“The First National Building over here is ours,” explains billionaire Dan Gilbert, pointing at the Detroit skyline from his glass promontory in a recent interview with 60 Minutes’ Bob Simon.
Like a player in an all too real game of Monopoly, Gilbert takes inventory of his latest acquisitions: “The Chase Building,” he continues, “and the one over there near the river.” His Rock Ventures now owns or controls almost 8 million square feet of space in some 40 downtown Detroit buildings, prompting Simon to ask if his obsession with downtown Detroit real estate is “good for Detroit or good for you?” That is, of course, the relevant question, one Gilbert evades with a murky answer conflating Motown’s success with his own. The answer, however, bears deeper scrutiny and leads one literally and figuratively into the thick weeds of Detroit’s financial situation and Gilbert’s role in it.
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Gilbert – who is unpretentious and friendly – seems genuinely motivated by a desire to help his hometown. He’s the type of guy who blends in easily at a Cleveland Cavaliers game (except for the fact that he’s majority owner of the team). Although he defies in demeanor and appearance the image of the mustachioed little mogul in the iconic board game, his wealth and power illustrate that he is not aiming toward Boardwalk and Park Place; he already owns them. For Gilbert – like many of his uber-rich brethren – his own prodigious fortune is proof that Detroit’s only hope lies in following the same economic blueprint that guided his own rise to power. As with many self-anointed prophets come to lead the faithful out of poverty and darkness, one must drink the Kool-Aid to share the vision. But his formula for the city’s rejuvenation amounts to the same cocktail of cheap land, low taxes and entrepreneurial moonshine that intoxicated Detroit for decades. Always, the binge has resulted in an impressive payday for the wealthy – those who need it least – and an endless hangover of poverty and desperation for the majority of the city’s residents.
Gilbert’s world is uncomplicated, inhabited by investors looking for a cheap or razed landscape to exploit and a submissive workforce eager for any crumbs that might fall from the table of their beneficent employers. He has little patience for the green areas and urban farms envisioned by Detroit’s “Future City” plan, a thoughtful planning project that proposes developing the city around various zones, each based on industrial, artistic and agricultural models. While many would see at least some of the 78,000 blighted and abandoned homes as salvageable and an opportunity to teach rudimentary building skills to the unemployed and disaffected eager to learn them, such nuance does not comport with Gilbert’s “take no prisoners” development model.
“We have to get it all down,” he told reporters.
“When all the utilities are there and the land is pretty much close to free – not exactly free but close to it – and all the utilities are there, it becomes very cheap for a builder-developer to develop a residential unit. And they are going to develop them and develop them in mass [sic] as soon as we get the structures down and maybe we don’t have to worry about raising peas or corn or whatever it is you do in the farm.”
In March 2010, the Bureau of Labor Statistics (BLS) pegged Detroit’s official unemployment rate at 16.7 percent. Factor in Detroit’s underemployed and discouraged workers, argued former Mayor Dave Bing at the time, and the figure was closer to 50 percent. As of August 2013, Detroit’s unemployment had gotten worse, coming in at a full 17.7 percent, according to the BLS. Furthermore, findings from the Detroit Future City (DFC) program” report indicate that 68 percent of Detroiters without a high school diploma (20 percent of the population) do not even participate in the economy. In the face of this reality, one is compelled to ask: Just who will be able to purchase the bumper crop of housing Gilbert predicts, no matter how cheap? Certainly not the city’s impoverished majority, which needs it most. More importantly, as the billionaire opines on the fate of the devastation beyond the boundaries of what appears to be his new fiefdom, one hopes that somewhere in his psyche he at least has entertained some thoughts about the role his own companies – Quicken Loans and Rock Financial – played in creating the present blight.
Before examining Gilbert’s part in Detroit’s situation, it is instructive to note two things. First, in 1996, Detroit had one of the lowest foreclosure rates in the country (Black Commentator, Nov. 22, 2007). Next, although many players helped build the financial house of cards, by the time it toppled in 2008, Andrew Mozilo’s Countrywide had laid much of its shaky foundation. Through his companies, Rock Financial and Quicken Loans, Gilbert was a partner in that construction, working hand-in-glove with Countrywide as the front-end originator of loans it routinely transferred – sometimes unbeknown to borrowers – to larger organizations like Mozilo’s, where they were fed into churning derivatives machines. Once transferred and bundled, Quicken’s fingerprints on these loans were expunged, allowing Gilbert to disavow to this day any association with the subprime mess, a claim analysts and former employees close to Quicken’s operation at that time contradict. As Steve Dibert of mortgage company watchdog, MFI-Miami explains (February 5, 2011) , “Quicken was able to escape the carnage and tarnished images of the financial crisis. It’s not necessarily because they were ‘one of the good guys’ as Dan Gilbert claims but because they didn’t carry any liability from the loans they originated.”
