Mehrsa Baradaran on “The Color of Money: Black Banks and the Racial Wealth Gap”

John Gibson of Crowell & Moring LLP interviews Prof. Mehrsa Baradaran about her latest book analyzing the racial wealth gap and the history of financial inequity in the United States. Introductions by UCI Law Dean L. Song Richardson. Recorded on April 21, 2020 via Zoom virtual presentation.

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[Narrator]:  Welcome to UCI Law Talks from the University of California, Irvine School of Law. Join us on Twitter @UCILaw.

[Song Richardson]: Good evening, everyone. I'm Song Richardson and I'm the Dean at UCI Law. It is my great pleasure to welcome you to this virtual book talk featuring our very own Professor Mehrsa Baradaran, and her newest book, “The Color of Money: Black Banks and the Racial Wealth Gap.” And our discussion today will be moderated by John Gibson, and I'll tell you more about both of them in a moment. But first, I want to thank all of the people at UCI Law who made this event possible and all of you for showing up this evening.

And the people at UCI Law who brought together this remarkable event are Jillian Henry, Rebekah Bergeron, Anna Iliff, Colleen Taricani, Mary Ann Soden, Dennis Slon, Joe Macaventa, Jose Diaz, and Patty Furukawa. I just want to thank them all for bringing together this event. We were going to do this event live on the exact day that UCI Law went to completely online teaching and events. So I'm so happy we're able to bring this event to you tonight.

So I know that all of you are as anxious as I am to get to this discussion. So I'll keep my introductions of Mehrsa and John short. Their full bios have been sent to you so you can peruse them later. If I were to give them both the full introduction we'd be here for the rest of the hour. So John Gibson, who's our moderator tonight is a partner at Crowell & Moring. He's also a member of UCI Law's Board of Visitors, and he's been a longtime supporter of the law school, including spending countless hours mentoring our students. There are simply no requests that we have ever made of John, where he has said no. And I want to thank John so much for the support that he's given to me, to our faculty, to our students, and to the law school.

John is one of the leading commercial technology and antitrust litigators in the nation. He's also a highly decorated veteran of litigation battles and rescue missions. He's won celebrated trials and cases around the country for high tech, international and Fortune 500 companies, as well as for healthcare companies, professional sports teams, and pro bono clients. John serves on the firm's management board and is co-chair of its Diversity Council and as Chair of the Antitrust and Technology Working Group. He continues to be listed as one of the best lawyers in America, and in addition to being a successful courtroom advocate, John won the Burton Award for being one of the finest law firm writers of 2019. And last year, the Thurgood Marshall Bar Association honored him as its attorney of the year. So thank you, John, so much for serving as our moderator tonight.

[John Gibson]: Thank you, Song.

[SR]: Now, we are so fortunate to have recruited Professor Mehrsa Baradaran to UCI Law last year. We stole her from the University of Georgia School of Law and I'm so happy that I was able to pull that off. We are so lucky to have her as part of our community. And at Georgia, while she was there, she was the Robert Cotten Alston Chair in Corporate Law, and also served as Associate Dean for Strategic Initiatives. Professor Baradaran writes about banking law, financial inclusion, inequality and the racial wealth gap.

She's a prolific scholar, including being the author of another book titled, “How the Other Half Banks,” which is also published by Harvard University Press. The book that is the subject of this evening's talk has been highly praised and was awarded among many other awards, was awarded the Best Book of the Year by the Urban Affairs Association. Now you'll probably recognize Professor Baradaran because her books have received significant national and international media coverage and have been featured in the New York Times, The Atlantic, Slate, American Banker, The Wall Street Journal, The Financial Times, and on NPR’s Marketplace, C-SPAN’s Washington Journal and PBS’s NewsHour.

You can see why I'm so thrilled to have convinced her to join our community here at UCI Law, but not only that, she has advised U.S. Senators and Congressmen on policy, she's testified before the U.S. Congress, and spoken at national and international forums like the U.S. Treasury and the World Bank. So this evening we are in for a treat. We are fortunate to have two great minds and two brilliant lawyers. I will now turn the screen over to John Gibson and Professor Mehrsa Baradaran to discuss her extraordinary book, “The Color of Money: Black Banks and the Racial Wealth Gap.” Once again, thank you for joining us.

[JG]: Wow, thank you, Song. I'm just very pleased and honored to be on the same screen with the two of you legends. And by the way, Song, I'd like you to please rewrite my Wikipedia page. In any event, I wanted to just take a minute or two before we started on the questioning with you, Mehrsa, to really explain why this book was so personally impactful on me. And I've been thinking about it, and really, there are two reasons why the book was so impressive and hit me personally, so hard and effectively. And the first is that it offers this very unique historical perspective as scholarship. And it starts by calling out the gap between our ideals as a nation on the one hand, and our achievements as a nation on the other. And that gap was president at the founding of our country.

The founding documents were written by folks who wanted to escape tyranny and oppression, the tyranny and oppression of the crown. And Abraham Lincoln later called those documents a rebuke to tyranny and oppression, yet those founding documents allowed slavery to continue. Those founding documents counted enslaved peoples as three-fifths of a person. And, as the book points out, that gap exists still today. An example is that the wealth of a median white family in America is 13 times greater than the wealth of a median black family in America.

Second reason why this was so impactful to me, was the identity and extraordinary life of the author. And if you read beyond the book and did as I did, and did some googling and some exploration about Mehrsa, after reading this amazing book, you found that she's experienced in her life a dramatic reversal. In her first eight years or so on this planet, she was a child in a country where she and her classmates go on a daily chant, shouting, "Death to America." Today, she's not only an American citizen, but she's one of the people who is just critically important to breathing life into the dead and dying aspects of our America.

So while she learned "Death to America" as a child, she's living life to America, through her personal commitment, and through her brilliant scholarship. I would say that if we were all in the same room together right now, Mehrsa, you'd be hearing thunderous applause for what you've achieved so far, and what you're yet to achieve. Let me just say to the audience, we've got as I understand it, 243 of you out there. We have received a wide variety of pre-submitted questions, and Mehrsa and I’ve got to try to get through as many as we can in the time that we're allotted here. We're going to cover a number of topics.

