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Scrots, Mortgages, and Personal Finance Praxis

After two hours on the phone with three different customer service representatives, we finally figured it out. My heart was beating hard. I was sweating weirdly. But I felt accomplished.

Our monthly mortgage payment was going up and we didn’t know why. This was double frustrating because we’d refinanced the mortgage given the low rates during the pandemic. We were saving about $200/month. Now the mortgage payment was going up a little bit more than that and I was pissed.

Not to mention that our mortgage got sold to Wells Fargo when we refinanced, which has a pretty bad reputation. We didn’t have much of a choice. Or at least I didn’t feel like we had a choice.

So I called Wells Fargo to figure this out. The reason I’m writing about it is because I’ve found that a really rich form of financial education–learning about how capitalism works–is using my own finances as a curriculum and getting customer service representatives to be my teachers (and interlocuters). I find if I ask questions and repeat what I’m hearing over and over again, I learn how some of these practices work. If I’m lucky I can catch supposed experts off guard, which happened in this case.

I try to be nice about this, since the customer service reps are just trying to get through the day and they don’t decide the policies or protocols. Their bosses do. And their job really sucks. But I’m on a quest to learn how capitalism works as an educator so I get into it.

Methods

Before I get into the details of this lesson, here’s how I ask the questions. When the person on the other end of the line says something that I don’t understand, I write it down in a notebook. When they finish talking I say, “I’m just interested in understanding this fully, when you say X, what do you mean exactly?” I listen to their answer. When they’re done I say, “Thanks. So if I’m hearing you correctly X is Y, right?” And I wait for them to confirm.

I do that at every step and make sure I’m following. Sometimes I’ll throw in a “Thanks for your patience with me, I’m just trying to learn since this is complicated” or “I just want to make sure I’m following because we rely on this money to get by,” etc.

I also trust my feelings. If things aren’t lining up correctly I ask the person to slow down and try to phrase a question that puts the pieces in order to find out where I’m missing something. I think I get this from having studied logic. One of the most important things I learned from logic is that there are load-bearing concepts, premises, assumptions, and terms and it’s important to understand what these are (like finding signal in noise) and then see how these fit together. Finance is like simple math problems the ruling class use to keep their relations of production in place, so I try to mobilize that way of thinking in these cases.

What happened with my mortgage is a case in point.

It’s A Wonderful Mortgage

We’re part of the lucky few who ‘own’ our home and can afford the taxes, mortgage, and maintenance of the house. I put own in scare quotes because we don’t really own it outright. The bank is our landlord until we can pay back the loan we took out to ‘buy’ the house. Plus we’re responsible for cutting the grass and fixing the leaky roof, etc. It’s better than renting since we’re ‘paying ourselves’, and if the price goes up on the house we can make money by selling it, but the whole homeownership thing is scammy and gets right to the heart of capitalism.

My favorite political theory professior in grad school once said that if we really wanted to understand capitalism we should–if we were able–try buying some property. He was right!

First of all, the 30-year low-interest mortgage shouldn’t exist. It’s a financial instrument from another planet. The only reason we have it in the US is because the ruling class was losing its grip on hegemony in the 1930s after the 1929 crash. The Russian Revolution was also pretty recent in everyone’s mind, Communists were getting more popular (with good reason) and capitalists were on their heels. They needed something that would appeal to a lot of people and make them feel better about capitalism.

At that time, and for a lot of the history of private property, people rented. That’s because owning property was difficult: if you could get a loan, you’d have to pay it off within ten years at a pretty high interest rate. Plus there weren’t a lot of guaranteed loans, so you took a big risk: there could be a run on the bank or a robbery and you’d lose everything. Plus property was pretty expensive relative to wages and savings.

Then comes the crash, the Great Depression, and the New Deal. FDR hooks up with a bunch of fringe economists, real estate people, and urban planners. They basically said, “What if we give people houses? There’d be no revolution then!” So they told people: you can take out a loan and pay it back over a really long period of time and with super low interest. The government would structure the whole market (read David M. P. Freund’s book on this) by guaranteeing the loans and funding all kinds of authorities, commissions, and public companies to get the deals done. It was an explsoive thing. Developers started building and people started buying. The suburbs were born! Cities got a shot in the arm! It was “A Wonderul Life.”

