by midtowng | 12/30/2008 12:52:00 PM
On July 28, 1870, the 200,000-strong Army of the Rhine marching out of Paris to war were sent off by huge, patriotic, cheering crowds. Republicans were opposed the war were accused of having sold out to Prussia. Jules Valles, a journalist and socialist who dared to question the war, was nearly torn apart by a mob chanting "To Berlin! To Berlin!"
The French armies were so confident of victory that they were only given maps of Germany.

By the end of May, 1871, much of Paris was consumed in flames, put to the torch by many of the same people who were singing patriotic songs just 10 months earlier. The River Seine literally ran red with the blood of tens of thousands of Parisians, shot by French soldiers who were taking no prisoners. The French government did nothing to stop this orgy of killing, while the French press compared anyone who resisted to "wild animals" and "appalling monsters."

How could this drastic change have happened in less than a year?




This is part three of a four part series. You can find Part 1 and Part 2 at the links.

First as Tragedy, Second as Farce
"The object of our greatest concern was to repel the forces of anarchy and to prevent there being a shameful revolt in Paris."
- Jules Favre, on the eve of war with Prussia


Between 1789 and 1851 France had seen four successful and bloody revolutions, two successful and bloody military coups, and at least seven unsuccessful and bloody revolts. Political stability was not a value shared by many in France. During that same time the only war France had lost occurred when all of Europe fought against it (and sometimes not even then).
With that in mind it seemed logical for France's military to be structured to defeat domestic threats, rather than foreign ones. However, it left the French military horribly unprepared for the rising German Empire.

One defeat followed another. Eventually the Army of the Rhine was surrounded at Metz on September 3. Emperor Louie Napoleon's 104,000-man Army of Châlons was quickly surrounded and defeated at Sedan on September 2. The Emperor himself was now a prisoner of war.
There were no other armies left in France except for isolated garrisons. In just 6 weeks the bulk of France's military might was either hopelessly surrounded or already in Prussian prisons.

But the war wasn't over. Not even close.

Back in Paris the public was still unaware of how badly the war was going. The reason was simply because the French government was scared of its citizens.
So the public was unprepared when the double-dose of bad news from Sedan and Metz reached Paris on September 4. Well, not all of the public was unprepared. The Jacobins, Blanquists, and Republicans were prepared to act.

"In the presence of our disasters and in the face of the misfortunes of the country the people of Paris had invaded this place to proclaim the Republic and the downfall of the Empire."
- Ernest Granger, a Blanquist, speaking from the Presidential Chair after the crowd had stormed the Hotel de Ville

It was the first and only bloodless revolution in French history. The public stormed the government buildings as they were in session, while the army and National Guard refused to fire on them. (This had been done so many times that there was even traditions for how to properly conduct a revolution.) France's Third Republic had been born.

Meet the New Boss...

Most of the deputies of the Government of National Defense, as it was called, were deputies under the old regime. Names like Jules Favre and Adolphe Thiers (who was a monarchist) continued to populate the new government. It was only a minority of Blanquists, Jacobins, and socialists who realized that the revolution had been undermined, again. There were only three notable exceptions:

Henri Rochefort was a journalist and republican. Although he was already an elected member of the Chamber of Deputies, he was in prison and condemned to die at the time of the September Revolution. He freed from prison by the mob and became one of the Ministers of the new government.


Leon Gambetta was a lawyer and made famous for opposing the Emperor. He was elected to the Assembly in 1869 and became a political opponent of Thiers. He was a patriot and republican to the end. He became Minister of the Interior and Minister of War.


Louis Jules Trochu was a general, not a politician, when the war began. He had long ago cemented his reputation as a competent general, but had fallen out of favor with the Emperor for his vocal criticism of the organization of the military (criticisms which were very prescient). Trochu was governor of Paris and commander-in-chief of all the forces destined for the defense of the capital at the time of the September Revolution. On September 4 he became the President of the new government.

Heroic Folly

The government had gone from a monarchy to a republic, but the most important development was its consistency on a single issue: the war.

"France will not yield to Germany an inch of territory nor a single stone of the fortresses."
- September 6 declaration

This attitude conflicted with Prussia's territorial ambitions, which desired the Alsace-Lorraine region, as well as a lion's share of France's gold. Otto Bismark cautioned against this demand because he believed it would inevitably lead to another war, but was overruled by Germany's politicians.
In reality the new government was eager to negotiate an end to the war, and the declaration was for internal consumption only. This conflict between official bombastic rhetoric and diplomatic efforts to appease Prussia, which also meant a passive military response, naturally led to suspicions of treachery.

Germany's immediate concern was that it had no opposing army anywhere near its current forces. Except for the army trapped at Metz, the closest garrison of any size was at Paris, several weeks march away.

Trochu had no illusions about France's chances. With no trained army Trochu had nothing to build with. "We will defend ourselves, but it is heroic folly." As Trochu put it, they were there "simply to accept defeat on the field of battle."
Perhaps even more importantly was the the absolute disdain the generals held for the republicans in the new government, and for a republican government itself. They were Bonapartists to a man. It was this attitude that led to comparisons to 1792-93, when the monarchists generals showed no real effort to defend the new republic against the invading Prussian armies.

The public called for another levee en masse, just like 1793, in order to save the fledgling republic from its untrustworthy generals. Trochu refused. However, a compromise was created in which 134 new National Guard battalions were formed in Paris, 300,000 men in arms total.
Since the June Days Revolt of 1848, only the bourgeoisie had been allowed into the National Guard. Thus the working poor, the ones more likely to revolt against the government, were kept unarmed. This now changed, as almost all of the new battalions were workers. This was to be the most critical development in the formation of the Paris Commune.

The Siege

The Prussian army arrived at the suburbs of Paris on September 15, and finished surrounding Paris by September 19. Paris was cut off from the rest of France for the duration of the war.

On October 3, Gustave Flourens, a commander in the National Guard, led five battalions to the Hotel de Ville to protest the near complete lack of military response to the Prussian advance. The government response was to ban all demonstrations for the duration of the war, and to postpone the municipal elections (Paris didn't have a municipal government since 1848). Both of these actions caused a split between the moderate republicans and the revolutionary/socialist wing.
Shortly afterward Léon Gambetta left Paris by balloon on October 7 in order to organize resistance in the provinces. The balloon of the time was a one-way trip, of which there was 66 of them. None of them were ever shot down.



On October 29 General Carey de Bellemare, one of the army commanders, chafing at the inaction of the government, took it upon himself to seize a nearby suburb of Paris. It was not a strategic area and Trochu not only didn't follow up on the advance, but actually berated the general. The following day the Prussians recaptured the town and took 1,200 prisoners in the process. The public was outraged by this passive response from the government.
On October 31 the government admitted to the surrender of the army at Metz. This news was officially denied on the 27th when it was reported by the socialist press. On top of this disastrous news, it was also revealed that Thiers was negotiating an armistice with Prussia, revealing the government to be liars again. This was the final straw for many.

Thousands of National Guard from the working class districts began assembling in the square in front of the Hotel de Ville carrying signs of "Viva la Commune" and "Le levee en masse". The government sounded the rappel in the "good" bourgeoisie districts for protection, but they failed to turn out.
It was during this time that about 400 Blanquists showed up and led the crowd into the building. They broke open the doors to find the government in session. Around this time Flourens showed up brandishing his sword, leading his battalion of National Guard, their weapons loaded.

The demand was for elections of the Paris Commune. Lists were drawn up and tossed to the crowd through open windows in order to poll the responses. Blanqui, hearing that his name was on a popular list, now showed up.
By all appearances, a new revolution had taken place. Unlike the September Revolution, this one had a distinct socialist flavor. Blanqui and other delegates retired to a separate room to begin issuing proclamations (like closing the gates of Paris). However, all was not as it appeared.

Trochu and many other government officials had escaped by a secret exit from the building. They gathered together several of the "good" battalions of National Guard, and a whole infantry division, and marched on the Hotel de Ville. A standoff occurred until the leaders agreed that the government would hold elections for the Commune with universal suffrage and that there would be no reprisals. The building was evacuated and all appeared well again.
The very next day the government went back on its word. Six of the more prominent leaders (who were supposed to be in the new government) were arrested in the next few days. Arrest warrants for Flourens and Blanqui were also issued, but not enforced because they resided in the Belleville district, where even the army feared to tread.

