americans in 1920 to about 62 percent in 1960—were also responsible for the exclusion of people of color from this life-changing economic opportunity. Of all the African Americans in the United States during the decades between 1930 and 1960, fewer than 2 percent were able to get a home loan from the Veterans Administration or the Federal Housing Authority.
The civil rights movement brought changes to housing laws, but lending practices changed more slowly. For instance, although the Fair Housing Act of 1968 outlawed racially discriminatory practices by banks, it would take another twenty-four years for the Federal Reserve System, the central bank of the United States, to monitor and (spottily) enforce the law.
It is little wonder, then, that a fringe lending market flourished to offer credit and reap profits from people of color who were excluded from the mainstream financial system. These included rent-to-own contracts for household appliances and furniture and houses bought on contract. These contracts enabled Black people to buy on the installment plan—and lose everything if they missed a single payment. Unlike a conventional mortgage, land contracts did not allow buyers to build equity; indeed, they owned nothing until the final payment was made. And because the loans were unregulated, peddlers of these early forms of subprime mortgages could charge whatever exorbitant rates they chose. My great-grandmother bought the apartment building where I was born on a predatory contract.
In the 1970s, residents of redlined neighborhoods—including, actually, some white working-class as well as African American and Latinx activists—banded together to demand access to credit and economic investment in their communities. These local groups were backed and coordinated by community organizing networks such as the Chicago-based National People’s Action and by national organizations that ranged from the National Urban League to the Catholic Church.
As a result of this activism, Congress passed reforms to the discriminatory lending market in the 1970s, finally giving residents tools to combat redlining. One reform was the 1975 Home Mortgage Disclosure Act (HMDA), which required financial institutions to make public the number and size of mortgages and home loans they made in each zip code or census tract, so that patterns of discrimination could be easily identified. Another was the 1977 Community Reinvestment Act (CRA), which required financial institutions to make investments in any community from which they received deposits. (For example, a 1974 survey of federally insured Chicago-area banks revealed that in several communities of color, for each dollar residents deposited in local banks, the community received only one penny in loans.)
The CRA enabled community and civil rights groups to monitor whether banks were fulfilling their obligations—and to challenge the banks when they fell short. In 1978, two of the earliest formal complaints against banks that failed to meet their CRA obligations resulted in a total of more than $20 million in home loans for low-income residents of Brooklyn, as well as the St. Louis area, where financial institutions admitted they had been making loans in only one neighborhood—a neighborhood that was all white. But 1978 also saw an ominous sign of a coming wave of deregulation when a Supreme Court decision interpreted the National Bank Act to mean if a lender was in one of the few states without any limits on interest rates, it could lend without limits nationwide, effectively invalidating thirty-seven states’ consumer protections—and Congress declined to amend the law. That’s why, today, most of your credit card statements come from South Dakota and Delaware, states with lax lending laws.
By the mid-1990s, the financial sector had become the component of the economy that produced the most profits, supplanting manufacturing. The financial sector also became the biggest spender in politics, contributing more than one hundred million dollars per election cycle since 1990 to federal candidates and political parties, on both sides of the aisle. Translating unprecedented profits into unprecedented influence netted the industry carte blanche with legislators and regulators, who were often eyeing lucrative jobs as lobbyists or banking consultants after their tours of duty in government service. The deregulatory revolution in financial services was also spurred by antigovernment, pro-market libertarian and neoliberal economic thinking that gained a popular common sense, particularly among white people, with rising distrust of an activist government.
By the end of the 1990s, a bipartisan majority voted to repeal most of Glass-Steagall, the law that had protected consumer deposits from risky investing for decades since the Great Depression. Free of restraints, the financial sector grew wildly and with few rules.
This growth included an explosion of mortgage brokers and nonbank holding companies like those that pursued the Tomlins, many of which were not subject to the CRA and were unregulated and unaccountable to anything but the bottom line. Most important, there was no single regulator whose primary responsibility was to protect consumers; the four federal banking regulators’ primary purpose was to ensure that banks were doing well—which put the profit machine of subprime directly at odds with the regulators’ secondary consumer protection responsibilities.