First, we're going to cover some topics that were in the book. But because we have this brilliant author with us for a period of time, we're also going to cover some other topics that are not in the book, although they're related. And so generally we're going to try to get to six topics. First, what is the wealth gap? And what is the author's personal experience with it that drove her to write this book? Second topic is why the wealth gap is important. A critical question. Third topic, why past measures to narrow the gap have failed. And then fourth, what measures might work going forward.

Fifth and six, we want to talk about the situation we're in now: the COVID-19 crisis. And so the fifth question is, really, why is COVID-19 killing black people at a higher rate than other populations in America? And then finally, we want to talk about whether or not we can use the COVID-19 crisis to help us develop solutions to the wealth gap. And that last topic is actually along the lines of a question that was submitted to us by one of the members of the audience. So Mehrsa, turning to you because you are the star and the subject of the hour. I want to start by just asking you, if you would take a few minutes to introduce us to your thesis, and to some of your general thoughts about the book, “The Color of Money.”

[Mehrsa Baradaran]: Yeah, sure, thank you so much. The introductions are too kind. I would rather just skip it and we can talk, maybe have a cocktail hour over Zoom later. The thesis that I talk about in the book, and I'm going to try to share my screen and some of this data that is actually worse now than it was. So I'm going to... Just here you can see the screen and this is a racial wealth gap. As John said, it's 13 to 20 times, white families have 13 to 20 times the wealth of black families and it doesn't shift over time. So over time or with education. So college educated, higher earning black family, so higher income black families have 1/10th to 1/20th  of the wealth of white families. In fact, the wealth gap is highest ironically, the higher income up you go. So wealth is really this very stagnant situation and I'll explain why that is.

But the other slide that I want to talk about is just the stagnancy of the racial wealth gap. So this first pie chart is at the cusp of the Civil War, 1865 the black community total wealth was about point 0.5 percent. I mean, there were not that many freed men and women who were able to earn wages and buy land. But today that number has barely budged. It's about 1 percent. And so the thesis of the book is, insofar as you've had this economy, where the levers of power have been political, and based on sort of a control of the systems of credit and banking and finance. Every institution, specifically the banking sector, and the credit mechanisms were blocking black capital accumulation at certain pivot points in our country where we could have achieved economic justice. So during reconstruction or during the civil rights era, we chose another path. And that's been sort of this myth of self-help capitalism, this idea that if you can pull yourself up by your bootstraps, you can work hard, you can save your money and that's sort of where I get at in the book. It's not something that I have a personal experience with, I am not American descent... I'm not an American. I'm not a descendant of American slaves, certainly. But something that is a very keen interest of mine is how the myths and stories that we tell and perpetuating injustices. One and two, that the ways that powerful forces that are unseen end up becoming drivers of inequality.

And so the thing that I focus on in this book is the banking sector. And I want to just quickly run through. I'm not going to go through all of the pivot points, I'll talk about them briefly. This is the bank black movement. Recently a lot of national attention on black banks. That's Killer Mike. And I'm going to run through that the Civil War aspects. But I want to talk about one of the major drivers of black and white wealth gap, is housing segregation. And even before the event that I'm going to talk about, which is the New Deal, sort of created a permanent dual economy of mortgages, there was a lot of animosity, and I'm talking about the North here. We usually talk about the southern racism, and not that that is fully understood, but I want to talk specifically about the northern segregation and mortgage market.

So in the north, the values of neighborhoods in the 1920s... And here's the thing. To this day, the racial makeup of a neighborhood determines its home values, okay? So when you see signs like this, this is both racist, extremely racist, violent and also about home values. So the thing that would happen during this time of flux during the Great Migration is when black families would move into a neighborhood, as soon as that percentage of black families tipped from 0 to 2 percent, the whites would start to flee. So someone called integration the few weeks between, or the few months between when the first black family moved in and the last white family moved out, that was a moment where it was integrated.

And this was a dramatic driver of wealth. It was also done with a lot of violence. So a lot of times the first few black families that moved in, had their house bombed, had mobs showing up, had lots of race riots started during this time against the black property owners. But what this meant was when the black families would buy the home, that equity would immediately disappear. So they were paying a premium for the home to live there because they knew it was about to shift, and then their investment would disappear. So this still exists and in large part is responsible for the legacy of these historic racial wealth gap. So your grandfather, or your great grandfather having property, land, a home, even if you maybe didn't get the big inheritance, that still determines your wealth outcome, much more so than anything you do in your life. That's not sort of the typical American story, but it is very much borne by the data.

So after this organic sort of segregation, it was also embedded in legal codes. There was a lot of contracts. I had a student when I lived in Athens, Georgia, dig up my home deed and every home deed... If you have a home that was you purchased before 1960s or so it will say in there, "This home can only be sold to a white," or it's a Caucasian home owner. So these were embedded in contacts. But then it was sort of magnified through law. And this is when the New Deal comes in. So I'm just going to spend a moment talking about this, because this really determines the wealth creation potential for this century, and to today. So what the New Deal does is, before there were credit ratings before there was underwriting and all of this stuff, we had these really blunt risk ratings. And what it was, was maps. So depending on your neighborhood, they could determine the risk of your value of your home increasing.

So before the New Deal, you could not get a 30 year fixed rate mortgage, you could get a mortgage maybe for five years, you'd have to put half down on a home. So mortgages were wildly inaccessible, and if they were there was a lot that you had to do to get one. Post New Deal, 30 year fixed rate, self-amortizing, 6 percent rate caps, those were all mandated by law through the FHA. They were sold through government sponsored entities, Fannie Mae, Ginnie Mae, all of that government structure. The FDIC protected deposits, the FHA insured loans, and so there was no risk in home lending. This was all a government program created by, first the HLLC, and then the FHA. So these are the maps that they made, and I want to focus on one.

This is an actual description of one neighborhood in Atlanta, and I show this neighborhood because that neighborhood in Atlanta, you can see it on the... I don't know where it is on your screen. But on the other side where it shows the map, that neighborhood that little slice of red is where Morehouse and Spelman College are, they're historically black colleges. The highest earning black neighborhood probably in the country. I mean, there's maybe other rivals, but it was a very good neighborhood. And you can see in this FHA map on the other side, where it says, look, there was inhabitants, Negro business and professional men, clerical workers, family incomes were good. Desirability, it says for black people is pretty good.

