I was anxious to read this book, and I wholeheartedly endorse it. The research done by the author is extensive and impressive, and adds to our understanding of how the South Bronx came to become the international symbol of urban decay and dysfunction.
To set aside what has appeared to be implicit and explicit criticism of Ansfield’s book at the outset, the topic of the book is not mortgage redlining. That form of race-based discrimination has been well documented. What has been less apparent, at least to me, is how insurance companies fanned the flames of arson and got away with it for so long. I always knew there was an alternative insurance arrangement that was lax and permitted landlords to get away with one of the the worst types of crime, arson, which destroyed countless lives. But I always wondered how this could have persisted so long given the payouts to landlords who torched their buildings.
The answer lies in an understanding of how profits were made, especially in the post-industrial American economy in general and with specific reference to the insurance industry, in particular. One source of profit is derived from insurance lag – the time between the effective date of the policy – when payment of a large deposit was required on inflated premiums many times the rate charged in suburban areas – and when a claim was filed, acknowledged, passed through any reinsurance channels, and finally paid. The time lag allowed companies to invest and make money raised by the deposits and premiums. In addition to the insurance lag, losses were simply passed along to all the insured within the insurance pool, upon renewal. Regarding investing, this was a time when finance capitalism was eclipsing industrial capitalism, where global markets were available and investing in financial instruments became the key to profit making. It was also a time of high interest rates, where returns in the 12 to 20% range could be earned. The point is, due to profit making potential there was an incentive to write policies even when appraisers reported values many times the actual value or purchase price of the property. Eventually, as is always the case, the bill came due. The practice was not unlike a Ponzi scheme. If there is a steady increase in clients (new properties to insure, along with renewals), their inclusion in deficient coverage at higher prices can make up for the losses as long as the client base is there to absorb the increased premiums that were making up for the losses. Of course, this was no longer the case in the South Bronx by the early eighties. There was a reckoning, but those who paid the biggest price were the tenants, some with their lives. Working on the ground through these years and living through abandonment and arson, I appreciated reading a comprehensive review of the role played by the insurance industry from above.
The formula is fairly basic – take as much as you can upfront, and offload the liability to as many others as possible. We saw the same thing occur, and the author makes this point toward the end of the book, with the subprime crisis that nearly caused a global depression forty years later.
And just as the growth of the suburbs matched the disinvestment of the inner city, “The birth of homeowner insurance…was thus also the birth of insurance redlining in the cities.” State-run FAIR plans were supposed to be the end of insurance redlining, even couched as an advancement in civil rights. As it turned out, the remedy was worse than the disease. Even so, as the disease became an epidemic, those inflicted were tagged as the cause.
As the cities became less White, Ansfield, as others, sees the genesis of blaming the victims for the devastation that engulfed them in the Nixon administration, with Daniel Patrick Moynihan as the main proponent of Black poverty as social pathology. Blacks and other minorities were seen as destroying their own neighborhoods in the late sixties, and this view of urban dysfunction carried over into the period when arson became rampant. This projected risk (and the claimed inability of insurers to predict likely outcomes) enabled the new federal plans for reinsurance through State-administered FAIR plans to charge exorbitant rates for insuring policies in formerly insurance redlined areas.
I appreciate the education, supplementing what I knew about mortgage redlining. What follows are comments on several conclusions that warrant further comment or correction, most not having to do directly with insurance.
In chapter on Brownlining of the Bronx, the author suggests a quandary: if Roger Starr was so intent on the planned shrinkage of the Bronx, why did he distribute so many rental subsidy dollars to the Bronx? I think the answer to that question would come from looking at who received those subsidies. If I were to guess, I would say that private, for-profit owners or favored developers of rental properties received them. I am certain that Roger Starr did not provide any support to local tenant or community groups. I remember having a conversation with Meyer Parodneck (an early and sole financial supporter of groups like PDC and Banana Kelly). Besides running a small, local foundation, he was also a board member of United Neighborhood Houses. UNH commissioned a study of tenants taking over abandoned properties in the early 1970s. They asked Roger Starr to attend a meeting with their housing committee to discuss how the city’s Housing and Development Administration was responding to this new phenomenon. After showing contempt for such local efforts, Meyer reportedly told Starr, “Sir, your problem is that you hate poor people.” Years later, I had a conversation with a housing advocate from the Lower East Side. She told me at a meeting with local residents, Starr scoffed at the idea of giving their groups any funding, explaining that giving them city dollars would be like the Israelis giving money to the PLO. He also refused to spend Community Development Block Grant money that could have helped local neighborhood preservation efforts. As a result, by the end of the Beame Administration the city had amassed $300 million in unspent CDBG funds. Given this, I believe that he likely did provide the financial assistance, but only to favored for-profit or connected not-for-profit organizations in the Bronx.