The Grand Sortie

While Paris was under siege, Gambetta was stirring up the provinces. Withing a few weeks there were five new armies, with 500,000 men under arms. Prussia had neither the men nor means for an occupation of the whole of France.
On November 9 the new French armies defeated the Germans at Orleans, thus cutting a wedge into the Paris encirclement. Trochu had already been planning an attempted breakout, but it was in the opposite direction of Orleans. The new developments convinced Trochu to change the direction of the attack, which forced 1) a delay in the attempt, 2) eliminated the element of surprise, and 3) caused the attack to run into the teeth of the Prussian defenses. Thus the french efforts at the Battle of Villiers were doomed before they began. Both the Paris attack and the Orleans attack had been delayed by Thiers so as not to interfere with the armistice talks.

"We have had the misfortune to see our cleverly conceived plan of offensive endangered by the intervention of M. Thiers."
- letter from Gambetta to his deputy

By December 4 the French forces were driven back into Paris. On the very same day the Germans reconquered Orleans. Parisian hopes of victory had been dashed. Another attempt at breaking the siege was made on January 19, but it was even more poorly executed than the first.

Winter set in. Food and fuel began to run out in Paris.
Here's a translation of a typical Paris menu from the times.



Even worse was the system of food distribution called "rationing by dearness". In other words they trusted Adam Smith's 'invisible hand'. This meant a system where the rich ate plenty while the poor starved.
"One must truly render justice to the Paris population and admire it. It is astonishing that this population, confronted by the insolent display in the food shops, heedlessly reminding a population dying of hunger that the rich with their money could always, yes always, obtain for themselves poultry, game, and other delicacies of the table, did not break the shopwindows nor attack the shopkeepers and their goods."
- Edmond de Goncourt
On January 22 a few National Guard battalions from the working class sector staged a small demonstration in front of the Hotel de Ville to protest the incompetent way the war was being handled. Suddenly the guns of the mobiles inside the building opened up and bullets poured down upon the crowd. About 30 National Guards and civilians were killed.
The government responded to the massacre with more repression. Some eighty arrests were made and leftist newspapers were banned.

Just three days later the guns of the Prussians opened up on Paris. The bombardment had begun. Three days after that the French government surrendered, caving in to all of Germany's demands. The war was over.
Gambetta refused to accept the surrender. He resigned instead, as did the representatives from the Alsace region.

Another problem of the armistice was Germany's insistence on disarming the National Guard and reducing it to just 10 battalions. The French government admitted that they could not do this, as doing this would cause its overthrow. Bismark coldly suggested that if that was indeed so he should "provoke an uprising, while you still have an army to suppress it with." Favre threatened to hand over the task to the German army. Bismark balked at this and agreed that the National Guard didn't have to be disarmed.

The upper classes greeted news of the armistice with joy. With the end of the siege, those who could afford it began leaving Paris.
The working class, on the other hand, felt betrayed. It was the rich who started this war, but it was the poor who had suffered. It was the rich who betrayed the revolution after the poor had made it happen. It was the rich who didn't care about winning the war after the poor fought and died for it.
The working class was stunned, but they wouldn't stay that way for long.

This is the end of part three.

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by Unknown | 12/29/2008 10:55:00 AM
Thanks to BrownFemiPower for bringing us the tragic story of Aafia Siddiqui, an American-trained Pakistani neuroscientist who is being held by American forces in the United States on what her supporters believe is a trumped-up charge. The historical blogosphere had plenty of coverage of Wilson Center intellectual Haleh Esfandiari's detainment by Iranian police last year; it is disheartening that no similar coverage has been extened to Dr. Siddiqui's case.

A few weeks ago, Dave Noon published his (rejected) critique of David Horowitz and Ben Johnson's new book, Party of Defeat. It's one response to an offer by Horowitz in which he is paying $500 per liberal critique of his book by writers who've been published in mainstream publications. Previous attempts have been made by Michael Isikoff, Robert Farley, and (somewhat less successfully) William Blum. I'm currently working on a critique of my own, which will be published here if it's not published there (or linked to here even if it is).

What's on your mind?

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by Unknown | 12/25/2008 05:43:00 PM
Happy holidays to you all! Hope your Christmas/etc. has been as fulfilling as mine has.

What's on your mind?

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by Winter Rabbit | 12/23/2008 12:54:00 PM


An elder told me that the Navaho took Geronimo's bones and gave them a proper burial before the U.S. Army only thought that he remained buried at Fort Sill after they buried him there. I told her I had been to the grave site. She asked me, "Did it feel like he was in there?" "No," I said. "They 'buried' him in the grave stone by stone, so he wouldn't ever come back," she said. I personally don't believe he is at Fort Sill, and I don't believe this either -



Whose Skull and Bones?

"The skull of the worthy Geronimo the Terrible, exhumed from its tomb at Fort Sill by your club & the K -- t [Knight] Haffner, is now safe inside the T -- [Tomb] together with his well worn femurs[,] bit & saddle horn."



Crossposted at Native American Netroots

Geronimo died in 1909, that letter was in 1918, and Geronimo's great-grandson wrote Bush about that letter.Curiously, that all makes me wonder - "Why didn't they want him to come back from his (alleged) grave?"


The question, "Why didn't they want him to come back from his (alleged) grave?" Must be seen symbolically and interwoven with some legends about him; but first, the question must be put into historical context.

The Alamo was on February 23, 1836; it was seven years after Geronimo's birth in 1829.



Remember The Alamo

The Alamo was remembered, as well as the Goliad
massacre (perpetrated by order of General Santa Anna), forty-six days later, on April 21, 1836 at the Battle of San Jacinto, where 783 men led by General Sam Houston
defeated 1,500 Mexicans.

The battle lasted only eighteen minutes.

When all was over, 630 men of the Mexican army were dead; 730 were prisoners.

Nine Texans lost their lives.




History then cloned itself once again over its entire course with a gold rush, bringing white encroachment by settlers and miners.



Apache Indians Defended Homelands in Southwest

The gold rush of 1849 also brought prospectors to the West and further encroachment on Indian land.




Copper and silver being discovered is what brought more white encroachment to Arizona, which is where Geronimo and the Apache were, but referring back to the question, the discovery of copper and silver is not what I think the army wanted to "keep from coming back" when they "buried" Geronimo stone by stone.


Source

As prospectors rushed west to join the California Gold Rush of 1849, gold, silver and copper were also discovered in Arizona, which attracted most of the early settlers. Those frontiersmen (pioneers of sorts) faced many obstacles, including the war parties of the great American Indian chiefs, Geronimo and Cochise.


The first glimpse of what I think they wanted to "bury" begins with a lesser known fact, interwoven with some legend. That is, the fact that Geronimo was a prophet and a medicine man; he was not a chief.


Source

Geronimo was never an elected chief, but he was a medicine man who could see the future, and who, it was believed, had a spirit that could not be harmed by bullets.




The following restated facts are crucial to understanding what set Geronimo on the war path, for it was not merely the white encroachment that set him on it, though it may have been so eventually by sheer speculation.

These are not the real reasons that Geronimo personally began to violently defend his people and homeland in my opinion: the white encroachment after the Alamo, the gold rush of 1849 that was fueling white encroachment in California, while the discovery of copper and silver was fueling white encroachment in Arizona. The encroachment was not enough in and of itself, but genocide was.



Source

When Columbus landed in America in 1492, he mistook it for India and called the native inhabitants "Indians." It was his avowed aim to "convert the heathen Indians to our Holy Faith" that warranted the enslaving and exporting of thousands of Native Americans. That such treatment resulted in complete genocide did not matter as much as that these natives had been given the opportunity of everlasting life through their exposure to Christianity. The same sort of thinking also gave Westerners license to rape women.

-- The Dark Side of Christian History, by Helen Ellerbe



It was Roman Catholic Church from Spain, who had been guilty of genocide against the indigenous people for centuries prior that committed the atrocity against Geronimo's family, and put revenge in his heart.


The Spanish were in search of Christian converts and slaves. The Spanish exterminated Geronimo's family.

The Jesuit Missions that took place in New France in 1625 puts the Spanish's seeking slaves and converts to Roman Catholicism in historical context.



