Predatory Lending and the Predator State

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Raul Carrillo–

Like most advocates of Modern Monetary Theory (MMT), I didn’t embrace the paradigm because I dig late-night chats about accounting identities. Rather, I found it while pursuing economic justice (following the lead of Angela Harris, Emma Coleman Jordan, and other allies). Today, I fight financial predators — banks, landlords, debt collectors, and agencies engaged in racialized wealth extraction — on the daily. And so, my MMT enthusiasm remains…practical.

Although the commentariat caricatures MMT as a rationalization for U.S. deficit spending, it’s something more powerful — a new interdisciplinary lens, shaped for eyes on the prize of justice. Most importantly, MMT is rooted in legal analysis; its neochartalist foundations help illuminate financial hierarchies — so we can better dismantle them around the world.

As elites literally claim human survival is “too expensive”, it’s crucial for movements to absorb this symposium’s chief insight: money itself, although not always starkly a creature of the “state”, is a creature of law, just like the institutions through which it flows.

When we analyze money as public software, rather than private hardware, we see political economy differently. For example, as Harris argues, any movement for economic justice must overcome the toxic trope of the “undeserving benefit recipient” (and the corollary trope of the put-upon khaki-clad patriarch). In my view, MMT helps us challenge this divide-and-conquer strategy, by undermining the technical premises of “taxpayer citizenship” — the racialized and gendered notion that rights should correspond to one’s nominal contributions to government coffers. When Stephanie Kelton reminds us that “money doesn’t grow on rich people”, she is making an inference LPE readers should appreciate: the wealthy do not get their money by generating it, but by mastering a system that routes tradeable legal claims on real resources that we collectively produce (i.e. “money”) to themselves. As I’ve emphasized, the coercion Robert Lee Hale described leads the rest of us not merely to work, but to work for legal tender, which can settle debts between individuals, but must satisfy debts to the state (most notably, taxes).

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Financial Regulation and Social Reproduction

Financial Regulation and Social Reproduction

NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.

Donatella Alessandrini —

Even amongst critical scholars, there is a tendency to treat international regulation of money and finance as “strictly economic”, distinct from the “social” domains of labor, the environment, and socio-economic rights. This conceptual separation cedes the realm of finance to the “neutral” neoliberal technocracy while occluding interrelationships between finance, production, and social reproduction. Placing social reproduction at the center of our analysis forces us to overcome these false dichotomies and confront finance’s role in the shaping of the “social”.

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The Impact and Malleability of Money Design

Christine Desan –

9780674970953Mehrsa Baradaran’s book teaches us that money has a color, an arresting proposition to fans and foes of capitalism alike.   As she points out, economic orthodoxy posits that the transactional medium is itself a formal instrument:  money expresses but does not affect the value of the substances it measures.  Critics of that orthodoxy agree even as they bemoan the results:  money denies through its very impersonality the social substrate of exchange.  Against that commonsense, Baradaran directs us to consider how the institutions of money creation in the United States – commercial banks – have systemically originated money in white hands over decades.  That is, considering money as a process – asking how value is packaged into the everyday units we call dollars and injected into circulation – reveals that we have designed a market that is racially discriminatory in its very medium.

Baradaran challenges us to recognize how much determinations about money’s design matter.  That proposition is particularly striking because they are also remarkably malleable:  altering the institutions that deliver credit in money can change the way people and groups relate to one another.  I want to underscore Baradaran’s argument about the practice of black banking by exploring an alternative vision.  Only when the monetary project of the agrarian populists failed did Americans settle on the exclusionary system that Baradaran describes.  The contrast suggests that designing money is shaping community; it can bring people together or set them at each other’s throats.

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Racial Myths, Market Myths, and the Policy Roots of Predatory Lending in 1970s Chicago

Beryl Satter – 

9780674970953In The Color of Money and in the opening post of this Symposium, Mehrsa Baradaran challenges the notion that markets exist outside of political power. What she shows for credit policy, I have shown for housing policy, particularly in my book, Family Properties: How the Struggle over Race and Real Estate Transformed Chicago and Urban America.  Here I’d like to discuss a shocking example of governmental policies shaping “markets,” or, rather, supporting investors to extract wealth from segregated black communities: the Housing and Urban Development (HUD) Act of 1968.

In 1968, after rebellions following Martin Luther King, Jr.’s assassination finally focused Congressional attention, two laws were passed to address the problem of “the ghetto.”  First, the Fair Housing Act prohibited racial discrimination in the advertising, rental or sale of housing.  It included no significant enforcement mechanism.  Its solution to “ghetto” problems was to give those wealthy enough to move out the chance to do so.  “Fair housing does not promise to end the ghetto,” one senator admitted, but simply enables “those who have the resources to escape the… suffocating…inner cities of America.”