But then if you look at this number two and then number two, A, C and E, foreign born families, how many foreign born people were there? 0 percent. And then Negro, yes, 100 percent. And then infiltration of, what is infiltration of? How close were these other groups, these foreign born or black residents? And that neighborhood, even though the homes are owned, even though they were largely businessmen and women... mostly men, and it was the home of these two established universities was redlined. And what redlining meant was that they could not get these government guaranteed mortgages. So if they wanted a mortgage, they have to go find it on the private market and private markets was not present for these mortgages. There were about four black banks in the country, and they were struggling during this time.

Meanwhile, in the white suburbs, I'm going to go back to these other areas. This is Chicago, if you see in the green area. So green and blue were, they call them racially homogenous, so white. Yellow was sort of mixed race, so there was some other races. And really race was the number one indicator that they looked at. And you can see this across any other neighborhood that you look at. So what happens in the white suburbs is people are growing equity in their home, their home prices are rising in value. They also have schools are funded through local property taxes, so those schools are getting the funds that they need, their social capital being built. Social capital is who you know, it's the clubs, it's the... This is the “Make America Great Again,” this is the Levittown, the American dream of suburbs and kids playing in the streets.

And consumer goods, also there was another market that was about consumer credit. So in the white suburbs because of the wealth and because of the way that the credit cards were issued, you could get revolving credit so you could buy a car, your refrigerator, all these household goods. This is the post war, baby boom, greatest generation. And they were buying on credit, everything. Their home was on a 30 year fixed rate mortgage and their goods were on revolving credit at 6 to 10 percent. In the black ghettos, and I call it ghetto because calling it a black community indicates that it was sort of a self-selected reason why these communities were in these redline communities, but it was really a forced segregation in the communities. There wasn't just no mortgage loans, they're paying higher rents than you would be paying your mortgage, not building equity, and they're paying 10 times as much for consumer goods. Anything you bought in the ghetto was not through a credit card, or a revolving loan, it was through an installment loan. And an installment loan is sort of night and day from a revolving loan.

So why is this important now? I'm not going to do the whole book talk. It's all in the book. And I lay out exactly how we got from there to here. And we can talk about the civil rights era and how that fails to address this. Why that's relevant is these wealth effects that last... I mean, FHA and these programs are around until the late 60s. And even when it's outlawed, nobody fixes this. There is a clause in the FHA that we should affirmatively further the cause of fair housing. But we've never actually addressed these disparities, we've never addressed the hundreds of years of explicitly racist and racial exclusionary zoning laws. And what we have now is a massive racial wealth gap that grows over time. In fact, it's not closing at all. With the subprime crisis, as soon as Wall Street figured out that there was money to be made by selling loans into these black spaces, they came bearing subprime loans. And when the subprime crisis went bust, black families lost 53 percent of their accumulated wealth, which wasn't much to begin with. And that is not wealth that has been recovered over time. So when we talk about the financial recovery, it's been absolutely split.

And so now you have COVID-19. So I'm just going to bring it to the present. When you have these structural disparities, and then you see a virus run through. Now, a virus is obviously colorblind, a virus is not racist. I mean, it just gets humans at the same time. But what you have had is historic disparities in healthcare, you have historic disparities in the amount of pollution. So a lot of these segregated areas are also where cities stuck their highest polluting forces, there's higher rates of all sorts of underlying conditions, there's fewer access to healthcare. There's also the jobs that have not been available. So there's a lot more black service workers, people who have to work.

And so what you saw in the early numbers, and more data is coming, but 45 percent of deaths for COVID-19 have been black Americans, 45 percent. In Detroit, in Louisiana, some of the numbers are even higher. So that's a staggering disparate impact of a colorblind disease. But I think what it does reveal is the myth of this colorblind effect, so not only is the disease colorblind, but also having a disparate impact. But our credit programs are also colorblind and they also have a disparate impact. So when you have any sort of benefit program, any sort of shared thing, you're going to see a massive disparities. You see it in student loan debt, you see it in home ownership today, you see it in savings.

Today, JP Morgan released some data that I helped them accumulate on just spending, so earned income tax credit. When low income folks get an earned income tax credit for black families, the spending on healthcare increases 220 times than white families. So to translate that, that EITC goes to healthcare services at a much higher rate. So when that tax refund comes in, a lot of black families use it for healthcare costs. So what that means is that when you have lack of wealth, you also have lack of access to all sorts of other essential services. You have much fewer liquid assets, you have less return on your income. So the other data on this is that black families, actually only 70 percent of their income compared to white families can go into their lives because the other stuff is kind of taken off through debt servicing.

There's a whole bunch of complicated factors that come into this, but all of this to say that the wealth gap sort of stagnates and self-perpetuates in these weird ways and understanding it gets us to where we need to be if we're going to look at solutions. And we can obviously talk more about that, but I'll kind of leave the maps for now. And I'll turn it back to you, John, for questions. You're on mute.

[JG]: There you go. That's unmute. Okay, can you hear me now?

[MB]: Mm-hmm. Yeah.

[JG]: Good. So, thanks for that, Mehrsa. I want to turn back to your personal background just for a second and talk about what you bring to the table. As you were talking, I recalled when my wife and I bought a home in Orange County and found out at closing that it had a covenant running with the land, that this property shall never be sold to any non-white person. And the title company gave me some forms to expunge that because it's illegal. And my wife and I decided no, we're not going to expunge, we're going to leave it on there to let people know where this land came from, and some indication of at least some progression we have made as a society and as a country.

[MB]: And it's a matter of personal dignity. Sorry. I mean, one of the things that blew me away in studying some of the black bankers and successful black businessmen of an earlier era as Jesse Binga, someone that I write about in the book and he's black banker in Chicago. His house was bombed 10 times, and he kept moving back. He bought a house in a nice neighborhood. He was a wealthy man. And people were like, why don't you move? You could die one of these days with these bombs, and he was like, I'm an American citizen. I have the right to be in this house. Another doctor, Ossian Sweet, bought a house and was armed, so he used his Second Amendment rights to arm himself to defend himself against intruders of his house. And when the mob came, he had every right to protect himself and he gets charged with a crime.