A People & A Nation. 4th Edition. p.38


The Jesuits, whom the Native Americans called the Black Robes, initially tried to persuade the tribal peoples to live near French settlements and to adopt European lifestyles as well as the European's religion. When that effort failed, the Jesuits concluded that they could introduce Roman Catholicism to their new charges without insisting that they alter most of their customary modes of existence. So the Black Robes learned Native American languages and traveled to remote regions in pursuit of their goal. By the early eighteenth century, they were living in present-day Illinois.

In the pursuit of their conversions, the Jesuits sought to undermine the authority of the villiage shamans (the traditional religious leaders) and to gain the confidence of leaders who could influence others. The Black Robes used a variety of weapons to attain the desired end. Trained in rhetoric, they won admirers by their eloquence. Seemingly immune to smallpox, they explained epidemics among the Native Americans as God's punishment for sin, their arguments aided by the ineffectiveness of the shaman's traditional remedies for illness against that deadly disease. Drawing on European science, the Jesuits predicted solar and lunar eclipses. Perhaps most important of all, they amazed the villagers by communicating with each other over long distances and periods of time by employing marks on paper. The Native Americans' desire to learn how to harness the extraordinary power of literacy was one of the most critical factors in making them receptive to the Jesuits' message.




To illustrate, here are just three examples of where the Spanish Roman Catholic Church had been guilty of genocide against the indigenous people about one century earlier than the above mentioned.


Things They Don't Tell You

"The [Catholic] Spaniards in Mexico and Peru used to baptize Indian infants and then immediately dash their brains out; by this means they secured that these infants went to heaven."

-- Bertrand Russell





Kurt Kaltreider, PH.D. American Indian Prophecies. p.54

According to Father Las Casas, the Spaniards "tore babies from their mother's breast by their feet, and dashed their heads against the rocks -"

Finally, a report from some concerned Dominican friars contains the following: "Some Christians encountered an Indian woman, who was carrying in her arms a child at suck; and since the dog they had with them was hungry they tore the child from the mother's arms and flung it still living to the dog, who proceeded to devour it before the mother's eyes."




In addition, it is crucial to remember that there were Indian Boarding Schools, whose aim was to culturally assimilate and destroy indigenous cultures.

Photo: Little girls praying beside their beds, Phoenix Indian School, Arizona. (NWDNS-75-EX-2B)

Hence, not only was Geronimo and the Apache fighting white encroachment and genocide, they also were fighting against being Christianized from both the white people and the Spanish Roman Catholic Church, which resulted in even more loss of their culture through assimilation and death. It was also in that context that Spanish exterminated Geronimo's children, wife, and mother.


Source

- when all were counted, I found that my aged mother, my young wife, and my three small children were among the slain.



Were the facts that Geronimo had adequate causes to defend his people, an adequate cause to feel vengeful, and that he was a medicine man large enough reasons for the army at Fort Sill to bury him such that he'd never "return?" Hardy, from the U.S. military's point of view at that time, I think. For me, the answer lies in one man: General George Crook, who had fought the Lakota in the Sioux Wars.




Source

"Crook never lied to us. His words gave the people hope."

-- Lakota Chief Red Cloud




Wars and Battles Sioux Wars

A one-year conflict dubbed Red Cloud's War (1866-1867), concluded with a treaty that guaranteed the Sioux permanent possession of the Black Hills of present-day South Dakota. The covenant, however, was not observed by the United States. Prospectors and miners itching for gold inundated the territory in the 1870s.

In the ensuing hostilities, Brigadier General George Crook commanded the Sioux to move onto a reservation. Sitting Bull and Crazy Horse refused to comply and move their people. Infuriated by unjust assaults, Sitting Bull gave notice: "We are an island of Indians in a lake of whites... These soldiers want war. All right, we'll give it to them!"

On June 17, 1876, a war party of Sioux and Cheyenne took Crook's soldiers by surprise in southern Montana and routed them in the Battle of the Rosebud. General George A. Custer then led a force against the Indians. On June 25, he and his men ran into a Sioux war party on the Little Bighorn River. Not a single soldier in Custer's immediate command of some 300 men survived "Custer's Last Stand."




Crook experienced a metamorphous during the Sioux Wars and the trial of Standing Bear; he started looking at the indigenous people from his heart and began divorcing himself from the dehumanization of "The only good Indian is a dead Indian."



Dee Brown. Bury My heart At Wounded Knee.p. 402


To bring order out of chaos, the army called on General George Crook- quite a different man from the one who had left Arizona ten years earlier to go north to fight the Sioux and Cheyennes. He had learned from them and from the Poncas during the trial of Standing Bear that Indians were human beings, a viewpoint that most of his fellow officers had not yet accepted.






The Trial of Standing Bear

After the attorneys presented their arguments, Judge Dundy allowed Standing Bear to address the court. Standing Bear did not speak English, but he was able to make an eloquent plea to the court through his interpreter, Susette ("Bright Eyes") LaFlesche.

Standing Bear rose, extended his hand toward the judge's bench --

"That hand is not the color of yours, but if I pierce it, I shall feel pain. If you pierce your hand, you also feel pain. The blood that will flow from mine will be the same color as yours. I am a man. God made us both."



The fact that a U.S. military general could change from seeing Indians as "savages" is what I believe the army never wanted to come back from Geronimo's grave, for Crook's transformation supplied him with the motivation to speak out against the propaganda of the press.



Source

"It is too often the case that . . . newspapers . . . disseminate all sorts of exaggerations and falsehoods about the Indians, which are copied in papers of high character and wide circulation, in other parts of the country, while the Indians' side of the case is rarely ever heard. In this way the people at large get false ideas with reference to the matter. Then when the outbreak does come public attention is turned to the Indians, their crimes and atrocities are alone condemned, while the persons who injustice has driven them to this course escape scot-free and are the loudest in their denunciations."



Geronimo:

The soldiers never explained to the government when an Indian was wronged, but reported the misdeeds of the Indians.



In addition, his transformation supplied him with the motivation to practice patience and diplomacy with Geronimo, Crook was called "Grey Wolf." Tragically, Grey Wolf could not keep the promise he made to Geronimo regarding their returning to their reservation after their surrendering and agreeing to being imprisoned in Florida, so that they could return to their reservation.



Geronimo 1829-1909

The Apache warriors were deported to incarceration in Florida without their families - an agreement broken - then Alabama and finally to Fort Sill, Oklahoma Territory.




The War Department, quite frankly - said no.



When they brought Geronimo to Fort Sill, here's the general location the put him in.





Specifically, this was the window he had to look out of.



I'm sure that all the stories about how popular he was meant a great deal to him, as did him having some freedom at Fort Sill.

After he died of pneumonia,they buried him here:



To bring this to a close, "an elder told me that the Navaho took Geronimo's bones and gave them proper burial before the U.S. Army only thought that he remained buried at Fort Sill after they buried him there," as I stated in the beginning. A look around the cemetery reveals the possibility of that being true, due to the remoteness and seclusion of the area. Note that there was probally more tree cover nearly a century ago.




Dee Brown. Bury My heart At Wounded Knee.p. 413

A legend still persists that not long afterward (his death) his bones were secretly removed and taken somewhere to the Southwest-



The spirit of Goyathlay ("one who yawns"), or Geronimo is quite simply this in my judgment: that people can and do change in extreme circumstances, and when they change for the better and/or for noble reasons in the midst of atrocities beyond their control... that is the spirit of Goyathlay.


Geronimo:

I was born on the prairies where the wind blew free and there was nothing to break the light of the sun. I was born where there were no enclosures.

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by Cameron Blevins | 12/21/2008 05:11:00 PM
(Welcome to our newest contributor, Cameron Blevins! -- Ed.)

(Cross-posted at history-ing)

On a cold Friday morning this past November, I set my alarm extra early, walked to the metro, and made my way to the ribbon-cutting ceremony for re-opening of the
Smithsonian's National Museum of American History. After staking out a position in the crowd next to the television crews, I was rewarded for a forty minute wait by turning around and coming face-to-face with Colin Powell, who was making his way to the stage flanked by security. I was too star-struck to say anything besides, "Good morning, sir," although I did get to shake his hand on his way out. After a relatively short ceremony that included the national anthem and Powell reading the Gettysburg Address, they cut the ribbon and let the streaming crowds into the renovated and revamped museum. I took a brief walk around before realizing I was late for work. Today I finally had the chance to return to the museum for a proper exploration.