In contrast, the HUD Act attempted to address conditions within “suffocating… inner cities.” It created mortgage subsidy programs to help “lower income families in acquiring homeownership.”  It also reversed the workings of an earlier federal program that many felt had created ghettoes in the first place – the Federal Housing Administration (FHA)’s insured mortgage program.  Starting in the mid-1930s, FHA-insured mortgages had been denied to black or racially changing urban neighborhoods, thereby encouraging conventional lenders to similarly “redline,” or refuse to issue mortgages, in such areas.  In a major reversal, HUD specified that FHA-insured mortgage loans would be made in “older, declining urban areas.” Such areas need only be “reasonably viable” to qualify for FHA-insured loans.

The newly redirected FHA-insured mortgages were meant to spur the “resources…of private enterprise” to address the housing needs of “low income families.”  The HUD programs never acknowledged that racial segregation was unjust or even problematic.  Instead, they were built on the assumption that lending to blacks and Latinos was inherently risky. Those who needed protection were lenders, not borrowers.  HUD programs cosseted lenders active in what were euphemistically referred to as “certain neighborhoods”— that is, black, Latino, and racially changing ones — in ways so extreme that they damaged the very communities they were ostensibly created to help.

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Black Proprietorship and Crises of Value

Shirley E. Thompson –

9780674970953By shedding historical light on the development and practices of black banking, Mehrsa Baradaran’s excellent and thought-provoking The Color of Money demystifies some fundamental free market myths and strongly cautions against the widespread faith, among policymakers and activists alike, in banking as a means of overcoming long-entrenched and worsening racial disparities in wealth. In this response, I suggest that the history of black banking, even for its many failures, holds a unique perspective on property and its contradictions of value. It also contains a deep lesson about how economic strategies generate and are reinforced by affective practices—and how racist economic laws rested on public feelings of their own. The personal and the structural are closely interlinked.

From the debacle of the Freedmen’s Bank, to the rise of black-owned banks under Jim Crow, to the promotion of “empowerment zones” in more recent times, economically isolated black communities have consistently been urged to engage in “capitalism without capital.” Because black banks were cordoned off from their mainstream peer institutions, Baradaran shows, they could not effectively tap into the money multiplier effect, the means by which a bank stood on the good credit, financial security, and proprietor status of its patrons and generated value by lending its deposits through the system more broadly. Because black people did not own large stores of property, any wealth accumulated by black banks swiftly left black control as it sought greater prospects elsewhere: “once in the banking system,” Baradaran writes, “money flows towards more money.”

It is difficult to overstate the policy implications of Baradaran’s work. The story she tells of the institutional segregation and siphoning off of black wealth disarms the widely held premise that black poverty derives from some sort of cultural deficiency or a lack of personal financial literacy. By exposing the lure of “for-us, by-us” banking and “community empowerment” as “a decoy,” “an empty promise,” and a faulty basis for banking legislation and activism, she paves the way for a bolder vision and more creative experimentation in attempting to remedy a seemingly intractable racial inequality. Indeed, proposals such Darrick Hamilton’s and William A. Darity Jr.’s endorsement of “baby bonds” and Baradaran’s own call for the return of postal banking flow from such an understanding of the structural impact of racism on US political economy.

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Symposium: The Color of Money & Racial Capitalism

Mehrsa Baradaran –

9780674970953When I started research on the project that became The Color of Money, I wanted to write a book about racial disparities in access to credit. When I started digging into the history, I started to realize that there was a much bigger story here, one that undermined one of the most basic neoliberal myths about the free market. This history of black banks and the economy of segregation reveals how inextricably financial markets are tied to racial exploitation, and how the dominant economy can continue to extract from racially subordinated groups through “color-blind” market mechanisms.

I hope that the upcoming symposium on The Color of Money will help connect the historical work to contemporary law, building on LPE’s commitment to understanding and reversing the many structures of racial capitalism.

In particular, I try to debunk three market myths in the book:

  1. That money, markets, and trade exist outside the realm of political power
  2. That inequality is a natural byproduct of market forces rather than being created by the state
  3. And that people left outside of the structures of power can overcome their exclusion through local institutions or self-help

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Contextualizing Contract Law: An LPE 101 Reading List

Luke Herrine—

Contract is, of course, part of the core legal infrastructure that makes markets possible. But it is more than that. As an ideal type, it is at the core of all individualist social, moral, and political theories that seek to account for human sociality while avoiding social structure. Contract represents the ideal of being able to choose how to calibrate others’ demands with one’s own life plan. It presents the possibility of a social obligation that is not imposed upon one from the outside—by family or tradition or etiquette or the state. The rational choice theories that form the basis for neoliberal economic thought do not just understand chosen obligation as an ideal or a possibility: it is how they model all social institutions, even highly complex ones. No wonder “social contract” has been such an enduring model of the legitimate exercise of state power in the liberal tradition.

