Over the next few weeks NLP will present a range of material relating to the most recent edition of Socialist Register - The Crisis and the Left. To begin, we exclusively present David Harvey's contribution to the volume, which we have been serializing over the last three weekends. This is part four - if you missed them, here are parts one, two and three. 

Editor's note: this essay will no longer be available in its entirety on NLP. This, then, is the last part that you will be able to read here - for the final parts you will need to purchase a copy of the latest Socialist Register. 

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Predatory Urban Practices

In The Communist Manifesto, Marx and Engels note in passing that no sooner does the worker receive `his wages in cash, than he is set upon by the other portions of the bourgeoisie, the landlord, the shopkeeper, the pawnbroker, etc.'.29 Marxists have traditionally relegated such forms of exploitation, and the class struggles (for such they are) that inevitably arise around them, to the shadows of their theorizing as well as to the margins of their politics. But I here want to argue that they constitute, at least in the advanced capitalist economies, a vast terrain of accumulation by dispossession through which money is sucked up into the circulation of fictitious capital to underpin the vast fortunes made from within the financial system.

The predatory practices that were omnipresent within the sub-prime lending field before the crash were legendary in their proportions. Before the crisis broke, the low income African-American population of the United States was estimated to have lost somewhere between $71 and $93 billion in asset values through predatory sub-prime practices. Contemporaneously, the bonuses on Wall Street were soaring on unheard of profit rates from pure financial manipulations, particularly those associated with the securitization of mortgages. The inference is that by various hidden channels massive transfers of wealth from the poor to the rich were occurring, beyond those since documented in the plainly shady practices of mortgage companies like Countrywide, through financial manipulations in housing markets.³⁰

What has happened since is even more astonishing. Many of the foreclosures (over a million during the last year) turn out to have been illegal if not downright fraudulent, leading a Congressman from Florida to write to the Florida Supreme Court Justice that `if the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities'.³¹ Attorneys General in all fifty states are now investigating the problem, but, (as might be expected) they all seem anxious to close out the investigations in as summary a way as possible at the price of a few financial settlements (but no restitutions of illegally seized properties). Certainly, no one is likely to go to jail for it, even though there is clear evidence of systematic forgery of legal documents.

Predatory practices of this sort have been longstanding. So let me give some instances from Baltimore. Shortly after arriving in the city in 1969, I became involved in a study of inner city housing provision that focused on the role of different actors ­ landlords, tenants and homeowners, the brokers and lenders, the FHA, the city authorities (Housing Code Enforcement in particular) ­ in the production of the terrifying rat-infested inner-city living conditions in the areas wracked by uprisings in the wake of the assassination of Martin Luther King. The vestiges of redlining of areas of low-income African-American populations denied credit was etched into the map of the city, but exclusions were by then justified as a legitimate response to high credit risk and not supposedly to race. In several areas of the city, active blockbusting practices were to be found. This generated high profits for ruthless real estate companies. But for this to work, African-Americans had also to somehow acquire access to mortgage finance when they were all lumped together as a high credit risk population. This could be done by way of something called the `Land Installment Contract'. In effect, African- Americans were `helped' by property owners who acted as intermediaries to the credit markets and took out a mortgage in their own names. After a few years when some of the principle plus the interest had been paid down, thus proving the family's credit worthiness, the title was supposed to be passed on to the resident with help from the friendly property owner and local mortgage institution. Some takers made it (though usually in neighbourhoods that were declining in value) but in unscrupulous hands (and there were many in Baltimore though not, it appears, so many in Chicago where this system was also common) this could be a particularly predatory form of accumulation by dispossession.³² The property owner was permitted to charge fees to cover property taxes, administrative and legal costs, and the like. These fees (sometimes exorbitant) could be added to the principal of the mortgage. After years of steady payment, many families found they owed more on the principal on the house than they did at the start. If they failed once to pay the higher payments after interest rates rose, the contract was voided and families were evicted. Such practices caused something of a scandal. A civil rights action was started against the worst landlord offenders. But it failed because those who had signed on to the land installment contract had simply not read the small print or had their own lawyer (which poor people rarely have) to read it for them (the small print is in any case incomprehensible to ordinary mortals ­ have you ever read the small print on your credit card?).

Predatory practices of this sort never went away. The land-installment contract was displaced by practices of `flipping' in the 1980s (a property dealer would buy a run-down house cheaply, put in a few cosmetic repairs ­ much overvalued ­ and arrange `favourable' mortgage finance for the unsuspecting buyer who lived in the house only so long as the roof did not fall in or the furnace blow up). And when the sub-prime market began to form in the 1990s, cities like Baltimore, Cleveland, Detroit, Buffalo and the like, became major centres for a growing wave of accumulation by dispossession ($70 billion or more nationwide). Baltimore eventually launched a Civil Rights lawsuit after the crash of 2008 against Wells Fargo over its discriminatory sub-prime lending practices (reverse redlining in which people were steered into taking sub-prime rather than conventional loans) in which African-Americans and single-headed households ­ women ­ were systematically exploited. Almost certainly the suit will fail (although at the third iteration it has been allowed to go forward in the courts) since it will be almost impossible to prove intent based on race as opposed to credit risk. As usual, the incomprehensible small print allows for a lot (consumers beware!). Cleveland took a more nuanced path: sue the finance companies for the creation of a public nuisance because the landscape was littered with foreclosed houses that required city action to board them up!