I had never been to the pre-renovation museum, but from what I've read it was relatively dark and cluttered. The new museum has largely addressed these issues, as the main lobby on the mall entrance is expansive, and wide glass skylights allow in ample sunlight to illuminate sleek architectural lines. Guests are funneled largely towards the crown jewel of renovation efforts: a multi-million dollar, state-of-the-art exhibit to house and display the Star-Spangled Banner. I was less than impressed with the exhibit. The visitor is first led down a hallway containing some basic background behind the story of the flag. The information was not conveyed very clearly, the lighting was too dim, and the wall screens displayed cheesy and surprisingly low-tech animations of the War of 1812. The part of the exhibit displaying the flag itself was a bit better, and it gave a very strong sense for the sheer size and weight of the flag (30 x 34 ft):

Next to the flag was a really well-done tabletop with a slowly scrolling and panning zoomed image of the flag, with small nodes/hostpots that the visitor could "click" to open up a infobox on various aspects of the flag. I thought the coolest part was that it gave the impression of a massive touch-screen, but all of it was in fact a projected image from above with an extremely sensitive sensor system that created a supremely dynamic and fluid interactive framework.

The next exhibit I walked through was the impressive "Within These Walls," which leads the visitor around a partially reconstructed house from the town of Ipswich, Massachusetts:

Originally constructed in the mid-18th century, the house serves as a focal point for exploring its development through the next two centuries. My favorite aspect of the exhibit was an impressive use of written primary source material alongside the flashier material objects. Behind the array of medallions and tables, the walls themselves displayed important texts with pertinent sections highlighted. For example, one panel displayed a recorded will from one of the house's residents that included a mention of Chance, a black house servant and former slave. This was a conscious decision on the part of the curator(s), as they begin the exhibition with an explanation of how historians find "clues" to examine the house. The exhibit does a great job of weaving together these clues, from allowing visitors to view a sample paint chip through a microscope to see its different layers, to enhancing an old map of the neighborhood with overlaid photographs and diagrams of a nearby mill and train depot. While a little bit simplistic, I was impressed at their efforts to make the process of historical research and discovery more accessible to a general public beyond, "Hey check out this sweet Gatling Gun!"

The next exhibit I explored was "Communities in a Changing Nation," which uses three different communities (New England factory workers, Cincinatti's Jewish enclave, and blacks in South Carolina) to examine 19th-century America:

In my opinion, "Communities in a Changing Nation" was less than impressive. It embodied a lot of the less appealing elements of a more "traditional" museum exhibit. Using a largely linear approach, with exhibits on either side of the hallway, it lacked both clarity and innovation. The exhibit assigned a matrix system of four broader themes to the three communities: Land and Abundance, Equality and Democracy, Freedom and Independence, and Progress and Opportunity. I didn't even realize this thematic attempt until halfway through the exhibit, and even when I was aware of these themes, I had trouble identifying differences between them. Finally, the African-American community seemed a little patronizing. It included several life-like mannequins that didn't work that well, especially considering that none of the other "communities" had similar displays. While not necessarily offensive, I don't think it was done with particular subtlety or sensitivity.

If anyone has the chance to go to the museum in the next several weeks, I'd recommend seeing the White House copy of the Gettysburg Address, on loan only until January 4th, 2009. While the exhibit itself isn't anything special, being able to see Lincoln's handwritten copy of arguably one of the most famous speeches in American history is certainly special in and of itself.

Finally, my surprise favorite exhibit was "America on the Move," a massive, winding exploration of transportation in America. I was largely skeptical as I entered through a doorway labeled "General Motors Hall of Transportation," and prepared myself for overt championing of the automaking industry alongside a superficial, traditional, and commercialized presentation. Instead, I was greeted with a remarkably organic layout. Although a bit confusing for those who like linear, clearly organized exhibits, I soon discovered the joys of stumbling onto various nooks and corners and becoming utterly absorbed in individual sections. Public historians talk a lot of about allowing the visitor to explore a space for themselves, but it's often difficult to achieve this goal. I felt that "America on the Move" managed to accomplish it.

As an example of one such instance of exploration, I inadvertently walked into a side-room that included two screens, one on a pedestal and another wall-sized display mounted above. On the smaller screen, the visitor could place pins onto a touchscreen map of the world, with each pin representing their lineage - where they, their parents, and their grandparents were born. Upon completion, the results were displayed on the larger screen before being added to an aggregate dot-image map displaying the results of every visitor's participation. The composite image was a constantly-changing and growing database displaying museum visitors' ancestries. The viewer was left not only with a larger sense of what constituted being "American," but also a feeling of participation in a larger project.

I was impressed with the immersive aspect of "America on the Move," largely made possible through the significant donations of a wide range of supporters (including, unsurprisingly, GM, AAA, Exxon Mobil, UPS, and Caterpillar). But there was an attention to detail that made it really fascinating - for instance, displays that included baskets of synthetic fruit to be transported actually smelled like fruit (or something like fruit). When the visitor stepped on board a model commuter bus, its vibrating machinery, moving images, and sharp sounds actually made them fell like a 1959 commuter. There is a fine line between overdone and cheesy special effects and those subtle touches that accomplish the goal of making the visitor feel like they are actually "there." The exhibit did a great job of deftly navigating that line.

The Smithsonian National Museum of American History is faced with a daunting task: preserving and displaying our entire nation's history. There is simply no way to adequately accomplish this task, and there will always be omissions and interpretative differences. But if the museum makes a real commitment to gather and respond to feedback from a variety of sources, to evolve and ask tough questions, and to continually self-improve beyond a $85 million physical renovation, then I am optimistic for its future as a publicly accessible gateway into examining America's past.



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by Ralph Brauer | 12/19/2008 05:23:00 PM



Part IV of IV

The quest for a culprit in the financial mess continues to occupy the press and financial analysts. "How," they ask again and again, "Could America have gotten itself into this mess?" Much attention has focused on the institutions and CEOs who are at the center of the current crisis.The feeling is growing that providing bailouts to financial giants and CEOs such as Citi and Sandy Weill is to reward those who engaged questionable and even illegal behavior.


The Inability of Fines to Stem the Practice

The previous three essays laid out the case that the mortgage crisis began with discriminatory lending and redlining during the post World War II housing boom. What was one of the greatest mass social movements in history, one that made home ownership a reality for millions of Americans, unfortunately came with a heavy price,for it shut out people of color.

Wide swaths of America were segregated by race. This was not merely due to the prejudices of local home builders or lending institutions but came from the FHA and the federal government. It was a national policy. In systems terms people of color faced two restrictions that served to reinforce each other--they could not move from where they were which left them at the mercy of those who controlled both lending and real estate and they had no access to the government programs that were available to whites and when they did they found the price was often too high.

This influenced the growth of loansharking or what people have relabeled predatory lending or subprime lending. Which terms you use does not really matter because the results were the same: people of color faced exorbitant terms, shady practices such as Sandy Weill's tactic of coupling insurance with loans and "closed book" closings, and finally just old-fashioned ripoffs.

We have seen in the history of loan sharking that many of these firms paid fines for their illegal practices, but the threat of fines apparently did little to stem the practice. In many cases the fines were so small that corporations easily paid them off. In other cases they became part of the balance sheet of doing business. Sandy Weill, for example, bought a company that already had been fined for deceptive lending and yet instead of ceasing such practices Weill continued them into the next decade culominating with the huge fine levied against Citi in 1999. Other companies were undaunted by the fine levied against Citi and continued to engage in loansharking resulting in this year's judgment against Bank of America which will far surpass the fine levied against Citi.

A Civil Rights Issue

Given that racial discrimination lies at the heart of these illegal practices, perhaps a heavier stick is needed to curb them.

South Carolina Representative James Clyburn, one of the deans of the Black Caucus, has testified:
We must now begin to address predatory lending practices that overwhelmingly affect blacks by instituting laws that will make what are already unethical practices illegal. If not, the government will continue to be a partner in yet another tragic black land takings saga.

Section 804b of the Fair Housing Act states:
It shall be unlawful to discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, familial status, or national origin.

Section 805 begins:
It shall be unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.

While the Act provides only monetary civil penalties, thus far those have been used mainly against organizations and not individuals. But what if the individuals who sanctioned such acts were prosecuted?