Although ‘people’ in this case was extremely racialized: not everyone ‘qualified’ for loans. As Freund details, the urban planners, economists, and real estate people were all white supremacists. Like racial-science style. For fifty years before the New Deal local governments zoned out certain races. The Supreme Court backed them up. By the time the New Deal came around redlining was intuitive, not every development would sell to nonwhite people, and nonwhites couldn’t get loans.

Okay, this is a long tanget. But it’s good to know about mortgages since school funding superexpropriation, the bad distribution of resources for schools, is rooted in this history. If there hadn’t been straight up white supremacy in mortgages before and during the New Deal maybe real estate wouldn’t be so segergated and then maybe school resources could be distributed better.

Of course, the real problem is private property. Property shouldn’t be private. It should be socially owned and governed, along with the credit distributed to all people to make sure they have good quality housing. I’m a market socialist on this stuff and think the Ilyrian economic model is probably a viable one for the US. I bet housing would be a good market to try. In any case, I approach personal finance from this perspective: the whole system is rotten and I want to understand so I can change it.

The Scrot

Back to me trying to figure out why my mortgage payment was higher. I’m on the phone with Wells Fargo. The guy is a little too nice. Kind of condescending. He’s talking to me like a kid. He tells me that an ‘escrow analysis’ was completed on our mortgage and found a shortage. To make sure we had enough in the escrow, we had to increase our monthly payment.

You have to pay taxes and insurance on a house when you have a mortgage (those taxes go right to the school district usually). The lender builds those into your monthly mortgage payments. It scoops out that amount each month to make sure you have enough to pay the insurance and taxes (I learned this is called ‘impounding’). When it impounds that money out of your payment it puts it in a little side account, called an ‘escrow’. The word goes back to the Old German scrot meaning scrap, shred, or cut off piece of something.

Every year they do an escrow analysis to make sure you have enough in there to afford taxes and insurance for the upcoming year. If you have a shortgage, then either your taxes or your insurance went up. The thing is, neither of ours did! Why the hell did our escrow go up?

Wherein I get an A

The condescending guy kept throwing numbers at me, talking about needing a certain minimum amount in the account and how our insurance went up. It was confusing but I kept asking him questions. This didn’t make sense. Our insurance went up a tiny bit, sure, but our taxes didn’t, so it wouldn’t make sense for the monthly payment to go up so much.

It got a little heated. I was trying to be nice but I got frustrated. He kept repeating the explanation and I kept saying I didn’t understand, that he wasn’t explaining it. The pieces didn’t add up. He said, “let me take a look at the escrow analysis.” He put me on hold. This was getting good. I was learning all kinds of things and also had him in a little corner.

He came back. He said I was right that things didn’t add up. He said it looked like the shortage was caused by the amount that was originally in escrow when we refinanced. It didn’t have enough. I said that didn’t make sense, since we basically just moved the loan from our old provider to Wells Fargo and nothing should have changed about the escrow. We went back and forth about this until he admitted that we had a ‘difference of opinion’ on the question. He said I disagreed with his explanation that the original escrow amount came to bear on the shortage in the escrow analysis.

I said it was a little disengenous to say I disagreed with his explanation because that assumed he was providing one. I asked to speak with a superior (I was feeling spicy). So I was on hold for a bit. Someone else came on. She sounded very tired and annoyed. I laid out my understanding of what was happening. Then she said something about an initial insurance payment–and the line dropped.

I got a little suspicious. Why would the line drop just as some new information was coming to light? I didn’t want to get too conspiratorial, so I called back. I got another customer service rep. She wasn’t as tired or condescending. I ran through my understanding of the situation, using specific amounts and definitions of all the key terms that I’d learned. I thought of it like an oral exam. She gave me the best response ever:

“Wow,” she said, “that’s the most detailed and comprehensive explanation of a personal situation I’ve ever heard.” I got an A!

Just as we were going to get into specifics the supervisor from before called me back. I thanked my teacher on the other end of the line, switched the call to the supervisor. She sounded tired still. But she said she found the problem: for some reason, my insurance company reimbursed us a month’s payment when we refinanced. There was a whole payment missing from the escrow. With that much missing, the escrow analysis came up short.

I verified this with the insurance company. It was true! They’d returned our money for some reason. Weird. But I’d learned about escrow analysis and proved that I did understand this gobbledeegook. If you ever want someone to help you figure out something like this, let me know! I think it’s fun.