The upshot for the lending market was the unchecked growth of loans and financial products that were predatory in nature, meaning they benefited the lender even when they often created a net negative financial situation for the borrower, imposed harsh credit terms out of proportion to the risk the lender took on, and used deception to hide the reality of the credit terms from the borrower. And this formula was tried and tested on Black homeowners.
Doris Dancy became a witness in a federal fair lending lawsuit based on what she saw as a credit manager for Wells Fargo in Memphis during the boom. “My job was to find as many potential borrowers for Wells Fargo as possible. We were put under a lot of pressure to call these individuals repeatedly and encourage them to come into the office to apply for a loan. Most—eighty percent or more—of the leads on the lists I was given were African American.” The leads came from lists of Wells Fargo customers who had credit cards, car loans, or home equity loans with the company.
“We were supposed to try and refinance these individuals into new, expensive subprime loans with high interest rates and lots of fees and costs,” Dancy explained. “The way we were told to sell these loans was to explain that we were eliminating the customer’s old debts by consolidating their existing debts into one new one. This was not really true—we were not getting rid of the customer’s existing debts; we were actually just giving them a new, more expensive loan that put their house at risk.
“Our district manager pressured the credit managers in my office to convince our leads to apply for a loan, even if we knew they could not afford the loan or did not qualify for the loan….I know that Wells Fargo violated its own underwriting guidelines in order to make loans to these customers.
“Many of the mostly African American customers who came into the offices were not experienced in applying for loans….Our district manager told us to conceal the details of the loan. He thought that these customers could be ‘talked into anything.’ The way he pressured us to do all of these unethical things was as aggressive as a wolf. There was no compassion for these individuals who came to us trusting our advice.”
Mario Taylor, another Wells Fargo credit manager in Memphis, explained how the bank applied pressure to its almost entirely African American prospects. “We were instructed to make as many as thirty-five calls an hour and to call the same borrower multiple times each day,” he said. “Some branch managers told us how to mislead borrowers. For example, we were told to make ‘teaser rate’ loans without informing the borrower that the loan was adjustable….Some managers…changed pay stubs and used Wite-Out on documents to alter the borrower’s income so it would look like the customer qualified for the loan. Borrowers were not told about prepayment penalties [or]…about astronomical fees that were added to the loan and that Wells Fargo profited from.”
A common misperception then and now is that subprime loans were being sought out by financially irresponsible borrowers with bad credit, so the lenders were simply appropriately pricing the loans higher to offset the risk of default. And in fact, subprime loans were more likely to end up in default. If a Black homeowner finally answered Mario Taylor’s dozenth call and ended it possessing a mortgage that would turn out to be twice as expensive as the prime one he started with, is it any wonder that it would quickly become unaffordable? This is where the age-old stereotypes equating Black people with risk—an association explicitly drawn in red ink around America’s Black neighborhoods for most of the twentieth century—obscured the plain and simple truth: what was risky wasn’t the borrower; it was the loan.
Camille Thomas, a loan processor, testified that “many of these customers could have qualified for less expensive or prime loans, but because Wells Fargo Financial only made subprime loans, managers had a financial incentive to put borrowers into subprime loans with high interest rates and fees even when they qualified for better-priced loans.”
The bank’s incentives to cheat its customers were rich. Elizabeth Jacobson, a loan officer from 1998 to 2007, explained the incentive system. “My pay was based on commissions and fees I got from making [subprime] loans….In 2004, I grossed more than seven hundred thousand in sales commissions,” nearly one million in 2020 dollars. “The commission and referral system at Wells Fargo was set up in a way that made it more profitable for a loan officer to refer a prime customer for a subprime loan than make the prime loan directly to the customer.” Underwriters also made more money from a subprime than a prime loan.