There needs to be in inquiry into who took part in loansharking, but not merely for financial misdeeds but also for violation of Civil Rights laws. If a Sandy Weill or some other CEO or former CEO could be indicted on a civil rights violation it would send a clear message about the roots of this crisis.

It is interesting that the way our current Civil Rights laws are written, someone can go to jail for burning a cross in someone's front yard, but not for predatory lending that has the impact of stealing that front yard from the homeowner. Also it is criminal to lie on a loan application but not to lie about the loan itself (i.e. "closed folder" closings). The National Consumer Law Center has drafted model legislation aimed at the business of predatory "payday loans," but what it says in the final paragraph of the model legislation could just as easily be applied to home mortgages:
Criminal penalties are an important deterrent to lender abuse. Any knowing violation of the act is a misdemeanor and subjects the violator to a $1,000 fine or imprisonment not to exceed six months or both.

A few states have begun to institute criminal penalties for predatory lending. Last year my home state of Minnesota passed a bill prohibiting what it termed "residential mortgage fraud." It provided:
Whoever violates this section shall be sentenced as provided in section 609.52, subdivision 3, based on the aggregate economic loss suffered by any person as a result of the violation. However, the maximum sentence of imprisonment for the offense may not exceed two years. A person convicted of a violation of this section shall be ordered to pay restitution to persons aggrieved by the violation. Restitution shall be ordered in addition to a fine or imprisonment but not in lieu of a fine or imprisonment.

Yet there still is no similar federal statute. Until there is the people involved will have the fines paid by their corporations and retire on their golden parachutes. Sandy Weill is leading a comfortable retirement. Before he retired, Forbes ranked the man who owes his fortune to predatory lending at 377th in its survey of the richest people in the world and 162nd in the United States. Today he is worth around $1.5 billion and owns a $42 million dollar penthouse that includes more than 2,000 square feet of terraces.

Zeroing in on Glass-Steagall

Another remedy is that no one associated with the repeal of Glass-Steagall shall have a role in the upcoming administration. For many Americans, Barack Obama represents a new hope that business as usual will end. Having someone involved with the repeal of Glass-Steagall in his administration will send the wrong message.

The answer to the question "How did we get into this?" is quite simple. The warning signs were there as long as a decade ago in reports and investigations by people like Hudson, the Woodstock Institute and others. But then the subprime crisis was primarily a problem for people of color and like many problems for people of color this one was ignored or downplayed.

You would have thought that Katrina would have taught us the error--if not the immorality--of such thinking, but it did not. As long as whites and the high rollers still believed the playing field was level for them they did not care about the unlevel playing field that had existed for half a century and more in communities of color.

The fatal mistake came with the repeal of Glass-Steagall, for suddenly formerly segregated loans became all mixed up as loansharking morphed into the more respectable-sounding euphemism of subprime. Financial threads became so entangled that no one could unravel them, not even the so-called wise men such as Robert Rubin, who continued to provide Citi with advice even as it expanded its loansharking operations.

The repeal of Glass-Steagall ironically accomplished what people of color had been attempting since before Dr. Martin Luther King served time in that Birmingham jail--it irrevocably tied the fates of white and black America together. The last time that happened on such a scale is when a grizzled old Southern firebrand named Edmund Ruffin had the honor of lighting the fuse on the first cannon that fired on Fort Sumter.

There are already more proposals on the table to solve the current crisis than the already fragile legs of the table can hold. We've had a so-called bailout which some banks used to buy other banks and continue business a usual. Three banks are in violation of federal law prohibiting them from controlling more than 10% of the market. We've even heard proposals for mortgage relief, but those have been met by cries that if people got themselves into a mess it's their own fault and they should not expect any help.

The Final Judgment

According to State of the Dream by United for Fair Housing, in the quarter century from 1970-2006, white home ownership increased from 65.4% to 75.8% while African American home ownership increased only from 41.6% to 48.4%--or less than half the white rate. This is not merely a national embarrassment but an indictment of American social policy. It is the single greatest policy failure of the post World War II era.

From it stem a host of interrelated problems that definitively prove that discrimination rots the very foundation of democracy--the idea of the level playing field. According to a report released in 2004 by the Corporation for Enterprise Development, the government spends $335 billion on asset-building policies that:
Disproportionately benefit those who already have assets. Analysis of the largest spending categories shows that over a third of the benefits go to the wealthiest 1% of Americans—those who typically earn over $1 million per year. In contrast, less than 5% of the benefits go to the bottom 60% of taxpayers.

In his last book, Dr. Martin Luther King, jr. wrote:
Now we realize that dislocations in the market operation of our economy and the prevalence of discrimination thrust people into idleness and bind them in constant or frequent unemployment against their will.

A case cited by Mike Hudson provides an illustration. It involves an elderly African America woman with a sixth grade education whose vision was so bad she could hardly see the documents. The company's attorney asked her:
“Did you tell him that you couldn’t understand basic sentences in the English language well enough to make decisions about it?” She acknowledged she hadn’t, but said the loan officer should have explained things better. “He should have did right,” she said.

"He should have did right." Those words now echo across America not merely in the concrete canyons of the inner city but in cul-de-sacs in neighborhoods that sport "For Sale" signs among the crabgrass that is reclaiming what used to be golf-course lawns. Just as no one wants to talk about the elephant in the room, no one wants to talk about the solutions.

The financial crisis grew from redlining and racial discrimination and only when redlining and its evil stepchild, loansharking, are suspended will we have rooted out the cause of the crisis. Right now what the experts are proposing is a bit like trying to rid a lawn of dandelions by pulling on their tops. These solutions may get rid of the visible problem, but not the roots. Until we dig them out for good we can expect that after some time the weeds will grow back--only this time they will be more resistant because the roots will have grown deeper.

So the solution is quite simple: the time has come to put home ownership on a level playing field. That does not mean valuing an inner city home the same as a suburban McMansion or not applying the same qualifying standards to everyone. It does mean no more "closed folder closings," no more 40% APRs, no more ingeniously-worded contracts, no more unnecessary insurance or other costs and no more redlining.

This series began with a painting of the signing of the Constitution. While many of the gentlemen whose names are on that document were unrepentant slave holders, the words they wrote and the government they created have endured precisely because they have transcended the human frailties of those who founded this nation.

They may not have fully honored the ringing preamble with its immortal words:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

Yet the words are still there--especially "establish justice." As America prepares to inaugurate its first African American President we need to remember that when he takes the oath of office to uphold and defend the Constitution, he does so on behalf of all of us. For we are not a dictatorship but a democracy and in a democracy all of us must see to it that those words mean what they say.

Ralph Brauer's blog is The Strange Death of Liberal America.

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by Ralph Brauer | 12/17/2008 10:20:00 PM


Carter Glass



Part III of IV

In 1997 the FDIC published an imaginary interview with Carter Glass that predicted what would occur with the repeal of the Glass-Steagall Act two years later.
Banks lent their names, prestige and tradition of sound banking operations to these affiliates, and on that basis did people invest and transact business with them. When calamity struck, not all bankers felt a responsibility to the citizens they had enticed.

This imaginary interview would prove especially prescient about people of color.



With Glass-Steagall out of the way, mainstream banks began getting into the loansharking business in a big way. In a paper for the St. Louis Federal Reserve System, Souphala Chomsisengphet and Anthony Pennington-Cross point out:
The market share of the top 25 firms making subprime loans grew from 39.3 percent in 1995 to over 90 percent in 2003. Many firms that started the subprime industry either have failed or were purchased by larger institutions.

A 1999 article “Banks Take Over Subprime” in National Mortgage News captures how the repeal of Glass-Steagall changed the market:
Among the top 25 sub prime lenders in the third quarter of 1999, ten are owned by either a bank or thrift. A year ago, just three of the top 25 were owned by depository institutions.

The myth persists that the victims of this boom in loansharking ended up in that position because they could not have qualified for other loans. Yet data from a 2002 Fannie Mae report dispels this notion. It found:
Credit quality alone therefore does not fully explain the extreme reliance of black households on the subprime market. Further research by Freddie Mac reports that as much as 35 percent of borrowers in the subprime market could qualify for prime market loans. Fannie Mae estimates that number closer to 50 percent.

