Earlier this year Congress passed the biggest stimulus package in history, but that money isn’t being applied equitably. More than $500 billion was distributed to American businesses through the Paycheck Protection Program, but most of that money went to white businesses who already had access and influence—even though white-owned businesses had a 17% decline compared to a 41% decline among Black-owned businesses.

We’ve had a long history of those with money being able to make money and those without falling further and further behind.

Economic insecurity and uncertainty will be on the minds as they head to the polls in less than two months to select leaders they think can put us on the right course.

This week on the Reckon Interview, have a pair of guests this week to make us smart about the economy and particularly how black and brown folks, and thus the South as a whole, have been hit especially hard. Dr Stephanie M. Yates is a professor of finance at the University of Alabama at Birmingham and Diane Standaert is a senior vice president of the Hope Policy Institute in Mississippi, which aims to help people in underserved areas grow wealth.

Dr. Yates explains how today’s wealth gap can be explained by a history of policies that deliberately cut Black and Brown people out of the opportunity to accumulate wealth — and how some policies aimed to address that disparity have backfired due to a lack of oversight.

And Diane Standaert describes how the largest stimulus package in American history could exacerbate those disparities, if we aren’t careful.

Here are a few excerpts from our conversation with Dr. Stephanie M. Yates to get you started. We’ll be back tomorrow with more from our discussion with Diane Standaert, but you can listen to the whole episode here.

And go ahead and subscribe on Apple Podcasts, Spotify, Acast or wherever else you get your podcasts to stay informed about the South this election season.

Dr. Stephanie M. Yates on the racial wealth gap

I guess one place to start is to think about how that wealth is stored. And that varies somewhat across demographics. But in the African American community, in particular, wealth is typically stored in their home. And so when you think about the history of African Americans in this country, particularly with regard to homeownership, it’s been a difficult road. And so that those difficulties have certainly led to significant differences in homeownership rates between African Americans and Latinos and others. And so if that is the primary store of wealth, then you can see how one source of difficulty in terms of homeownership can lead to a wealth gap.

There were so many policies, either explicitly or implicitly in place [throughout the 20th century], that made real differences economically for Blacks and whites. So on the homeownership side, Blacks and whites tended, for various reasons to live in very different neighborhoods. Because of that there was this practice that, you know, so many of us have heard of called redlining, where it was pretty easy to just take a red marker on a map and outline where the Black neighborhoods were and where the white neighborhoods were.

Unfortunately, that process of redlining, then carried over into the credit markets and into financing and into actually many other programs. Meaning that if we drew a line around this particular community and indicated that this was a predominantly African American community, that meant that funding credit was not going to flow into that neighborhood. And so that deepens that gap and encourages that disparity across races.

Dr. Stephanie M. Yates on the subprime lending crisis

It was recognized that there was this disparity and homeownership. And so we start to try to figure out mechanisms and programs to address that. In that search for ways to create more equity, subprime lending came about. The thought was, well, the lenders are saying that they want to make loans, but they don’t have qualified borrowers for the products that they’re offering. And so if we create new products that are designed to help this group then we can increase homeownership, we won’t see the tremendous wealth disparity that we see.

But the trouble with that is it’s like no good deed goes unpunished. We’re trying to do something to fix the problem. We’re trying to do something to help the folks who are really trying to do the right thing, really trying to pull themselves up by their own bootstraps. But those types of programs, and this is exactly what we saw, are ripe for abuse.

And so what we started to see was that we were making loans to subprime borrowers, because at that time, 2006,-7, and -8, the definition of a subprime loan, or a subprime lender, or a subprime borrower, started fluctuating a bit. And eventually the definition was just a subprime loan was a loan made to a subprime borrower. Well what does that mean?

But what ended up happening was those programs were ripe for abuse, meaning very, very high fees, very, very high interest rates, because the justification was, well, if you could have qualified for a prime mortgage than you would have, and you wouldn’t have to pay these fees. And jumbled up in this was this kind of undercurrent that we’ve seen for many, many years, if not decades.

It’s almost a self-fulfilling prophecy that this group that had not had adequate access to credit markets and capital markets, whether it’s homeownership or small business began to feel that, “Well, I’m not even going to try.” Yeah, “I’m not even going to apply for a small business loan or home mortgage, because I know I’m going to be denied.”

And so a strange kind of offshoot of subprime lending is not only were the subprime borrowers taken advantage of in terms of high fees, and higher interest rates, many of those borrowers could have qualified for a more traditional mortgage, but just assumed they could not. And those lenders did not share that with them and did not move them to a more appropriate product. It was a new form of redlining, where you kind of shepherd certain borrowers into a particular direction. and certain borrowers were just kind of programmed or a preconditioned not to question the direction of the lender.

We’ve just had a lot of abuses going on in that time. And then it’s kind of like that perfect storm. There were so many negative elements occurring. Another element that was occurring with that we have this financial market that was craving these securitized mortgages and craving these investment opportunities and so access to credit was pretty free and easy. There may have been high fees. There may have been a premium for certain borrowers. But it was pretty easy to get mortgages at that time, which meant that it was fairly likely that defaults were going to happen.

And they did.

And when we have that quantity of mortgage activity, and the lowering of the standards, the greed and the excess in terms of the fees and the premiums that were being collected, it turned out to be a bit of a house of cards. And then we started to see in 2008 and later, just the huge run up in defaults and foreclosures.

And oftentimes we saw those more frequently in the African American community, because the terms of the deals were pretty bad. And it was easy to default on a loan where the terms are somewhat set against you, given your personal situation.

For more from Dr. Stephanie M. Yates about how the Southern economy got so fractured, listen to the full episode here.

If you’ve still got questions about finances, check out our new video series Money Talks. Each episode, Reckon’s Anna Beahm walks through some of the biggest questions about wealth and the economy. Find it on Facebook, Twitter and YouTube.

Reckon Interview Season Three

Episode One: The fight for the vote and how to ensure your vote counts

Episode Two: How the South created modern politics and what’s at stake in 2020

Episode Three: How the South nearly blocked women’s suffrage

Episode Four: To live here, you have to fight: Coalition building in the South

Episode Five: A system broken by design: The politics of health care

Episode Six: The death of ‘stick to sports’: The politics of football