Looking at these numbers, one could be tempted to minimize the role of racism and chalk it up to greed instead. I’m sure that most of the people involved in the industry would claim not to have a racist bone in their body—in fact, I heard those exact words from representatives of lending companies in the aftermath of the crash. But history might counter: What is racism without greed? It operates on multiple levels. Individual racism, whether conscious or unconscious, gives greedy people the moral permission to exploit others in ways they never would with people with whom they empathized. Institutional racism of the kind that kept the management ranks of lenders and regulators mostly white furthered this social distance. And then structural racism both made it easy to prey on people of color due to segregation and eliminated the accountability when disparate impacts went unheeded. Lenders, brokers, and investors targeted people of color because they thought they could get away with it. Because of racism, they could.
Loan officer Tony Paschal was one of the few African American employees in his section at Wells Fargo in Virginia. “Wells Fargo’s managers were almost entirely white, and there was little to no opportunity for advancement for minorities,” he testified. “Wells Fargo also discriminated against minority loan applicants by advising them that the interest rate on their loan was ‘locked,’ when in fact, Wells Fargo had the ability to lower the interest rate for the applicant if the market rates dropped prior to the loan closing,” and, he said, the bank often made this adjustment for white applicants.
“I also heard employees [of the Mortgage Resource division] on several occasions mimic and make fun of their minority customers by using racial slurs. They referred to subprime loans made in minority communities as ‘ghetto loans’ and minority customers as…‘mud people.’ ” In addition, he said, his branch manager used the N-word in the office—not in 1955, but in 2005.
Testimonies of Wells Fargo’s corruption abound, but that bank was far from alone in its exploitation of Black and brown people through the aggressive marketing of subprime mortgage loans. As one of many examples, Countrywide Financial Corporation agreed in 2011 to pay $335 million to settle claims that it overcharged more than two hundred thousand Black and Latinx borrowers for their loans, and steered some ten thousand borrowers of color into risky subprime loans instead of the safer and cheaper conventional loans for which they qualified. According to an analysis conducted by the U.S. Department of Justice of 2.5 million mortgage loans made from 2004 to 2008 by Countrywide, Black customers were at least twice as likely as similarly qualified whites to be steered into subprime loans; in some markets, they were eight times more likely to get a subprime loan than white borrowers with similar financial histories.
So much profit and so little accountability. The country’s most ubiquitous bank, Bank of America, bought the infamous Countrywide in June 2008. AmeriQuest, BancorpSouth, Citigroup, Washington Mutual, and many other banks and financial companies contributed to a wave of foreclosures that shrank the wealth of the median African American family by more than half between 2005 and 2009 and of the median Latino family by more than two-thirds.
—years, in fact—when the epidemic of home foreclosures could have been stopped. Bank regulators and federal policy makers were well aware of what was happening in communities of color, but despite pleas from local officials and community groups, they did nothing to stop the new lenders and their new tactics that left so many families without a home. Between 1992 and 2008, state officials took more than nine thousand legal, regulatory, and policy actions to try to stop the predatory mortgage lenders that were devastating their communities and their tax bases. But Washington wouldn’t listen. The Federal Reserve—“the one entity with the authority to regulate risky lending practices by all mortgage lenders”—took no action at all, and the Office of the Comptroller of the Currency, the regulator in charge of national bank practices, took one action: preemption, to make sure that no state’s consumer protections applied to its national banks.
In the virtually all-white realm of federal bank regulators and legislators, there was a blindness in those early years. Lisa Donner is a slight woman whose speech is peppered with almost involuntary little laughs, which I decided, after years of working in the consumer protection trenches with her, was a defense mechanism, a release valve for the pressure of having seen all the injustice she’s seen. She got her start organizing working-class New Yorkers of color around affordable housing and foreclosure prevention with the Association of Community Organizations for Reform Now (ACORN) thirty years ago. She’s now the executive director of Americans for Financial Reform, the David founded in the wake of the crash to take on Wall Street’s lobbying Goliath and create a new regulatory structure to prevent a crash from happening again. Lisa has sat across the table from more financial regulators and bankers than probably anyone else in the country. I got in touch with her to reminisce about what it was like in the early days of the subprime phenomenon, when families like the Tomlins were being targeted by the block.