There are others who have confirmed that the myth is false, most notably the Wall Street Journal, whose analysis of credit scores is one of the most widely-used sources. Authors Rick Brooks and Ruth Simon reported that the study of more than $2.5 trillion in subprime loans made since 2000 showed:
In 2005, the peak year of the subprime boom, the study says that borrowers with such credit scores got more than half -- 55% -- of all subprime mortgages that were ultimately packaged into securities for sale to investors, as most subprime loans are. The study by First American LoanPerformance, a San Francisco research firm, says the proportion rose even higher by the end of 2006, to 61%. The figure was just 41% in 2000, according to the study.

The repeal of Glass-Steagall did not change one fact--the prime victims of predatory lending remained people of color. A 1999 Woodstock Institute Report on lending in Chicago noted:
The restructuring of financial services industries and the failure of federal and state regulators to respond to these changes have increased the ability of certain lenders and brokers to exploit homeowners, particularly in minority and modest-income communities.

In October 2002, ACORN (Association of Community Organizations for Reform Now) released “The Great Divide,” a report on 2001 national loan data for 68 metropolitan areas. The report found continuing and even growing racial and economic disparities in home mortgage lending. Nationally, African‑American mortgage applicants faced rejection 2.31 times more often than white applicants, and Hispanics were denied 1.53 times more often than whites.

For those who hold an economic or class-based analysis of the subprime market targeting people of color, the ACORN study is an eye-opener, for it found income made little difference. ACORN notes in Chicago African‑Americans earning more than $84,600 had 2.06 times more likelihood of being turned down than whites earning less than $28,450. The report said:
The rise in subprime and predatory lending has been most dramatic in minority communities. Subprime lenders account for half, 51 percent, of all refinance loans made in predominantly black neighborhoods, compared to just 9 percent of the refinance loans made in predominantly white neighborhoods. Subprime lending, with its higher prices and attendant abuses, is becoming the dominant form of lending in minority communities.

The Community Reinvestment Association of North Carolina adds their study to the evidence:
In North Carolina, the incidence of high cost loans originated by African-American borrowers are more than four times (4.15) greater than for whites in North Carolina.

Foreclosed: State of the Dream 2008 by United for a Fair Economy has a graph that shows the pattern



The study goes on to point out:
We estimate the total loss of wealth for people of color to be between $164 billion and $213 billion for subprime loans taken during the past eight years. We believe this represents the greatest loss of wealth for people of color in modern US history.

The banking industry has tried to explain these figures in a variety of ways, the main one being the old dodge of shifting the argument from race to class, but the North Carolina study and others refute this theory.
We also staunchly argue that continuing discrimination and corporate practices are a factor in the loan pricing disparities by race. The history of racism in finance continues to play a role in access and cost of credit.

In 2007 testimony before the House Financial Services Committee Jim Campen, Executive Director Americans for Fairness in Lending, reported on results of an ongoing study his group is conducting in the Boston area:
The black/white denial rate ratio, which averaged about 2.0 during the 1990s, was 2.34 in 2005, while the Latino/white denial rate ratio, typically about 1.5 during the 1990s, was 2.07 in 2005.

In the highest income category, consisting of borrowers with incomes above $150,000, black applicants experienced a denial rate of 25.9%, almost triple the 8.9% denial rate experienced by their white counterparts; the 20.7% denial rate for Latinos with incomes above $150,000 was 2.3 times greater than the white rate.

I have focused my analysis on mortgage lending in Massachusetts, with particular emphasis on the city of Boston and the Greater Boston area, but I believe that a detailed examination of mortgage lending patterns in other cities and states would reveal qualitatively similar findings.

Again, a chart tells the complete story. Note what is essentially a flat line as income increases. The message to people of color is clear: not matter how much you make you will face discrimination in getting a mortgage.



In short, not only did the repeal of Glass-Steagall open the floodgates for banks to enter into loansharking, after the repeal the discrimination against people of color became worse!

Another graph from the Center for Responsible Lending shows the impact of discrimination:



Michael Hudson found that Citi was right in the middle of this:
In 1999, the company agreed to pay as much as $2 million to settle a lawsuit accusing Commercial and American Health & Life of overcharging tens of thousands of Alabamans on insurance. Beasley, Allen, claim[ed] nearly 1,500 clients in Alabama, Mississippi, and Tennessee who had Commercial Credit or CitiFinancial loans.

In 2002 Citi bought Associates First Capital, a sleazy Texas firm that had paid over $33 million in settlements to Georgia and North Carolina lawsuits. Martin Eakes of North Carolina’s Self-Help Credit Union even directly challenged Citi head Sandy Weill at a stockholders’ meeting in April 2001:
No company that values its good name would have bought Associates.

In the fallout over the merger and Citi's own subprime branch CitiFinancial (which had been created from the original Weill loansharking operation), Citi agreed to a $240 million settlement with the Federal trade Commission. Hudson noted that despite all the big numbers, each victim ended up with an average of $120 and the cost to Citi was two week's profits.

Jodie Bernstein, director of FTC's Bureau of Consumer Protection, said Citigroup's newly acquired affiliate-Associates First Capital-engaged in a wide variety of deceptive practices:
They hid essential information from consumers, misrepresented loan terms, flipped loans and packed in optional fees to raise the costs of the loans.

And where was Robert Rubin during all this?

The True Impact

This essay has featured an unusual number of quotes, charts and statistics, which at times march down the page one after the other. There are editorial and rhetorical reasons for this: editorially I have always believed in quoting directly from the source when writing on the web so readers can see what someone said and rhetorically I wanted readers to feel the weight of this evidence piling up.

For that is exactly the situation people of color find themselves facing. The real implications of the mortgage crisis press down on families and communities, suffocating dimensions of life that white suburbanites take for granted--good schools, easy access to shopping, and, most of all, choices.

We need to remember that behind the numbers lie people. Their personal experiences testify to the real consequences of the problem. One story comes from Michelle Allison of the NAACP’s Merced Branch in California, who was locked into a prepayment loan and now owes $100,000 above what she initially requested:
It’s like being over a barrel. I just wanted to be treated fairly and receive the best service. I was not given options or enough information for me to make an alternate decision. I want to get back to where I was financially before I received my loan.

The AARP has another story:
Betty Cooper was an older, wheelchair-bound African-American widow, living on a monthly pension. She experienced a bait and switch of her interest rate that resulted in unaffordable monthly payments. In addition, she was charged a hidden broker fee that cost her a steep 8 percent of the mortgage, and an unexplained balloon mortgage payment.

Multiply stories like these by the numbers in the statistics above and you have some idea of the trail of misery that has been left by loan sharking in communities across the country.

The Web of Deceit

The real shock is that many of these studies data back to as long as a decade ago, with each subsequent study piling on more evidence to support the previous ones. After much time spent reading all this evidence you begin to wonder if anyone else has read it. Yet some of the studies such as the North Carolina one were inserted into the Congressional Record where they lie today, largely unknown to the general public.

This is evidence of discrimination on a scale resembling the mountain of evidence marshaled for Brown v Board or the abuses of Reconstruction or the evils of slavery. In 1944 Gunnar Myrdal referred to the problem of race as an "American dilemma." Sixty years later the dilemma has become quite simply one of economic survival and with it the survival of our democratic society.

Sandy Weill built a financial empire on loansharking. Even long after Citi had mergered and acquisitioned its way to the very top of the American financial industry, Citi continued to engage in loansharking. And they are far from alone. Bank of America recently agreed to a settlement that will probably be the largest in history over the loansharking activities of its subprime affiliate, Countrywide.

Weill could not have done this alone. Instead he had help at the highest levels, including the three Congressmen whose names are on the bill that repealed Glass-Steagall to then Secretary of the Treasury Robert Rubin to the many economists and policy wonks who were gung-ho for securitization in all its manifestations. Rubin joined Citi shortly after leaving Treasury to become one of its most trusted advisors. Did he know about the loansharking or was he looking the other way?

Given the huge increase in subprime mortgages and the role they played in Citi's portfolio along with the mountain of evidence showing their disproportionate impact on people of color it is hard to believe anyone in the financial industry from regulators to bankers was not aware of this. Yet they chose not merely to look the other way, but to allow it to continue until the elephant in the room became too big to ignore.

This is what researchers mean when they speak of "structural racism," for it is not merely a matter of personal prejudice. Many of the people involved--including Sandy Rubin--would vehemently deny that they are racists. The ugly reality of structural racism is that like termites infecting a house it gnaws away at institutions until they weaken and threaten to topple.