So there are these ways in which it's a matter of dignity for these black... And I remember thinking, gosh, if I were in their position, I would just move to another place. Right? But I don't know what that's like. And so I do think that there is a sense of like, no, leave it in there, because you have this sense of just overcoming like, let him have that and I'm going to buy the house anyway. And so there are some really inspiring stories, but also tragic that that kind of heroism has to be shown in such a hostile climate.

[JG]: Well, let me ask you, you mentioned that you're not a descendant of enslaved peoples here in America. I am, obviously.

[MB]: I'd love to hear your family story.

[JG]: But you bring some things to the table that are very important, for example, your experience as a Wall Street attorney and your experience living in Harlem. Can you talk to us about that? And how that informed and maybe motivated your work here?

[MB]: Yeah. So on the race issue, I kind of see myself as an outsider. My ancestors weren't implicated on either side. Obviously, in other countries, there's their history of colonialization that are a whole different chapter, but the black-white racial wealth gap is a very uniquely American phenomenon.  And also, South Africa, other places as well. But, the ways that Americans deal with race is weird for someone who's not from here. I mean, we have these myths that are so sticky and so wrong. As an outsider, I mean, obviously, I'm more American than not, but when I first kind of realized the way that Americans kind of map out race it was really baffling.

As far as the Wall Street stuff, I worked on Wall Street between 2005 to about 2010, which if you remember, the history of the financial crisis was all in the before, mid and after that time. And I guess that's where a lot of the cover of the stories that the financial sector and the credit economy, and the Fed told about itself, kind of blew open for me. This idea that banks were these private entities, and they were vulnerable to market forces, and that governments didn't make money, they just kind of created it. And what you saw was just a complete reversal of everything that I thought I knew about the way that laws worked and the way that finance worked. And what it was, was you have an industry that screwed up, that really took on too much risk, but it was an industry that we could not let fail. There wasn't...

There's this back... The way we kind of rewrite this history like, oh, we should have let them fail, that was not an option. Just as it's not now. You have a sense of we're all connected. And if you let AIG fail, if you let Goldman fail, we all lose our pensions, we all lose our jobs. And to see the Fed come up with trillions of dollars overnight, and to smooth over this market, and after my experiences with that, I sort of don't take these responses of, oh, where are you going to get the money for that? Or, how are we going to fix it? This is just a matter of personal responsibility or just capitalism. And I think we're seeing that right now with the COVID response. So you have the government being able to, when it wants to fix the problem, it can do it, it can do it fast. It can Marshal trillions of dollars on behalf of those who wants to help.

And so fixing the racial wealth gap is not beyond our means, it is I think beyond our political will, and has been over time. And I tried to tell that story through the book. And part of it is just the way that we don't understand how it was created. And we want to blame the communities for this thing that was not created by the communities who are suffering from it.

[JG]: One of the things that I thought was fascinating about your historical treatment was talking about some of the conservative presidents in the modern era, Nixon, for example, and what was going on there. And the part I thought was fascinating was that he was a conservative president who at least outwardly embrace this idea of black capitalism, black empowerment. Can you talk to us a little bit more about what actually happened and the effect on us today?

[MB]: I'd love to. I can talk about Nixon for the next three hours. I'll try not to, but I spent months in the Nixon Library, which is here in Yorba Linda, California. And it's a fascinating treasure trove for anyone who is interested in history because there's all this Watergate stuff. But the campaign materials are these boxes of unmarked campaign materials that I think for me just blew open my eyes on American politics, and here's why. So 1965, between 1968 are these pivotal years, and I obviously wasn't around. But I think understanding this era and the pivot points that were not followed and where we were as a country really helps explain where we are now with the two parties and with the stories that we tell.

So everything you know about Martin Luther King, the "I Have a Dream” speech, Selma March, Civil Rights Act, Voting Rights Act, all of that stuff was before 1965. Post 1965, Martin Luther King is very committed to this idea of economic justice, right? We have been given a bad check it is time to fix it. So he's anti-war. He's anti-racism. Obviously, he's anti-economic exploitation. He's saying things about capitalism that are really radical. He's really a radical guy. You have the Black Power Movement gaining traction. You have the Black Panthers moving in. And this idea of like, you know what, maybe integration is too much to hope for. We've been trying after all, for hundreds of years. This is Booker T. Washington, W. Du Bois, there's been a lot. It's not as though the first time we're talking about civil rights in 1965. We've been talking about civil rights... I mean, there have been slave rebellions that were demanding right, justice.

I mean, as soon as the first black people were enslaved, there was a demand for justice. So this was just the first time there was national attention to it. And then the Black Power groups were also another trend in the black justice movement, which is you know what, maybe we have our own culture that we are going to protect and integration maybe not the goal that we're after, which I think Martin Luther King also has both parts in it. But what happens during this time is the Black Panther movement saying black power and black companies and black businesses. And so you have this 1968, so skip over the Johnson era, even though it's fascinating. In the 1968 election, the Democratic candidate is Robert Kennedy, who has a very robust civil rights agenda, who knows he could have gotten it done. He is killed.

Martin Luther King was killed in 1968. Malcolm X, Black Panthers also hunted down and killed by various sources, probably the FBI. So Hubert Humphrey comes in on the left. And then on the right, you have new people like George Romney, who maybe I'll talk about later, who's a fascinating character as the last GOP, conservative, but racial justice kind of warrior. George Romney comes out looking at these maps and he says, the white suburb is a noose around the black ghetto. White society created the black ghetto and it's white society's job to fix it. That's George Romney. So you have these candidates, and Richard Nixon, what he does is he creates this new Republican Party by taking the south, the Southern Democrats and turning them into the right. And the way he does that is that there's these two very prominent paths out of the civil rights era.

You have to fix everyone understand that the economic part is next. The civil rights law, the voting rights law, all they do is guarantee the rights that should have been guaranteed in the 13th, 14th, and 15th Amendments in 1865. So civil rights laws, voting rights law, and then the next step is economic justice. So do you push for integration? Do you push for reparations? Both of those are very robust positions that both sides are holding and Richard Nixon can't do either. He wins the White House on a very anti-integration stand, a very anti-black stance. This is all in the records. It's all very public. Every message was anti-black. He was sort of campaigning on the basic instincts of Americans.