The regulators were “just refusing to see that there was a problem at all,” Lisa said with one of her little laughs. “Because it wasn’t their neighbors or their neighborhood or people who looked like them, or people they knew, in the elite decision-making circles.”
I have many such memories, but I’ll never forget a meeting with a young blond Senate banking committee staffer in 2003. After hearing our research presentation, she said with a sad little shake of her head, “the problem was we put these people into houses when we shouldn’t have.”
I marveled at the inversion of agency in her phrasing. Who was the “we”? Not the hardworking strivers who had finally gotten their fingers around the American Dream despite every barrier and obstacle. No, the “we” was well-intentioned people in government—undoubtedly white, in her mental map. Never mind that most of the predatory loans we were talking about weren’t intended to help people purchase homes, but rather, were draining equity from existing homeowners. From 1998 to 2006, the majority of subprime mortgages created were for refinancing, and less than 10 percent were for first-time homebuyers. It was still a typical refrain, redolent of long-standing stereotypes about people of color being unable to handle money—a tidy justification for denying them ways to obtain it.
Lisa Donner understood the work that race was doing in shifting blame for irresponsible lending and deception onto the borrower. “Race was a part of weaponizing the ‘It’s the borrower’s fault’ language,” she said to me.
Conservative pundit Ann Coulter asserted it clearly, in capital letters, in the headline of one of her nationally syndicated columns: They Gave Your Mortgage to a Less Qualified Minority. Another conservative columnist, Jeff Jacoby, wrote, “What does it mean when Boston banks start making many more loans to minorities? Most likely, that they are knowingly approving risky loans in order to get the feds and the activists off their backs.” By 2008, Jacoby was declaring the financial crisis “a no-win situation entirely of the government’s making.” When asked during the market panic on September 17 about the root causes of the crisis, billionaire and then New York City mayor Michael Bloomberg told a Georgetown University audience that the end of redlining was to blame. “It probably all started back when there was a lot of pressure on banks to make loans to everyone….Redlining, if you remember, was the term where banks took whole neighborhoods and said, ‘People in these neighborhoods are poor; they’re not going to be able to pay off their mortgages. Tell your salesmen don’t go into those areas,’ ” Bloomberg said.
“And then Congress got involved—local elected officials, as well—and said, ‘Oh that’s not fair; these people should be able to get credit.’ And once you started pushing in that direction, banks started making more and more loans where the credit of the person buying the house wasn’t as good as you would like.” A man who’d made his fortune in financial information did not know that the mortgages at the root of the crisis were usually refinances, not home purchases, and that creditworthiness was often beside the point. But he knew enough of the elite conventional wisdom to blame the victims of redlining.
The public conversation and the media coverage of the subprime mortgage crisis started out racialized and stayed that way. We’ve had so much practice justifying racial inequality with well-worn stereotypes that the narrative about this entirely new kind of financial havoc immediately slipped into that groove. Even when the extent of the industry’s recklessness and lack of government oversight was clear, the racialized story was there, offering to turn the predators themselves into victims. After the crash, conservatives were quick to blame the meltdown on people of color and on the government for being too solicitous of them. Ronald Utt of the Heritage Foundation claimed that “some portion of the problem—perhaps a significant portion—may stem from ‘predatory borrowing,’ defined as a transaction in which the borrower convinces the lender to lend too much.” With this banker-as-victim tale, the casting was familiar: undeserving and criminal people of color aided and abetted by an untrustworthy government. A conservative member of the U.S. Financial Crisis Inquiry Commission (FCIC), Peter Wallison, wrote a vitriolic dissent of the commission’s conclusion that the crisis was the result of insufficient regulation of the financial system. Calling that conclusion a “fallacious idea,” he claimed that “the crisis was caused by the government’s housing policies,” specifically a set of policies called “Affordable Housing Goals.” Banks, he said, “became the scapegoat.” And so many pundits blamed the Community Reinvestment Act for the financial crisis that the FCIC had to devote pages of its report to refuting the CRA’s role conclusively.