Right now the entire American economy may topple because it is infected with the termites of structural racism. In a recent paper Rick Cohen writes:
The subprime crisis carries the seeds of structural racism not from discriminatory intent, but from ostensibly racially benign or supposedly ameliorative policies and programs. This is a difficult message for the nation to hear. The pushback has been strong.

Jim Campen agrees:
The enormous racial disparities in mortgage lending and the dramatic shrinkage of the portion of total mortgage lending that is subject to evaluation by bank regulators under the provisions of the Community Reinvestment Act (CRA) indicate the need for major changes in public policy toward the mortgage lending industry.

The final installment of this series examines some of these policy changes.

Continue to Part IV

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by Ralph Brauer | 12/16/2008 12:38:00 AM


Photo: United for a Fair Economy The State of the Dream



Part II of IV

Sandy Weill's story tells how racially-biased predatory lending lies at the center of the economic crisis. A third-generation American, Weill grew up on the streets of Brooklyn where for some the road to success was a place whose name came from a structure built to protect the city from Indians, pirates and other invaders and whose die was cast when a small group of men met in secret under a buttonwood tree: Wall Street.

Like the hero of a Horatio Alger tale, Weill began his climb to success not in the proverbial mail room but as a $35 a week clerk, eventually clawing his way to become second-in-command at American Express. But Weill had an itch for more so he cashed in his chips and set about looking for his own business. In 1986 he settled on a Baltimore loan company named Commercial Credit that specialized in predatory lending.

The tale of how Weill would use Commercial to build the financial empire that became Citigroup is the story of the financial crisis and at the heart of that story is racial discrimination and predatory lending. In short, predatory lending made Citi into one of the nation's largest financial institutions and now is responsible for its downfall.

The Beginnings of Citi

If Weill did any due diligence at all, he knew quite well he was buying a company whose entire existence was predicated on ripping off people of color. Commercial already had a shady reputation when Weill moved in on it. In 1973 the FTC had issued an order demanding Commercial cease using deceptive and hardball tactics to entrap those in search of a loan. In his article “Banking on Misery Citigroup, Wall Street, and the Fleecing of the South,” Michael Hudson relates that Weill's assistant, Alison Falls, was appalled at the idea of buying Commercial:
Hey guys, this is the loan-sharking business. "Consumer finance" is just a nice way to describe it.

After Weill bought the company did he seek to curb these practices? Quite the contrary, Commercial became even more aggressive. After all, Weill's whole business plan was predicated on using Commercial to launch a larger company and in order to do that he had to get as much as he could out of Commercial, which meant squeezing clients even more.

Some of Weill's former employees tell stories of being pressured into steering clients into dubious deals. Hudson quotes Sherry Roller vanden Aardweg, who worked for Commercial in Louisiana from 1988 to 1995. She agrees there was “a tremendous amount of pressure” to sell insurance: That insurance was issued by another Weill acquisition American Health & Life.
We kept adding insurance that we could offer. It just kept growing. It was beginning to get a little bit ridiculous.

Frank Smith, who worked for Weill in Mississippi, put a perspective on ripoffs such as "closed folder closings" in which documents adding to the cost of the mortgage were kept from the client:
They need the money or by God they wouldn’t be at the finance company. They’d be at a bank.

Weill used the money milked from Commercial's clients to acquire insurance and finance company Primerica. In 1990 he acquired Barclay's Bank. Meanwhile the stories told by African Americans victimized by Weill certainly sound like loansharking. Two Mississippi clients of Commercial signed on for Annual Percentage Rates (APR) of 40.92 and 44.14. Another client paid $1,439 for insurance on a $4,500 loan.

Ripoffs like this attracted the attention of attorneys and law enforcement officials, especially in the South, where Commercial had a large presence. Hudson reports:
In 1999, the company agreed to pay as much as $2 million to settle a lawsuit accusing Commercial and American Health & Life of overcharging tens of thousands of Alabamans on insurance.

Jackson, Miss., attorney Chris Coffer says he obtained confidential settlements for about 800 clients with claims against Commercial Credit or its successor, CitiFinancial.

In 1999, the company agreed to pay as much as $2 million to settle a lawsuit accusing Commercial and American Health & Life of overcharging tens of thousands of Alabamans on insurance.

How much money African Americans probably overpaid Commercial can be glimpsed from one study by the Community Reinvestment Association of North Carolina. Testifying before a 2006 hearing of the Federal Reserve in Atlanta, CRA-NC Community Organizer Richard Brown cited the findings of the study, Paying More and Getting Less: An Analysis of 2004 Mortgage Lending in North Carolina:
Our key finding is that disproportionately, by a ratio of more than 4 to 1, African Americans pay more interest on home loans than whites do in North Carolina.

Cultural Impacts

Like some modern plantation, subprime lending was built on the enslavement of African Americans, only instead of being field hands or sharecroppers their lives were indentured to loan sharks. Like the infamous overseers who ruled plantation life with the crack of a whip, the loan sharks ruled the lives of African Americans with whips woven together with words the way real whips are woven from strips of leather. While these words might not have inflicted the physical wounds overseers specialized in, the mental scars inflicted by the words woven into loansharking mortgages were socially and psychologically devastating.

Like slavery, loan sharking helped to turn the African American family into a hot-button issue whose implications are still the subject of volatile debates within and outside the community. Yet while the particular sociological and cultural impacts of loansharking may be the subject of some debate, there is agreement about the big picture: the impact rippled through families and communities like a rogue wave bringing misery and destruction. In the inner city and some rural communities, especially in the South, African American families faced two equally devastating choices when it came to housing: deal with the loan sharks or deal with the slum lords.

Loan sharking also rippled through American culture. Call it apartheid or something else, whatever label you assign to it the forced separation of whites and people of color is the number one issue of post World War II America. As surely as South Africa carved out "homelands" for its black citizens, so FHA and others carved out the equivalent through redlining.

In the South African Americans and whites lived together but interacted through the elaborate codes and rituals of Jim Crow, but in the North the races were physically separated so a white suburbanite could grow up without having much association with people of color. As a result, while white Southerners saw African Americans as inferior, white Northerners saw them as abstractions.

The 90s Boom in Subprime Loans



Meanwhile Sandy Weill continued building Citi through mergers and acquisitions. In 1993 came the controversial merger with Travelers followed four years later by Citi's acquisition of Salomon Brothers. At the same Weill was building Citi, the mortgage market was undergoing some dramatic changes. Researchers began identifying a huge spike in the number of subprime loans. Loansharking had come from back streets and low budget store fronts to the center of America's financial empire: Wall Street.

A graph from the Woodstock Institute tells the Story:



This graph raises two obvious questions: what was fueling the growth and who was providing those new subprime mortgages? The first is still the subject of some debate among economists and others. For example, some have tied it to an increase in interest rates. In its explanation accompanying the graph Woodstock states:
Despite increasing rates in 1994, 1995, and 1997, however, subprime lenders continued to increase their refinance volumes. This suggests that subprime refinancings are not driven by homeowners refinancing to save money during times of declining rates and that subprime lenders are aggressively marketing loans regardless of the rate environment.

In part, the growth of predatory activity stems directly from the development of an increasingly specialized and segmented mortgage market, especially for refinance and home equity loans.

What was in it for others is the same thing that was in it for Sandy Weill--profits. Forbes reported that in the boom of the 90s, subprime companies enjoyed returns up to six times greater than those of the best-run banks.

United for a Fair Economy put it more bluntly:
The subprime lending crisis has occurred because a financial product intended for limited use by a limited number of people has been parlayed into another ill-fated bubble by some mortgage lenders lacking in integrity, foresight, and any vestige of civic concern.

What made this possible was the packaging and trading of loans which goes under the fancy name of securitization. A Federal Deposit Insurance Company report describes how this process works:
Thirty years ago, if you got a mortgage from a bank, it was very likely that the bank would keep the loan on its balance sheet until the loan was repaid. That is no longer true. Today, the party that you deal with in order to get the loan (the originator) is highly likely to sell the loan to a third party. The third party can be Ginnie Mae, a government agency; Fannie Mae or Freddie Mac, which are government sponsored entities (GSEs); or a private sector financial institution. The third party often then packages your mortgage with others and sells the payment rights to investors. This may not be the final stop for your mortgage. Some of the investors may use their payment rights to your mortgage to back other securities they issue. This can continue for additional steps.