There was also a movement of riots in the inner cities, partly dealing with this economic issues and I go into that a lot in the book. One of the things that the protests were targeting were the lenders in the black communities. So he knows that he can't do integration, Richard Nixon, and he's not about to do reparations. And Alan Greenspan is his advisor, and Alan Greenspan's writing all these memos to Richard Nixon at the time saying things. And Alan Greenspan... I know there's a lot of young folks out there who... He's been called the god of the free markets, very pro-capitalist and Ayn Rand devotee and all this stuff. He's saying, look, any demands for reparation or integration is anti-capitalist so use sort of capitalism to cut down these demands.

And so what Richard Nixon does is this brilliant move of taking the rhetoric of the Black Power movement and twisting it. So no integration, no reparations, but yay black power. So Richard Nixon's whole advertising agenda is black power. And what he means is black capitalism. So that's his economic agenda. What is black capitalism? It's the OMB, Office of Minority Business Enterprise, which is now the Minority Business Association. So small business loans, which gets cut down by the Supreme Court, by the way, as reverse discrimination. So he says, okay, well, every government contract should give a little bit of contracts to black businesses, and that doesn't even withstand the test of time.

And affirmative action. So he asks companies to reserve some places for black workers. This is so he can pretend like he's doing something, but actually do very little. Hubert Humphrey, who was his opponent at the time says you cannot have black capitalism without capital. But that's exactly what he was trying to do is do story. So they would put out these stories of these successful black business people and say, look, look at this, it works just as fine. And so they started these myths and what you see from the Nixon era and that story telling about the racial wealth gap and the need for economic justice to now, are the things that I'm trying to overcome in the book. Because that's not just Nixon, it's Reagan, it's Clinton. It's the Democrats, it's the Republicans, it’s this focused on let the entrepreneurs fix it.

It's opportunity zones. Opportunity zones is a Trump era thing, but that goes back to Nixon. I mean, Nixon had black capitalism, Reagan has enterprise zones, Clinton has enterprise zones, and he calls them community enterprise zones or whatever. So these are all very Nixonian ideas that don't actually get to the core of the racial wealth gap.

[JG]: Thank you, Mehrsa. I think let's turn now to solutions or potential solutions from where we are now, and I was interested to read in your book, on page 282. The point of this book has not been to propose a particular proposal, but rather to demonstrate the past efforts of economic inclusion have fallen short. And that any plan to bridge the wealth gap must include integration or a means to acquire capital. And then you go on to talk about certain litmus tests that should be applied to whatever solutions are being considered. I have a number of questions on this one, but maybe we'll start with, what did you mean by it must include either integration or a means of acquiring capital? Why is that important?

[MB]: So going back to 1968, I don't mean integration in that you have to have housing integration... I mean, economic integration. You can't have taxes being used to fund school districts from the home values. You have to give people this ability to have the economic mobility. So today, the zip code that you're born in, has everything to do with your future potential, your school, your potential income, all of that. And so that's where integration comes in, you have to allow families to move to where they want to move. I mean, I know we say that we don't prohibit that. There aren't racial covenants anymore. But effectively, there are, there are zoning laws, there are the ways that we fund schools, the way that we fund neighborhoods and housing.

So we have to have some sort of economic integration, you have to embed all of that, that schooling into a wider system that allows us resources to be shared. Or you have to have reparations, and that's what I mean by capital. So call it... I think we get mixed up in these words, but the basic thesis that I sort of lay out in the book is that you had a variety of government credit programs and government just lands allocation and the markets have responded, markets are the same thing as the government. I think the government sets up the market. But you've had subsidies and credit allocation that have built white wealth, and that have explicitly not built black wealth, been excluded from homestead acts, FHA loans, GI Bill, all of that stuff that still has effects to today.

So you have to fix that. You can't just pretend. You can just say, okay, from now on, we're not colorblind. We are colorblind. From now on, we're just no racial discrimination. And of course, we still have racial discrimination. But as long as it's not explicit, you have to fix it. So how do you fix it? You have to get to the core of how it was built. It was built through housing, it was built through employment discrimination, it was built through these credit things that were not available, and so go to that core and fix it. So whether it's through housing allocations, I mean, there's actually a variety of solutions here. I mean, look at the CARES Act, you have all these problems. People are out of jobs, they need to service their debt.

And so the CARES Act is this whole package of like, okay, we're going fix employment, and it's not perfect, but it kind of looked at the various different parts of the economy that are stalled. And one of the things that Martin Luther King says is we care a lot when there's depression in a recession, but the black community has been in the depression since 1865. If you look at the numbers, we just wouldn't tolerate that level of depression for the American population if the wealth and income and the employment odds were that bad for all of us. And part of it is that we just don't take that ownership. We don't see it as all Americans this way, we're kind of okay with some kids going to under-resourced schools, but my kids should go to a better school. And I think we do this, we make these personal decisions that maybe are individually rational, but collectively recreate these in justices on a family by family basis.

[JG]: Well, that's really important. Let's go a little bit deeper there. And I want to give you a hypothetical. Now I've been waiting all my life to give a law school professor a hypothetical. I apologize in advance.

[MB]: Yeah, it's okay. Justice!

[JG]: But fast forward to January 2021, a third presidential candidate has entered the race. And she wins by a landslide. And Mehrsa is now the president of United States. It's your first day in office in the White House. And one of your platform of course, a major part of your platform was fixing or narrowing the racial wealth gap. First day in office, what do you do?

[MB]: Yeah, okay. So one, I don't like people enough to run for president. And two, I was born in Iran. So these are all very, very hypothetical questions. What I think is really important here is that every agency in the federal government, every branch of government, legislature, executive, judicial department, every agency, so FHA, HUD, EPA, all that every single agency and every branch of government had a role in perpetuating the racial wealth gap. And the role was either omission or actual, racially explicit laws for hundreds of years. So if you're looking at any of the housing structure and the housing structures, we don't have a really private mortgage market here. We have a very public mortgage mechanism, the GACs, all of the banking agencies, the Federal Reserve, all that stuff. I will say every agency, here's your history. Here's how you helped create that racial wealth gap, give me a plan. You agency heads, obviously I would appoint great agency heads, you agency heads -- so I'm going to delegation. So you agency heads come up with a plan, and you're going to check in every year on what your efforts have been in closing the wealth gap. I want to see data. I want to see what exactly you've been doing.