Jim Rokakis was the treasurer of Cuyahoga County, Ohio, from 1997 to 2011 and saw all the devastation. In 2006, he went to his U.S. Attorney’s office having amassed boxes of evidence he hoped would lead to a RICO conspiracy case about widespread mortgage industry fraud in the mostly Black and immigrant neighborhoods in and around Cleveland. In a room of men in suits from the FBI and other government agencies, Rokakis was sure that his impressive display of charts and graphs, foreclosure data maps, and transcripts was spelling out a slam-dunk case for prosecuting a man named Roland Arnall. Arnall was one of President George W. Bush’s top donors (whom Bush had nominated as ambassador to the Netherlands in 2006)—and the CEO of the country’s biggest subprime lender at the time, AmeriQuest, and its subsidiary Argent Mortgage. But the racialized story was blinding to the government agents; they just couldn’t see that the wealthy and well-connected white man was the criminal.
“At one point, one of the U.S. attorneys…turned and said, ‘Well, who’s the victim?’ And I lost it. I said, ‘You’re the victim! We’re all the victims! Don’t you get it? I’m here because Argent did this! I’m here because Roland Arnall and his minions have gutted Cleveland!” Unable to see those with power as sufficiently blameworthy, the federal prosecutors declined to pursue Rokakis’s case. He told me that county prosecutors did end up using his data to prosecute lower-level people. “But it was too late. Had they gotten to this early, and gotten to the foundation of this tree, Arnall and his executives, that tree would have withered and died.”
Lisa Donner saw how blame-shifting to borrowers of color was so effective after the crash that it stopped the Obama administration from mounting a full-throated campaign to save Black wealth. “People who knew better let that language”—it was the borrowers’ fault; they took out loans they couldn’t afford—“control the politics of the response,” she recalled. “A whole bunch of Obama administration folks let that incredibly racialized story and their fear of the story—even if they didn’t believe the story themselves—give us the recovery that we got. Which was one that increased inequality and economic vulnerability.”
The Obama administration staff wasn’t wrong about the perils of white public opinion and its political implications. In a study conducted in President Obama’s final year in office, researchers simply switching the race of a man posing in front of a home with a Foreclosure sign from white to Black made Trump-supporting whites angrier about government mortgage assistance programs and more likely to blame individuals for their situation.
But back in the early 2000s, when I was digging through the data and immersing myself in the stories of loss, at first I didn’t understand how the lenders were getting away with it, mostly escaping unharmed while making loans that were designed to fail. Why was the system not self-correcting, when the loans so quickly became unaffordable for people and ended up in foreclosure? Then I discovered that the secret was mortgage securitization: lenders were selling mortgages to investment banks who bundled them and sold shares in them to investors, creating mortgage-backed securities. Instead of mortgage originations being driven by how much cash from deposits banks had to lend, now the driver was the virtually limitless demand from Wall Street for new investments. Unscrupulous financial companies could sell predatory mortgages they knew would sink the homeowner, package up those mortgages, and sell them to banks or Wall Street firms, which would then sell them to investors who could then resell them to still other investors—each of the sellers collecting fees and interest and then passing on the risk to the next buyer. Wall Street brokers even came up with a lighthearted acronym to describe this kind of hot-potato investment scheme: IBGYBG, for “I’ll be gone, you’ll be gone.” If someone gets burned, it won’t be us.
Securitization cut the tie of mutual interest between the lender and the borrower. Before securitization, however reluctant lenders had been to offer mortgages to people of color, once the loan was made, both parties had a vested interest in making sure it was properly serviced and repaid. Now that connection had been severed. The homeowner’s loss could be the investor’s gain.