Theories based on the contractual ideal have proven especially useful for justifications of capitalist ordering. When the law has taken such theories too seriously, it has found it easy to endorse and even mandate all sorts of market-mediated exploitation as necessary to a free society. Lochner and its ilk were supposed to protect freedom of contract, after all.

The contractual ideal and the promissory morality that comes with it is part of our culture, and not just our legal culture. Even those of us who have been on the business end of exploitative contracts—for debt, for labor, for rent, for whatever else–have a hard time shaking the notion that we are obligated to do what we said we would (even if we didn’t know what we “said we would” via the fine print): that we chose, and therefore have responsibility for, the rules imposed upon us.

Thinking about—and teaching—contract from an LPE perspective requires denaturalizing with this tendency of thought and the forms of moral, political, and legal justification that have grown out of it. And doing that requires dealing with contracts not as the shadows of an ideal Form but as institutions shaped by socio-legal context. It requires dealing with the law of contract not as a self-contained and coherent body of judge-made doctrine but as an overlapping set of rules that deal with different contractual forms in different contexts. And it requires highlighting how the decontextualized contractual ideal can serve ideological functions when used as a map for this complex terrain.

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The Racial Wealth Gap and the Question of Time Zero

Michelle Wilde Anderson

Each year teaching Property Law, I have taught many of the big cases and topics on race and property law, such as M’Intosh and Dred Scott; segregationist turbulence in rights of reasonable access; public accommodations law; racially restrictive covenants; the Fair Housing Act. I never quite had a cohesive idea about this—they each seemed formative.

Meanwhile, evolving case law and politics have made it clear that we still have a basic disagreement at the heart of American law and politics, and my students carry that question with them into class: On matters of race, did we reset the playing field of property to start a merit system where fair access to markets would govern? Did we create a new Time Zero—for instance, when LBJ signed the Fair Housing Act as a gesture of solace and appeasement seven days after Martin Luther King, Jr.’s assassination?

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The Political Economy of Immigration Enforcement: Part I

Sameer Ashar and Amna Akbar— 

Liberals and progressives bemoan the problems of immigration enforcement and deportation along the vectors of racialization and criminalization. Their critique goes something like this: the immigration enforcement system is unfair in how it targets Black and Latinx and other immigrants of color, and this targeting has worsened as immigration enforcement has become increasingly entangled with criminal law enforcement. (A related concern has been that “immigrants are not criminals”: but both immigrant rights and racial justice movements have deconstructed and debunked this idea, since the meaning of what it is to be a criminal is just as raced and historically contingent as being an immigrant.) These concerns are played out in a field of celebratory narratives about the United States as a nation of immigrants, erasing the settler colonial routes of the country’s political and economic power.  By failing to consider questions of political economy—specifically how racial capitalism has shaped our present—these critiques lack explanatory power and historical grounding.

In this two-part series, joining colleagues such as Tendayi Achiume, Angélica Cházaro, César Cuauhtémoc García Hernández, and Sherally Munshi, we make the case that political economy and racial capitalism are central to any thoroughgoing understanding of immigration enforcement. We write in opposition to race-neutral law-and-economics descriptions of interior enforcement, such as that of Adam Cox and Eric Posner. Immigration enforcement provides a lens for understanding the global and historical relationships between the state, the market, and workers. Immigration enforcement, after all, emerged as a post-colonial tool in white settler nations like the United States and Canada as a way to limit and exclude the arrival of former colonial subjects. Here, we introduce questions and concerns that come into play when viewing immigration enforcement through a political economy lens.

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Law, Political Economy and Municipal Finance in Keilee Fant v. City of Ferguson, Missouri

Teaching Law and Political Economy through Keilee Fant v. City of Ferguson, Missouri Part IV

Angela Harris – 

There’s yet one more way I try to get students to see the mutually entangled systems of capitalism and racism presented by Fant v. Ferguson. In its 2015 report on policing in Ferguson following the killing of Michael Brown, the Civil Rights Division of the United States Justice Department concluded: “Ferguson’s law enforcement practices are shaped by the City’s focus on revenue rather than by public safety needs. This emphasis on revenue has compromised the institutional character of Ferguson’s police department, contributing to a pattern of unconstitutional policing, and has also shaped its municipal court, leading to procedures that raise due process concerns and inflict unnecessary harm on members of the Ferguson community.”

Ferguson’s reliance on law enforcement as a revenue-generating tool, however, is not unique; dependence on municipal fines and fees to fund police and court services was widespread at the time in the northern St Louis suburbs. For example, in Edmondton, where nearly one-fifth of the population lives below the poverty level, ticketing was such an important part of the city budget – comprising almost 35 percent of general revenues – that in April, 2014 the mayor put a note in some police officers’ paychecks observing a ‘marked downturn’ in the number of tickets being written, and reminding them, “the tickets that you write do add to the revenue on which the P.D. budget is established and will directly affect pay adjustments at budget time.”

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