And this is the beauty of the Nixon administration. So Nixon did something brilliant here with the office of budget. I can't remember … It's called the Congressional Budget Office. And one of the mandates of the Congressional Budget Office that had come over time is a cost benefit analysis that we law professors love to debate, and the idea is any regulation or legislation that you come up with as an agency as a Congress or whatever has to be scored on a cost benefit. So what are the costs to the economy? What are the benefits? So it's basically like, Nixon understanding is what you measure is what you get. If you're going to measure costs, that's what you're going to get. If we were to measure just environmental impact, we would get that.

If we were to measure the racial wealth gap that's what we would get. So I would say, start measuring it, every agency, every plan, tell me how this closes or perpetuates the racial wealth gap. Come to me every year and report. We do this all the time with the stuff that we care about. So I would do that for here for this, and then I would just dedicate the capital program. So I've come up with a couple policy proposals. One would be that the Homestead Act, so to revitalize these cities, Detroit, Baltimore, certain rural places that were redlined, are deprived of mortgages that are largely black populations, black and brown, by the way, Hispanics have also... There's a racial wealth gap there, but to create bonds or the way that we did for the FHA to underwrite the revitalization of these cities. So you buy up a bunch of these abandoned homes, you redevelop through government bonds, you sell them, you give them, sorry, as a grants like a homestead grant to the recipients and then allow that revitalization to build wealth. That's how we created the suburb.

I think looking back at it, that was probably a mistake. The suburbanization of America made us a car country, it made us a home living, It had environmental impacts that were bad, it had community impacts that were maybe not so great. But we did it within a matter of like 5, 10 years. Out of nothing, we created an entire new structure of the economy, and it was profitable. All of those mortgages made money, the FHA made money, the cap of the private capital came. And so these programs don't have to be this backwards looking. I mean, look forward Look, look green, but do it in a way that involves... So I guess my short answer would be to start measuring it and start telling people exactly... Asking people to report exactly what it is that they've done and what they do. So whether that's private companies or public agencies, I would want to see reports.

[JG]: Great.

[MB]: I mean, sorry, the other thing is just like the rhetoric. I mean, I think any anytime you have a president speaking, that rhetoric is coming up, and this is what you saw with the Trump era, and I know one of the audience questions, just... One of the, I hate to say silver lining of the Trump era because I think it's been an unmitigated disaster, is that race has... We are not pretending that we're in this colorblind society anymore. It is front and center, you saw the campaigning. And Nixon was even way smoother than this president in the way that he talks about race. Nixon's entire platform was anti-black as his top advisor reveals, yet he was able to code in a different way than Trump just can kind of come out and say these things.

So I think that's actually for those of us who have been shy about trying to gain economic justice. We can say look, we're clearly not colorblind, let's just deal with it right. When we have these terrible things, and let's just put them front and center and talk about it. And I think that would be actually quite healing for everyone. Maybe that's too optimistic, but I'm kind of getting that just out and measuring it and really coming to terms with what it has meant for our society.

[JG]: Well, while we're there, Madam President.

[MB]: Just my nightmare.

[JG]: Just enjoying this hypothetical a few more minutes.

[MB]: Since my boss is here, I literally have my dream job right now.

[JG]: Okay.

[MB]: I have no ambition for anything else.

[JG]: And we are glad to have you here.

[MB]: Thank you.

[JG]: Let's switch gears then and talk about, in terms of 2021 through 2025, the next presidential administration, can you briefly compare kind of a contrast what you think would be likely in terms of addressing the racial wealth gap, comparing a Trump administration versus a Biden administration?

[MB]: It depends on who Biden gets us as advisors. I think there has been a progressive movement on the left. Progressive in general, understanding that class and race are issues that have always gone together. I think one of the things that Trump, I think, gave populist kind of bad name. And I want to go back historically, and the early Populist Party was a southern party of sharecroppers, white and black. Frederick Douglass was a proud affiliate of the Populist Party and the idea was, look, we're all sharecroppers, and we were growing this debt crop. And it's just feeding Wall Street and oligarchs and the planters. And so we're going to join together and get the things that we want. The things they wanted were access to credit, and more sort of looser monetary policy so they could buy land for themselves and buy equipment.

So that was the early Populist Party and what the Democrat Party at the time did is decided that white supremacy could actually break this up. So we're going to give the poor white sharecroppers something in whiteness, and that is actually a better coalition because then will join up with some of the planters and beat the populists. So I think there is a potential for a populism that is the Martin Luther King, Frederick Douglass era are populism. So Martin Luther, King, the last thing he was doing was a poor people's march on Capitol Hill and the idea was to bring in a white Appalachian. This is a tidbit from history that I think is incredibly relevant. White Appalachian Unions who were also armed, joined up with the Black Panthers on several occasions to do certain demonstrations, and they were really affiliated here.

So this idea that you would have poor white people and poor black people and poor Mexican migrants joined together to fight, like J. P. Morgan, isn't too farfetched. And I think that is the politics that we have to keep our eyes on. Is this, who are the power players? I mean, look at the CARES Act, I mean, who got the money? It wasn't a small businesses, it was a lot of big businesses. It was the big banks that chose who to give the money to. It's J.P. Morgan, it's Amazon that don't pay the taxes. Do you really care about illegal immigrants coming in and taking health care services? Or do you want Jeff Bezos to pay some federal taxes that would take care of a million different problems? So I think if we're going to see a true left, any left solutions... And Trump did, I mean he was he was not genuine, but he did summon that populism. I think it was, I mean, if you knew who he was, and if you knew the people he was going to point it was always false.

But there is that that line in the left, in some of the candidates. Biden is not that candidate at this point. So it will depend on who he brings in, but the idea would be just to unrig the system, to get money out of politics, to diminish the power of lobbies, to force the billionaires to pay taxes. I mean, we just don't need people to have hundreds of billions of dollars. That's a threat to democracy. It just doesn't work, a society doesn't work when 1 percent of the country owns 80 percent of the wealth. That's not democracy. I mean, according to Brandeis, you can either have democracy or wealth in a few hands, you can't have both. And I think we've chosen wealth in a few hands. And I think that's the challenge.

[JG]: Mehrsa, before we turn to audience questions, last topic, what can members of the audience do to help in this mission both individually and collectively?