Such financial malfeasance was allowed to flourish because the people who were its first victims didn’t matter nearly as much as the profits their pain generated. But the systems set up to exploit one part of our society rarely stay contained. Once the financial industry and regulators were able to let racist stereotypes and indifference justify massive profits from demonstrably unfair and risky practices, the brakes were off for good. The rest of the mortgage market, with its far more numerous white borrowers, was there for the taking. Having learned how profitable variable rates and payments could be by testing them out on borrowers of color in the 1990s, lenders created a new version for the broader market. These were adjustable-rate mortgages called “option ARMs.”
Jim Vitarello, formerly of the U.S. Government Accountability Office, described option ARMs as “the rich man’s subprime loans.” A significant proportion of these, he said, went to white middle-class people. The average FICO credit score of borrowers who got option ARM mortgages was 700, which made them eligible for prime loans. (More than half of the $2.5 trillion in subprime loans made between 2000 and 2007 also went to buyers who qualified for safer, cheaper prime loans.)
What made option ARMs so appealing to this clientele was the choice. Debby Goldberg explained: “With an option ARM, you could pick what you wanted your monthly payment to be based on. Was it going to be enough to pay off your whole mortgage? Or was it going to be only the interest? Or was it going to be not even the interest? In that case, you had a loan that was negatively amortizing—you were building up more and more debt, because you weren’t even paying the full interest on the loan that you had on your home.” These whiter, higher-wealth option ARM borrowers were coming in at the peak of a housing boom and could see only the upside. But borrowers could choose their payments for only so long, a couple of months to a couple of years, before the lender reset the terms so that borrowers had to pay off the full amount of the loan during the remaining years of the mortgage. “And you’d have a huge increase in your monthly payment,” Goldberg explained, “because you’d go from not even paying the full amount of interest that you owed to paying a higher principal balance…plus all the interest.” That gamble worked only if the housing prices kept climbing.
By 2006, up to 80 percent of option ARM borrowers chose to make only the minimum monthly payments. Housing values began to stall and slide in some areas, and immediately, more than 20 percent of these borrowers owed more than their house was worth. The option ARMs were ticking time bombs now nestled alongside other kinds of trap-laden mortgages buried in securities owned by pension funds and mutual funds across the globe. And it wasn’t just homeowners who were dangerously leveraged; the Federal Reserve had loosened the requirements on the five biggest investment banks, so they had been investing in securities based on debt with borrowed money thirty and forty times what they could pay back. In late 2007, when interest rates rose and housing prices started falling, the mortgage market at the center of the economy began to crumble. Wall Street firms that had bet heavily on the IBGYBG formula knew better than to trust the other investment houses that had done the same, and suddenly the market froze. By the time the housing market reached bottom, housing prices would fall by over 30 percent and all five of the major investment houses would either go bankrupt or be absorbed in a fire sale.
With the banks and the houses went the jobs. In the recession that followed, “people were losing their jobs or having their hours cut back,” Goldberg recalled. “In that situation, you had mortgages that were perfectly safe and [that,] in ordinary circumstances, should have been sustainable, but people just couldn’t afford them anymore because they had lost income. And they couldn’t sell their home because home values were going down all across the country.” It was a vicious circle. This third wave of the financial disaster crested in 2008–2009, the period generally designated as the Great Recession, but the devastation that wave created continues even now.
over Susan Parrish, a white woman living in Vancouver, Washington, and changed her life in ways she couldn’t have imagined. In 2011, Susan was fifty-one years old, recently divorced, and living in the three-story house where she and her ex-husband had raised their three children. She worked as the communications manager of a nonprofit organization. “My ex-husband was a teacher, so between us we were making close to one hundred thousand dollars a year,” Susan said. “We were both working full time. We were doing okay.”
Then she got laid off from her job. The recession had already eaten away at her organization; several staff members had been laid off in 2009 and a few more shortly before Susan was let go.
“I started looking for other work right away,” Susan recalled. To tide her over, she applied for unemployment insurance. “I had never filed for unemployment in my life. It was an all-new thing for me….I had to go in and sit in these classes with people from all walks of life. It was just sobering to see how many people were out of work at that time.”