As usual a graph tells the story of the growth of these new investment vehicles.



The FDIC goes on to explain how various pooling tactics package subprime loans, taking you into a thicket of acronyms like (MBSs), collateralized debt obligations (CDOs), and structured investment vehicles (SIVs)--all essentially are ways of spreading the risk of pooled mortgages. Notice that the initial upswing in MBS begins in the late 1980s. That was due to the tax reform act of 1986.

Ginnie Mae (Government National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) had been involved with MBS before the 1986 bill, but the Reagan Administration's gift to the home mortgage industry introduced another acronym into the mix: REMIC--Real Estate Mortgage Investment Conduit, which is yet another tool for pooling and packaging mortgages. None other than Freddie Mac described the importance of the 1986 bill:
The REMIC law was passed as part of the Tax Reform Act of 1986 and marked the beginning of the growth of the CMO [Collateralized Mortgage Obligation] market.

Once financial institutions began to catch on to this and entered the thicket of securitization in a big way, there was no turning back. The American economy would never be the same. Put the two graphs above together and you have the story: the initial growth of the subprime market was enabled by the growth in MBS. There remained only one regulatory hurdle in place, one that had been there since the Great Depression.

The Repeal of Glass-Steagall

Had Carter Glass been alive in the 1990s it is doubtful any of this would have happened, but by the time he put his name on the Glass-Steagall Act during the Depression, Carter Glass was an old man. He had actually been a delegate to the 1896 Democratic National Convention when William Jennings Bryan gave his "Cross of Gold" speech and most of his political life he had a Bryan streak in him that included a distaste for banks. When he left Woodrow Wilson's cabinet at the end of Wilson's term he was already warning of the dangers of uncontrolled banking, particularly banks getting involved in the stock market and other financial dealings.

Carter Glass would not have liked Citi or Sandy Weill. Weill, in turn, had little use for what Glass had created, seeing it as an obstacle that stood in the way of his fulfilling his vision of the kind of "full-service" banking Carter Glass had feared.

The Glass-Steagall Act was designed to keep banks out of the securities business because Carter Glass and New Deal officials including President Franklin Roosevelt believed that one of the causes of the Depression was that banks had strayed too far from their original functions during the 1920s. According to a paper by Jill M. Hendrickson:
in 1932, 36 percent of national bank profits came from their investment affiliates (Wall Street Journal 1933, p. 1).

Glass-Steagall built a wall between banking and other financial services and the ink on the paper was barely dry when the bankers and their allies in the Republican Party began howling. Over the next half century there were numerous attempts to weaken or scuttle Glass-Steagall, but in the midst of the securitization boom the cries to tear down the wall of Glass-Steagall grew louder. In 1990, the Fed, under former J.P. Morgan director Alan Greenspan, permitted guess who--J.P. Morgan--to become the first bank allowed to underwrite securities.

It would be none other than Sandy Weill who would put in motion the forces that ended Glass-Steagall when he essentially gave the federal government the equivalent of an upraised finger by proposing the most audacious financial merger in American history: he would merge one of the largest insurance companies (Travelers), one of the largest investment banks (Salomon Smith Barney), and the largest commercial banks (Citibank) in America. The problem was the merger was illegal in terms of Glass-Steagall.

Weill convinced Greenspan, Robert Rubin and President Bill Clinton to sign off on a merger that was illegal at the time, with the expectation that Congress would repeal Glass-Steagall. That would happen with a big push from Sandy Weill. First, he spent over $200 million in lobbying fees to convince Congress to go along with his merger. It still ranks as the largest single amount spent by one firm on one bill over the shortest period of time in American history.

When the conference committee charged with reconciling the House and Senate versions of the repeal bill seemed stalemated, it was Sandy Weill who applied the final push needed to get the bill passed. Here is the now oft-quoted Frontline report of what happened:
On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill's effect on the Community Reinvestment Act, which sets rules for lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.

The Aftermath

With Glass-Steagall out of the way, Sandy Weill had his merger and the American financial industry now had a green light to enlarge on subprime lending. Some followed Weill's model of consolidating loan and insurance companies as he had done with American Health & Life and Travelers, taking loansharking to a level those who had engaged in it back when it was done in storefronts with peeling paint could have never imagined.

More money than any organized crime syndicate could have dreamed of flowed into the coffers of the subprime lenders. What had been an activity aimed mainly at people of color now became linked to complex financial instruments such as tranches and derivatives, that to an uninitiated mind resembled nothing so much as the old shell game. Where's the mortgage? Under this fund? No. guess again. Inner city and suburb which had been separated by redlining became linked by acronyms--MBS, CDOs, CMOs. But as we shall see in the next essay, ripping off people of color would continue.

Postscript: The Revelations of Language

Some reading this essay might object to my linking loansharking and subprime mortgages, but Sandy Weill from the streets of Brooklyn would get it. Subprime is perhaps one of the most misleading euphemisms ever devised, because it means exactly the opposite of what the term implies. The Investopedia offers a succinct definition:
A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans.

As for loansharking, a definitive definition is a little more difficult to come by. Investopedia says it is anyone who charges above the legal interest rate (which is set by some states). Several others add that it also involves an implied or real threat to injure the person who doesn't pay off. As if to throw a ringer into that definition there are dozens of references to "legal loan sharking." Perhaps the broadest definition is at Wiktionary:
Someone who lends money at exorbitant rates of interest.

These definitional niceties represent not merely semantic nit-picking, but in fact provide a vital piece to understanding the cultural shifts that have accompanied the economic crisis. One of the unspoken theses in this series of essays is that by clothing loansharking in the more respectable term of subprime, it suddenly made it not seem so bad to lend money to people--especially people of color--at higher rates. It is reminiscent of the semantic games segregationists used to play with strategies like the "literacy law." CNN even named "subprime" the word of the year. Can you see them doing that for loansharking?

In a fascinating article, Ben Zimmer explains how subprime came to have its present meaning, noting that the earliest use of the term was in industry to describe something below grade while in the 1970s banks used it to refer to loans below the market rate.
Something happened to the word in the 1990s, however. Now it was the borrowers themselves who were being classified as "less than prime" based on their shaky credit histories. [My underline]

Zimmer is on to something when he says the term was applied to people, because as we have seen, a high percentage of subprime loans were aimed at people of color. So the phrase about borrowers being "less than prime" has more meaning than Zimmer perhaps realized when he wrote that sentence.

At the same time that subprime underwent a shift in meaning it is quite clear that so, too, did loan sharking. The earlier references clearly have a criminal tinge to them. In old crime movies "loan sharking" was always thrown in with other nasty activities gangsters perpetrated on the innocent and not so innocent. Yet the recent references seem to take the gangster and the "enforcer" out of the term, so loan sharks just charge higher rates without threatening to break your legs or worse.

This linguistic convergence of loan sharking and subprime reflects an economic and social convergence, for it seems to date from about the time Sandy Weill first bought Commercial. So as Weill took what his own assistant termed a loan sharking operation to the pinnacle of corporate success, the financial industry adopted the euphemism of subprime just as it was getting into this type of lending.

In truth it is the financial industry itself which has helped to blur the distinction between conventional lending at a higher rate and the hardball, card-sharp techniques of the loan shark. That in turn has given rise to a new term "predatory lending" which has largely replaced loansharking in our vocabulary, creating a living for economists and others who write papers dissecting the differences between the two as if they mattered to those who have to pay exorbitant rates.

As we plunge deeper into the financial crisis, two things are clear: it takes a pretty good lawyer to decipher the standard mortgage agreement and an even better wordsmith to explain if an agreement charging more than the standard interest rate is an innocent subprime mortgage or predatory lending. For me I will continue to use loansharking with its connotations of shady activity until the financial industry cleans up its act.

Zimmer ends his article by observing:
Here's hoping that in the not-too-distant future we can look back on the current usage of subprime as a quaint artifact of the late 20th and early 21st centuries.

Twenty years ago the mainstream financial industry would have nothing to do with subprime lending. Now they are using language much like the defenses of the original loan sharks to defend it, talking about how they are performing a service for people who cannot get loans any other way.

In the next essay we will look at the consequences of the Glass-Steagall repeal, the fall of Sandy Weill and Citigroup, and the growth of so-called subprime lending. Then you can make up your own mind about whether to call it loansharking or continue to use that other euphemism.

Continue to Part III

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