Of all the players promising to lead Detroit out of its doldrums, realty, mortgage and lending entities like Quicken should be the most suspect. Historically, Detroit’s real estate and loan industries have played a crucial role for many decades in its institutionalized racism and segregation by offering moral and logistical support to blatantly racist “home improvement associations” and redlining practices. These did much to balkanize the city’s populace into white and black enclaves, and little was done to stop them until the federal government intervened in 1958 with questionable results. These real-estate agents and lenders may or may not have been personally invested in the racism and segregation they enabled, but they certainly profited from the property values they helped to keep inflated with the fear and paranoia they engendered. Follow the money.
Although the times, the context and the techniques may have changed, data from Detroit, the state of Michigan and national lending markets tracking the period between the relaxation of loan standards in the late ’90s to the crash in 2008 indicate that the monetary motivation and the racial profiling continued the same ugly practices of earlier decades. Figures compiled as early as 2007 by the Michigan State Housing Development Authority (MSHDA) show an unmistakable pattern of “reverse-redlining” (the practice of selling mortgage instruments with exorbitant rates and unrealistically liberal terms to a particular group, often those who can least afford them) between 2005 and 2007.
According to MSHDA, foreclosures in the state increased 151 percent from 2005 to 2006 and 85 percent from 2006 to 2007. Of these foreclosures, the report indicates, 17.2 percent were subprime ARMs. What is really telling, however, is the fact that of the subprime ARMS sold in this period, 40 percent were sold to Latinos and a full 52 percent sold to African-Americans. Once these junk loans wreaked havoc on unsuspecting borrowers with balloon payments and loans made against inflated assessments, the mountain of defaulted obligations – whose inflated value was guaranteed for lenders by Fannie Mae and Freddie Mac – toppled, leaving behind the present dystopian landscape of foreclosed and abandoned homes.
Quicken Loans: Growth of an Online Behemoth
A look at Quicken’s Hoover profile shows that it began its life as Rock Financial in 1985. Working with local real-estate agents and builders, it sold the mortgages it wrote in bulk on the wholesale market. Thus the idea of a mortgage as a money-making security instrument rather than a long-term investment relationship with a homeowner became, early on, a formative principle of Gilbert’s enterprises. In addition, rather than targeting financially secure homeowners as clientele, Rock Financial aimed for a less-stable cohort: those with shaky credit histories anxious to redeem themselves financially. In 1994, Gilbert created a division called “Fresh Start,” exclusively to exploit this market. By 1997, the initiative had spawned more than 20 storefront offices. The business of these brick-and-mortar outlets relied more and more on direct-mail and advertisements. By 1997, Hoover recounts, Rock had revenues of $52.1 million. More significant, however, is the fact that 92 percent of its loans were made in Michigan – a deep footprint in the state’s real estate market.
By 1999, the internet had become an integral part of the economy, and Gilbert fully recognized its potential. After closing nine offices, he transferred the business – dealing mostly in subprime loans – to his RockLoans.com, offering, says Hoover, “low rates and fast service, giving it an edge over many online competitors that served as middlemen.” As the online entity became more successful, Rock closed most of its remaining offices, becoming primarily a paperless company. Seeing its potential, software maker Intuit (of “Turbo Tax” and “Quickbooks” fame) bought Rock Financial and, by 2000, changed the name to QuickenLoans.com. This lasted only until 2002, when Gilbert and a group of investors bought the company back, giving Gilbert control with 62 percent ownership. Quicken began to act increasingly like the company it would come to be, dealing more in adjustable-rate-interest-only loans and home-equity loans available online with instant approval. By 2006, Quicken Loans closed $18 billion of mortgages and tallied an estimated $750 million of revenue. What is crucial, however, is the fact that Quicken was now a completely electronic company, processing 175,000 phone calls and 2.4 million internal emails daily. Quicken’s footprint was now even deeper.
Inside the Cubicles: The Quicken Culture
For entrepreneurs like Gilbert, jobs and the people who work for him are a liability, a necessary cost of doing business that should be minimized and ever subordinated to the pursuit of profit. One has only to peel back the layer of obsequious endorsements from J.D. Powers and Forbes to reveal a Quicken work environment that is oppressive, paternalistic and lacking in fundamental workers’ rights. While fresh-faced new hires with little work experience express excitement over the handsome commissions and salary they’re sure to make, the legion of disaffected employees easily accessible on sites like Ripoff Reports tell a different story.