The classes were about how to write a résumé and conduct a job interview—things Susan had thought she was good at. “But in the years since, that’s proven to be untrue,” she said. “I haven’t been able to secure a job that pays anywhere near what I made.”
Immediately after she got laid off, Susan realized she wouldn’t have the money to make the next house payment. She knew she had to sell the house—and she also knew how difficult that would be, given that she and her ex-husband had tried to sell it both before and after their divorce.
“Thankfully,” she said, “I was able to sell it, but I only made seventeen hundred dollars, which was just enough to pay first month’s rent and a deposit on a six-hundred-square-foot, one-bedroom apartment in a not-great part of town. It was all I could afford.” And she couldn’t afford it for long.
“I was unemployed for three and a half months. [Finally,] I was hired as a news clerk, and it was about twenty thousand less than I had been making. I took it because I didn’t see any other prospects.” Six months later, she was promoted to the role of education reporter. “It was good, but it was still not a living wage, and I couldn’t afford to rent an apartment now, because housing was so expensive.”
“I moved five times in five years,” Susan said, “three times in three months. I spent three months living in a backyard shed/artist studio with no heat or running water or toilet or kitchen, because I had to save money to get my car fixed. That was hard, but I was glad I had the chance to live cheap so I could afford to get my car fixed.”
Susan was by all measures middle class—a college degree, a white-collar journalism job—but the Great Recession had pushed her to the brink of homelessness. “I’ve tried not to be bitter,” she said. She could not find a place to live that she could afford. “After I lived in that backyard shed, my retired minister and his wife offered me their mother-in-law suite at below-market prices,” she said. She lived there for four years, becoming part of their family.
At almost sixty, Susan had a life very different from the one she imagined before the recession. She lived with her partner in an RV—323 square feet in size—on a ranch he owned. Ten years after the recession, she was still freelancing and looking for full-time work.
cascading loss and downward mobility has been replicated millions of times across the American landscape due to the financial industry’s actions in the 2000s. While the country’s GDP and employment numbers rebounded before the pandemic struck another blow, the damage at the household level has been permanent. Of families who lost their houses through dire events such as job loss or foreclosure, over two-thirds will probably never own a home again. Because of our globally interconnected economy, the Great Recession altered lives in every country in the world.
And all of it was preventable, if only we had paid attention earlier to the financial fires burning through Black and brown communities across the nation. Instead, the predatory practices were allowed to continue until the disaster had engulfed white communities, too—and only then, far too late, was it recognized as an emergency. There is no question that the financial crisis hurt people of color first and worst. And yet the majority of the people it damaged were white. This is the dynamic we’ve seen over and over again throughout our country’s history, from the drained public pools, to the shuttered public schools, to the overgrown yards of vacant homes.
Being among the outmatched and unheeded few who tried to prevent the catastrophe that would become the Great Recession was an experience that would forever shape my understanding of the world. I saw how money can obscure even the most obvious of truths. I learned that in order to exploit others for your own gain, you have to first sever the tie between yourself and them in your mind—and racist stereotypes are an ever-ready tool for such a task. But when I watched the CNN ticker tape announce the fall of Lehman Brothers on September 15, 2008, I was struck by an even deeper truth: ultimately, it’s impossible to sever the tie completely. Wall Street had recruited the brightest technological minds—those who a generation ago would have been putting a man on the moon or inventing vaccines—to engineer a way to completely insulate wealthy people and institutions from the pain inflicted by their profits. Ultimately, they failed, and so did one of the oldest and most successful financial firms in U.S. history, setting off a financial contagion we still feel today.
It wasn’t until years later that my research would reveal just how literally the country’s original economic sin was connected to the financial crisis of 2008. The first mortgages and collateralized debt instruments in the United States weren’t on houses, but on enslaved people, including the debt instruments that led to the speculative bubble in the slave trade of the 1820s. And the biggest bankruptcy in American history, in 2008, was the final chapter of a story that began in 1845 with the brothers Lehman, slave owners who opened a store to supply slave plantations near Montgomery, Alabama. The brothers were Confederate Army volunteers who grew their wealth profiteering during the Civil War, subverting the cotton blockade, buying cotton at a depressed price in the Confederacy and selling it overseas at a premium. They first appeared on what would become Wall Street by commodifying the slave crop, cofounding the New York Cotton Exchange. Although the company would later diversify its business beyond the exploited labor of African Americans, like so much of American wealth, Lehman Brothers would not have existed without it.