In the same chapter, Ansfield suggests that the exorbitant cost of insurance likely prompted many landlords to torch their buildings. It seems we are heading in that inflationary direction once again. It was not that long ago, perhaps in the 2010s when property insurance in the South Bronx was coming it at about $600/unit/year. Currently, the cost is at $2500/unit/year. It is an open question as to why and it is probably based on many things. But one thing is certainly a factor. Insurance carriers in the Bronx hardly ever want to go before a Bronx jury on an injury claim, regardless of how frivolous the claim. Just like Ansfield explains how losses in the 1970s were just plugged into the next year’s premiums, the same is going on now. The insurance company settles, and passes the cost along to the owners.
In the chapter on A Triangular Trade in Risk, it was fascinating to learn how the Sasse group, working through Lloyd’s of London, profited in a way that was so similar to the conspiracies that led to the subprime crisis. “Through secondary markets, reinsurance facilitated the diffusion of risks.” Many of the “one-stop” subprime mortgage shops of appraisers, brokers, contractors, lawyers and others seemed to mimic the groups involved in insurance fraud four decades earlier. And learning about local leaders letting those in authority know what was happening on the ground and getting no action, is so familiar to so many of us who are involved with community development. I remember going down to Washington to meet with our elected representatives, including Senators Clinton and Schumer. We were there to speak about how predatory, equity stripping fraud was impacting low income communities of color. Nothing happened, while bank and government officials lauded the creative magic of finance capitalism. But in 2008 when the economy nearly collapsed, Hillary Clinton was on television saying something to the effect of, “How could this have happened? Nobody knew!” Well, you did know. We told you and others, but you were all more interested in who was filling campaign coffers than how constituents were being screwed.
In the chapter Out of the Shadows and Into the Street, Ansfield refers to some analysts who interpreted the 1977 Blackout riot and looting as “an expression of frustration of poor New Yorkers in the wake of austerity.” I remember coming out of the Hunts Point train station that day just around dusk, and seeing people carrying all kinds of stuff in the streets. As I made my way to Vyse Avenue, where I lived at the time, I saw a truck speed on to the sidewalk of Southern Boulevard and ram into the gate of a store. Ansfield’s reasoning certainly may hold some truth, but it suggests the cause was prompted by poverty. I think the cause is much more basic.
We communicate in different ways, which are both direct and indirect. People are not stupid and it was clear to the people of my neighborhood, and similar areas, that no one cared. They knew they were on their own. No help was coming – despite the daily fires and abuse. No relief from the stress and trauma was in sight. To those in authority, the people of the South Bronx meant nothing, nothing at all, and the residents knew it. In such a circumstance, all it takes is a suspension of normalcy, a suspension of whatever order does exist – as with the blackout – and disorder should be seen as the natural consequence of that disruption. The lights went out, and we were back – for the brief moment – to living in a Hobbesian world of everyone being out for him or herself.
In the chapter on Corrective Capitalism, I do not understand the statement, “the Peoples Development Corporation integrated the (Young) Lord’s doctrine with the vernacular of self-help and the burgeoning faith in market-based remedies to racial economic inequality.” Faith in the market was certainly how Bed-Stuy Restoration viewed its work, but it is not what I remember regarding PDC’s stated philosophy. Before continuing with related comments, I should state that Banana Kelly owes a lot to PDC, mostly regarding inspiration. I looked up to Ramon Rueda as a mentor and big brother. But I was also intricately involved when PDC started to destruct from within.
I was invited to join the board of directors either towards of end of 1978 or early in 1979. I then had the unenviable task of cleaning up a mess, or risk dooming Banana Kelly’s chances to close on its sweat equity project. Our Chemical Bank loan officer handled the construction loan commitment for Banana Kelly and provided the construction financing for PDC. He told me in no uncertain terms that “If we take a bath on the PDC deal, we will not close on construction financing for Banana Kelly’s project.” This statement was prompted by the fact that PDC’s federally funded sweat equity project had bifurcated sources of funding. Capital was used for bricks and mortar and that came from Chemical Bank; labor money came through a federal job training program called CETA. When we met, the bank rep showed me that nearly all of the labor money was gone, but the buildings were only about 20% completed. When the board allowed me to take over the program, I found that the only workers on the jobs were the supervisors. I was told that the CETA workers clocked in in the morning, left, and then clocked out at the end of the work day, based on some agreement made with PDC leadership.
Ansfeld points to the rapid growth of the membership as one cause of PDC’s demise, which is true in one respect. The author wrote that membership “increased tenfold in one year.” But it is important to understand that this rapid expansion was due to having taken people off the streets and into a construction training program and immediately making them “members,” with full rights to decide on issues governing the organization. This power disenfranchised the long term members, causing internal friction and operationally removing an important segment of the organization from participatory control. Ironically by expanding “democratic” participation, the move ended up consolidating all or most of the authority in one person.