[MB]: I think you make individual decisions. Well, collectively, I think just getting politics right, trying to join coalitions that are broad and are demanding actual fundamental economic justice for our most vulnerable population. So the black population, we need a coalition that recognizes these histories. And if it doesn't, then that's not the coalition that we should join. Any party left or right that doesn't precedent black economic justice is not taking justice seriously, or democracy seriously. And the other thing, personal decisions is just thinking of the rhetoric that we use the places we decide to buy homes. A lot of us choose, those who are middle class, choose the single most important choices are where do we buy homes? Where do we send our kids to school? And often those decisions end up... I don't want to blame individual decisions because there is a system, but we really can speak up in local politics. We can talk about local zoning, we can talk about local taxes and local school funding, and all of that sort of local politics that does breed injustice.

[JG]: Great, thank you. I want to be respectful of people's time, but my understanding is we have until 6:15, is that you're understanding too, Mehrsa?

[MB]: Mm-hmm. I guess yeah, if people can stay, I can stay, but if people need to go, I can keep talking.

[JG]: So it's a lot easier. You just disappear.

[MB]: Yeah.

[JG]: So why don't we plan to go at least... to go another 15 minutes or so because we have some really good questions.

[MB]: Okay.

[JG]: And I know you want to turn your attention to those and maybe take a minute or two to wrap up at the end.

[MB]: Sure.

[JG]: So, to finish off on COVID-19, where we are now, here's a good question. What should policymakers be doing to support black communities and enhance access to credit during the COVID-19 recovery?

[MB]: Yeah, so one of the things that I have been kind of... I feel like a broken record at this point is this idea that all the credit allocation goes through banks, and banks become this middleman that ends up creating these really disparate outcomes. So the money comes from Treasury or the Fed and then it gets distorted and it comes out skewed from the banks. So the PPP was a classic example. All the $350 billion, banks, you send it out to the small businesses. And what happens is what was bound to happen when you use these big banks. The big banks said on the first day that they're not going to do it, except for their credit customers. Who are the credit customers? The bigger businesses. They did it for their largest businesses, and the ones that had the lawyers that were able to come in with those applications and had those long standing relationships.

So we saw only 4 percent of small businesses got the loans, a lot of big businesses came. You see this in a lot of the way that the credit dispersal goes. So my broken record thing is you can actually do it directly we have the technology. We don't need these antiquated systems. It used to be the only banks could clear checks. You had to have someone go to a clearinghouse and take the check and make sure it wasn't fraudulent and clear the check and now my cell phone can clear a check in like a second. So one of the things is postal banking, there's a ton of rural areas, urban areas where banks refuse to lend, they refuse to give savings accounts. The post office could do it. In tons of areas where the post office is the one federal government contact that people have or the one outpost in the entire area.

So go, you get a savings account there, checking account, and then the Treasury could just push a button and the money would be there. You have people's Social Security Number, the post office has your address, they know who they are. It's a 300 year old or more pre-constitutional agency that has been serving every community regardless of cost since the founding of our country. And we had a postal savings bank. So I think that's one of the ways that we can increase access to credit for individuals. As far as just targeting black communities, I mean, I think we have to just do that, target. And also I want to point out that credit isn't all good. It's not just any ratcheting up in credit is not going to be beneficial unless it's the right kind of credit. So Subprime was access to credit. It was wealth extracting credit. Payday lending is access to credit. That's how the payday lending sector justifies itself is they're offering access to credit.

So it has to be wealth building credit. So certain student loans can build wealth. And certain home mortgage loans that are guaranteed can build wealth. You can just give capital directly, you can give down payment assistance. So I've helped a couple of the senators and presidential candidates come up with some of these plans and was proud to see some of this stuff get enacted and all of it, the stuff that I put together had both credit that is low cost and underwritten by the federal agencies, but also down payment assistance. Because when you have this massive racial wealth gap, you have a third to half of black families have zero to negative wealth, because you don't have the down payment. And so you need that also. So that's part of the plans that I put together.

[JG]: Thank you. Mehrsa, this next question is one that I'm stringing together a couple of questions from the audience, but also some things that I've heard in the media and knocks  I've heard on the strategy in other contexts. So the question is, isn't reparations an antiquated concept that's already been tried and has failed? What do you say to that?

[MB]: I don't know when it's been tried. It certainly hasn't been tried ever here in America with black population. There was Japanese reparations, which worked. There was German-Jewish reparations. And there has never been... There was one reparations case with the Ag department on black farmers that didn't get it and it never came to fruition. So we haven't actually tried reparations. I think reparations is an old sounding word, but let me put it in a different way. I teach contracts to 1Ls, and when you breach a contract, there are three types of damages. You can do restitution, compensatory damages, reliance damages or anything. Lawyers in the room understand how this goes. If you breach, if you promise someone I'm going to give you $100 for whatever, when you breach, you don't do it, you have to make them whole. So whether that means giving them the money that you were owing them, or making them, put them in the position that they would have been in, before you took something from them, or once you could you fulfilled the contract, where the position they would have been.

And so there's a lot of different theories. All of them include damages. You can't just walk away from a contract and be like, okay, I'm done. You go figure it out. So we've had a social contract. We've had an actual contract with black Americans, 13th, 14th, 15th Amendment promised equal protection, that we promised all sorts of equality and it was deprived through Jim Crow, it was deprived through segregation, it was deprived through all these racially explicit zoning policing, the mass incarceration, the drug sentencing disparities. I mean, all the ways that we've breached it, so you have to be damages. And who pays damages? Well, the people who were enriched, if we're talking about a whole general society, we can kind of measure it in the racial wealth gap. Like that's a measure of enrichment.

So one way to measure damages is, is just close the racial wealth gap. Then we achieve justice and then we're good after that. So we don't need to do anything racially explicit afterwards, just close the racial wealth gap. You can measure up the damage, that's hard, right, measure up the damages and pay out, that's a harder thing to do. Reparations can take a bunch of different forms, but I think crucial to all the reparations programs has to be a truth and reconciliation, a hard talk. And this could take the form of several congressional panels, senate panels, where people come in with measurements, with data, with history and explain what happened. The measurements of what happened, what happened there and how it came to here and just kind of lay it out in very bland, sort of, data ways and understand, and issue, yeah apologies and things like that.