One hundred fifty years later, a product created out of a synthesis of racism and greed yet again promised Lehman Brothers unprecedented profits, and delivered, for a short while: heavy investments in securitized toxic loans brought it the highest returns in its history from 2005 to 2007. Even as defaults on mortgages began to skyrocket across the country, the company’s leadership held on to the idea that it could endlessly gain from others’ loss. Lehman’s CFO asserted boldly on a March 2007 investor conference call that rising mortgage defaults wouldn’t spread beyond the subprime customers, and the market believed him. So many wealthy—and yes, white—people assumed that the pain could be contained on one side of the imaginary human divide and transmuted into ever-higher profits on their side. During the same summer that I stood in the middle of the street with a foreclosure map that exposed the devastation behind almost every Black-owned door, Lehman would go on to underwrite more mortgage-backed securities than any other firm in America.
By the end of the next summer the illusion had been broken. In a free fall that began on a weekend in mid-September, Lehman Brothers would go on to lose 93 percent of its stock value. A company born out of a system that treated Black people as property died from self-inflicted wounds in the course of destroying the property of Black people. Lehman’s fate provides no justice for the enslaved people whose misery the company enabled in the nineteenth century, nor for the dispossessed homeowners ruined by Lehman-owned mortgages in the twenty-first century, but it is a reminder that a society can be run as a zero-sum game for only so long.
Avenue with the Tomlins, I felt like I was glimpsing not only an alternate past in which more borrowers had their just resolution, but maybe an alternate society in which more people had their values.
I was asking Janice and Isaiah about the court case when the lawyer Mal Maynard jumped in. “I gotta throw in my two cents here. Of course, Janice is one of my all-time heroes. One of the greatest days I’ve ever had in court was in Winston-Salem in…the North Carolina Business Court, which is always a bad [place] for consumer cases. There was a judge who was really famous for being very, very hard on the class actions, especially when they were filed by consumers.”
After Janice took the stand, the skeptical judge asked her, basically, why she was there—why she was willing to swear an oath to represent the interests of over a thousand people she didn’t know.
Janice continued in her own words: “I just remember telling [the judge] that every morning when I walked into my classroom before we started our day, I taught my second-graders to place their hands on their hearts and quietly say the Pledge of Allegiance.
“And I had taught them that when you give allegiance to something, you say that ‘I honor this’ and that ‘I have faith in it.’ And I knew that if I taught that to my children, that I best be living by it myself.”
Maynard continued: “And from that moment forward, she transformed Judge Tennille. She really did. He believed in us, and he believed in our case from that point forward. There was still a lot of hard-fought litigation, but he knew, and Janice convinced him, that this was really legitimate, heartfelt work that was being done by her and by the lawyers in the case.”
A far-off look in Janice’s eyes made me wonder what else had been guiding her that day. Finally she said, “My daddy used to say, ‘Drop a little good in the hole before you go.’ That sticks with me. I was just trying to be a good citizen. And I was just letting that judge know that I had no other reason to come here….Because somebody’s name had to be there. Did I want it to be our names? No, I did not.”
Maynard and the Tomlins’ suit for deceptive, unfair, and excessive fees and breach of fiduciary duty to the borrower prevailed in 2000, with a settlement of about $10 million. “So, borrowers all over North Carolina got checks, thanks to Janice and Isaiah,” Maynard said with pride.
Janice allowed a small smile. “That’s a lot of people being served. You know? It was more than worth our names being in the newspaper. We should have been so very embarrassed at the end of that, but I wasn’t, because I felt like I had put a little good in the hole.”