PDC was on its last leg while, and as Ansfield notes, Ramon was touring the country giving speeches, reportedly with Jane Fonda. I remember having a conversation with Ramon on the roof of one of the PDC buildings when things looked bleak and it seemed there was little hope for the survival of the organization. He accepted that PDC was in deep trouble, but responded to my concerns with, “at least I still have B.E.S.S.,” the aquaculture, vermiculture project that Ramon believed would still go forward even if the sponsor went under. He was not thinking straight at that point. And after a few board meetings where he threatened to quit if the board took actions he disagreed with, the board Chairperson, Edith Hicks (one of those Black tenant leaders of the area with which he had some friction), finally accepted his resignation.
I agree that the 312 homesteading program was the largest sweat equity program to date, but not every building was completed. Some of the project had to be left for another day in order to finish what could be completed with the available resources. PDC would continue for a number of years after Ramon’s departure, but without his charisma and the support of its committed long-term leaders and members, it was only a matter of time before it outlived any remaining usefulness.
On the part of the chapter dealing with Banana Kelly, just a few comments:
- Building clean-out and gut demolition is indeed “onerous” work, but in my experience it is also satisfying work. Not a lot of money is needed, and at the end of each day progress is palpable, regardless of the asbestos and lead dust we all likely absorbed.
- Actually, we incorporated before the money started to trickle in.
- I do not believe we “distanced” ourselves entirely from the radical mobilizations of the sixties, as much as accepted that if we did not do it ourselves, it would not get done. There was no sense in trying to beat up an illusory opponent who refused to enter the ring.
- The comment about groups stuck in the “War on Poverty” days was based on a meeting we had with a Model Cities group, Kelly Street Block Association. When we met with its leader, and showed her our plan for sweat equity, she ridiculed it and pointed to a shelf filled with dust laden binders (their doomed urban renewal plan for part of Kelly Street) and said “That is a plan.” This occurred well after the second Nixon public housing moratorium. Times had changed and the War on Poverty days were not coming back.
- It is possible to read a reference to SEBCO and attribute the point made to be applicable to all CDCs. Ansfield writes about how CDCs sell tax credits to investors, giving the impression that we enter the open market and profit off the program. While it is true we seek investors, we do this by working with syndicators who bring in investors in return for tax credits. It is not the case that money is given to the CDCs in return for bringing in an investor. The money is held by the syndicator and is part of the “Sources” for construction or renovation of the project. The sponsor group, if it performs, is entitled to a developer fee and certain operating fees, but allowing the impression that groups go to investors and walk away with millions in return for allowing them to invest is wrong.
- As for Father Gigante dying with a substantial estate, SEBCO had a unique business model. SEBCO was and is a not-for-profit CDC involved in housing development, ownership and management. Father Gigante, who told anyone who cared to listen, that he did not take a vow of poverty, ran the group for decades. As I understand it, he set up subsidiaries for management, security, and other potential profit centers derived from development and operation of housing – and he owned those companies personally. Most CDCs would find this appalling and it is not the typical CDC model. But even though I find fault with using a tax exempt entity to produce such private gain, Gigante could just as easily have put all the money generated by these subsidiaries into SEBCO and taken an exorbitant salary or huge bonuses, which some CDC CEOs do. But that is not the norm and certainly not the case with Banana Kelly or most of the CDCs I have worked with.
One last point I would like to make. Freddy Ferrer, the former Bronx Borough President and former Banana Kelly board chairperson, remarked on the documentary, Eyes on the Prize III, that Banana Kelly was commendable, but not replicable given the devastation the Bronx realized. But what if there was a different attitude of those in power in the late sixties and early seventies, before the worst of the fires destroyed whole neighborhoods? What if the UNH report on “ad hoc tenant management” resulted in an official embrace of, and support for, tenants controlling their own homes? What if the policy demands of groups like the Black Panthers and Young Lords were taken to heart and government supported those efforts, as opposed to writing off entire neighborhoods as unworthy of preservation? What if the government undercut revolutionary demands (such as providing Blacks with their own State) by funding initiatives these groups advocated for, as opposed to killing off leaders or forcing them underground or into exile? Of course, that would only be possible in a political economy that was not dependent upon having a few winners at the expense of countless losers. Ansfield refers to this as an expression of “racial capitalism.” It is a theme that runs throughout the book. In the book’s Introduction, Ansfield quotes geographer, Ruth Wilson Gilmore: “Capitalism requires inequality and racism enshrines it.” I would restate this as: capitalism requires inequality; inequality excuses exploitation; racial capitalism enshrines both the sanctity of class divisions and racial hierarchies.
I wholeheartedly encourage all who are interested in this history to read this book.