And South Africa underwent that sort of truth and reconciliation process. And I think one of the problems with the American race system is that we justified these cruel and horrendous practices of slavery, convict leasing, Jim Crow lynching, and we use these myths about racial inferiority to justify them. And then we've stopped the practice and we didn't address the myths. But we had all these elaborate justifications for, "Oh, God, created the white man to be above the black man." And there's these pseudo scientific things, and these are legitimate theories of how to uphold these institutions. And then we're just like, okay, well, we're done with slavery now. We're not going to address that we made up these racial theories because we needed one race to be labor, free labor, we wanted free labor. And we figured out a way to do it. And then we justified these theories. Obviously, it wasn't one person, but this is what happened.

So now we're going to stop that because for whatever reasons, we're not going to talk about all of the stories we made up to justify that, and that lingers, and that I think, has stayed with us. And I think that's why to get over it, we need to kind of discuss those things as well.

[JG]: Okay. Well, relatedly here's a question. For capital providers, for example, foundations that have vocalized commitments to racial equity. what would you suggest as the most important partners to support equitable access to capital or banking?

[MB]: I think public institutions need to bear responsibility. I appreciate that private entities... I'll answer the question I want to make sure this is not a job for nonprofits to do. This is very integral to our democracy. But I think the places the institutions are... There are equitable places right now looking at the way that the post office functions actually, there are agencies like that, that actually give all people access to funds. There's some agencies that, looking at the success of the EITC, any institution or agency that actually just provides people money in times of need is going to be helpful small scale. Large scale I think really pushing for political power is really important. And political coalition building, any agency or institution that is building the widest coalition possible of people through a shared platform, I think is really, really important and not just, I'm just going to slice off each sector.

Any institution that's going to lobby for people, have broad based donors. That's one of the things that is super disproportionate is the lobbying power. So when I was working, and this is probably worse now, but there were six financial industry lobbyists for every one legislator. So take up Congress and the Senate multiplied by six. That's the amount of lobbyists they see. And these things are complicated. So when you're putting together Dodd Frank, my firm, my law firm, represented the banks. We wrote Dodd Frank. Davis Polk, my former law firm, wrote the first and second drafts of Dodd Frank, it's public knowledge now. But we had our clients and we weren't at the time putting in the things that the banks wanted, but were we...And it's hard. It's hard to write... It's hard to write a derivatives bill. And so you need lobbies for people to say, okay, we as a people have no investment in the derivatives market, but we think this is bad for all of us. We think oil exploration off our shores is bad in the long run. And we know that the oil lobby is very targeting, very targeted in their lobbying efforts. And the people at large tend to not have a lobbying arm. So those are places that I would love to see some counter... Given that the world that we live in, I mean, the best world would be the lobbyists don't get the front seat at the table. But in the world that we live in, we need some lobbyists to represent broader human issues.

[JG]: Thank you. Very helpful, Mehrsa. So I think we probably have time for one more question. And there are lots of great questions here. And I think you've covered a lot though, Mehrsa in your comments that people can take away from that. But again, very impressive comments for a very impressive speaker and author. The last one is more of a personal question. And that is, how did your work as a transactional attorney influence your ability to work on wealth inequality in ways that a career in litigation may not have?

[MB]: Yeah, so this is where I'm going to get on my soapbox because I do with my students, I've been teaching for 10 years and with every contract class, every banking property class, I say, look, a lot of people come to law school, and I am one of them. I went to law school thinking I wanted to do immigration law or something social justice oriented because my background was very much I grew up your poor and knowing what that's like and I wanted to help communities. And for a variety of reasons, mostly because I needed money. I ended up going to a firm and litigation was just... I just hated it, so I ended up in the transactional world and realized, oh, my gosh, there's so much work to be done here, because what happens is the people interested in certain type of politics and certain type of markets end up in transactional.

And then the social justice folks, who are wanting to make the world better end up in the litigation, the criminal law and family law, which is great. We definitely need expert lawyers. We need social justice minded people at the Federal Reserve. And we need social justice minded people at the FDIC, and the SCC, and the CFTC and all of those places that actually end up creating very consequential laws. And in order to know that stuff, you have to get into the weeds of the stuff that is very... It's just money. And it's all very... It's a world of rich white men. That's the way I perceived it. And when I was in those rooms as a transactional lawyer, I never felt comfortable. But thank goodness I never got into the boys club.

Elizabeth Warren and Sheila Bair, who are the female regulators of the time said something like, during the financial crisis, the only people pushing up against the narrative of the banks were women. And the supporters are like, why? We were never invited to the boys club, like we just were outside anyway. So it gave them a different lens onto everyone's doing this trading and all this stuff. Maybe if you're on the outside, you see things differently. And so I would urge a lot of potential students to go and do bankruptcy law, do transactional law, do tax. There's a lot of good work that can be done here. So that's kind of where my priors are I kind of fumbled into it. I didn't make a plan for anything. I still don't. But I got really interested, because I realized, oh, this is really consequential for poor people. The stuff that's happening at the Fed, and the way that the bailout functions, actually ends up heightening or closing inequality, and that matters on the ground. So that's my background.

[JG]: Well, thank you, Mehrsa. Listen, I thank you for your thoughtful book, your excellent scholarship, and your amazing force of personality and background and commitment that you brought to this effort. And I know that there would be a standing ovation right now if we were, again, in the same auditorium. But again, just thank you for all that you are, all that you're doing, and for sharing all this time with us and your thoughts on these very, very important topics.

[MB]: Thank you. Thank you so much for taking the time. It's just a pleasure. And Song, thank you for allowing us and thank you all for coming in. I mean, it's late, especially on the East Coast, and this is not Netflix. So thank you very much. I know there's some good TV out there. So I appreciate the time that you offered. So thank you.

[SR]: And I just want to thank... I can't leave without thanking both of you, John Gibson and Mehrsa Baradaran, this was just an extremely powerful and illuminating discussion and I'm so proud to know you both and to thank you both for spending all of this time with us tonight. And for everyone who stayed to the bitter end with us here today, thank you, too. And very much look forward to the next event. So thank you both.

[Narrator]: Thank you for joining us for UCI Law Talks. Produced by the University of California, Irvine School of Law.