Want a break for lunch? Forget about it. One ex-employee, a young woman, recounts that when it was noticed she was leaving for lunch, management informed her she was “on the bubble” and “should think about what is important to me in my life.” This same woman also reveals that new employees are expected to work “at least” from 8 AM to 8:30 PM. Sorry, no overtime (incidentally, the very issue in a recent lawsuit that was not settled in favor of workers). Calls are closely monitored, with managers hectoring workers in their other ear to go for the highest amount possible and to exploit the emotional state or family situation of the potential borrower. Oh, and that handsome salary? The six figures are reserved for upper management. Those in the trenches must work even harder and longer to score more than the base of $20,000 or $25,000 a year.
Why is Quicken’s workplace important? Because it speaks to the deterioration of work, the American workplace, and the erosion of the middle class – a phenomenon that runs, not coincidentally, parallel with the demise of manufacturing and the union movement and the ascendance of the service and financial sectors as the dominant players in the US economy since the Reagan era. It is important because neither Detroit nor the country has any hope without a workforce that’s economically secure and empowered. Today, according to the DFC report, there are 27 jobs for every 100 residents and 70 percent of jobs in Detroit are held by commuters. Therefore, the first order of business needs to be education, job training and investment at a magnitude no profit-seeking mogul, even one as purportedly altruistic as Dan Gilbert, would be willing to hazard.
Detroit has seen bad times before. In January 1931, the city experienced the worst unemployment rate of 19 cities, with 223,568 jobless. That number rose to 400,000 one year later. Despite that level of joblessness, what emerged from that crucible were a capital goods industry and a labor movement strong enough to exact pay and working standards that would be the economic basis for a solid middle class until the 1970s. Now, the crumbling factories and the landscape of blighted houses is, unlike Detroit in the Depression of the 1930s, an unlikely canvas on which to paint a new picture of the city’s future as long as it is inhabited by low-wage service and financial workers with no rights. Only a massive government intervention like the New Deal and the production needs of something like World War II would be equal to the regenerative task, a sorry testament to the human spirit that can muster the enthusiasm to produce implements of mass murder but not to fund a secure and healthy environment for all its citizens.
Looking for Heroes
Detroit is like many great cities whose history and development is bound up with iconic figures. The shadow of Henry Ford looms large over the city and its past. Figures like Ford, Carnegie and Rockefeller are deeply woven into the fabric of American capitalist mythology, insinuating that great feats of development are impossible without the paternal guidance and talent of moguls like Ford. For someone rich and successful like Gilbert, it is tempting to assume that, given his own enormous wealth, Ford’s mantle has passed to him. But the nature of their fortunes and the disparate economic and social milieu out of which each grew are radically different, reflecting not just the stark historical contrast between Ford’s nascent industrial environment and Gilbert’s virtual world, but a profound difference – a devolution, even – in the nature of work and value itself since Ford’s time. It underscores the Marxist notion (Locke’s and Adam Smith’s, as well!) that labor alone creates value. Although much has been written about Ford’s dehumanizing production methods, his meddling sociological theories and his paternalism, he at least made a significant, tangible and lasting contributions to American infrastructure with humans who used their hands to make things. Through innovative, if oppressive, use of plant and capital, he nurtured Detroit’s workforce, providing them the economic seed-corn that helped them root and grow into a major metropolis.
Gilbert’s wealth is, on the other hand, the very model of Marxist surplus value, harvested in telephone and internet boiler rooms where homes and their value are shuffled around like a shell game. Whereas once upon a time a loan for a home was the result of a handshake across the table in a brick-and-mortar bank, loans in Gilbert’s world are consummated over a phone line or in cyberspace where the potentially sobering gaze of a victimized loan applicant is not present to appeal to one’s better angels, thus thwarting a usurious deal. The aim and end of these transactions is not so much to settle some aspiring homeowner into a new abode, as to throw yet more coins on the already prodigious pile of lucre amassed by Quicken and other such virtual loan operations. As Times columnist Joe Nocera pointed out in a CNN Money report, Gilbert and his ilk “are not remotely like George Bailey,” the altruistic building and loan owner in Frank Capra’s 1946 film, It’s a Wonderful Life. One wonders, then, if a more relevant inspiration for Gilbert might be Henry Potter rather than Henry Ford.