The Ideology of Education News

Lying in bed one rainy morning, I went down a rabbit hole. I had some time off from childcare and saw a tweet by Chad Aldeman critiquing an Economic Policy Institute statistic about teacher wages. Erstwhile Bruce Baker, who you should read and follow, responded with his characteristic depth by citing graphs, statistics, and all kinds of other technical details to argue against the claim.

Given his focus on these technical details (which are super important) one thing that Baker sometimes leaves out is the ideological terrain of education finance. We don’t live in a smooth world of technical calculation and rationality. It’s a messy world with power and dominance and struggle. Looking at Aldeman’s tweet from that point of view gets you a totally different kind of response.

That’s the response I was after. I wanted to follow the money behind these claims: Who is Aldeman writing for, where does the money flow there? Who is he connected to? Who do these claims serve? I found some interesting stuff.

Capital’s ‘reformers’ hang on

Aldeman published his piece on Eduwonk. They have an interesting blog where you can find out about esoteric stuff in education finance. I follow them. But you have to keep in mind who’s backing them: Bellwether Education Partners.

Bellwether is a project that comes out of Andrew Rotherham’s work. Rotherham is an education journalist and intellectual who served in Bill Clinton’s administration. He’s a longtime moderate Democrat pushing education ‘reform’ as the solution to education inequity. Reform in this case refers to marketization efforts like school choice, coupled with overbearing high-stakes testing and accountability.

Bellwether continues this tired tradition, as Ed Fuller notes in an review of recent research reports they’ve published. The dream of the 1990s lives on at Bellwether, which has a huge staff and whose leadership is well-paid. They come from such illustrious ruling class places as Bain Capital and Deloitte.

One reason to watch out for these kinds of connections is that they are the basis for networks that produce all kinds of news about education, particularly as traditional news outlets ignore education as a beat. One case is the glossy education new source The 74.

‘Non-partisan’

With its slick design and focus on diversity, racial justice, and equity, you might think The 74 is your friend. It says it’s a ‘non-partisan‘ news source for education. But a quick glance under the hood tells a different story. Founded by a CNN correspondent and an education advisor from Michael Bloomberg’s years as New York City mayor, the site takes money from the Waltons and the DeVos’s.

Rotherham is a regular contributer to the 74. I note this because Eduwonk and The 74 connect, even if weakly, through Rotherham and the Bellwether apparatus. These forces are powerful, have lots of cash, and can influence education policy through analyses like Aldeman’s.

Thankfully, it’s not clear that if these networks are super influential in the Biden administration, at least compared to previous leadership. Cardona and his people have some other voices in the mix (as evidenced by their citation of EPI, which is much more labor-friendly and way less neoliberal).

Front groups for front groups

We should keep these kinds of connections in mind with other education news outlets. A few that I’ve seen around are Education Next, EdWeek, and Education Post.

EdNext is a project out of Harvard University, edited by Professor Martin R. West. Like most ideologically neoliberal sources, EdNext claims to be free of ideology. But SourceWatch says that the venue is yet another pro-market ‘reform’ laundering outfit with connections to the Koret Task Force of the Stanford’s conservative Hoover Institute. Their info is old though, most of the board is different. But Eric “don’t give public education more money” Hanushek is on the editorial board, which should raise an eyebrow.

EdWeek is different, so far as I can tell. Their history is more journalistic. They’re run by Editorial Projects in Education, the nonprofit that created the Chronicle of Higher Education in the late 1960s and then sold the publication to its editors. While they get a ton of funding from all the foundations you’d rather not see (Gates, Chan-Zuckerberg, Carnegie) they also get money from some ‘better’ foundations (NoVo, Ford) and so many others that it’s hard to say they’re repping one kind of view. I also like that they have a whole section on how money obviously influences things, but they are trying their best not to let it rather than claiming no ideology.

Their CEO is a graduate of George Mason University (eek) but their managing director has a long career in journalism, policy, and research. Derek Black writes for them and I generally like his stuff. All in all, I’d recommend EdWeek above the other venues in this post.

Finally, Education Post pushes a lot of diversity talk. But like The 74, a peek under the hood reveals the interests at the heart of it. They’re run by BrightBeam which, according to its “About” page, in a strange little paragraph the very bottom of the page in italics, we find out is itself a front organization for another group.

Brightbeam is the operating name of Results in Education Foundation, a nonprofit private operating foundation under code 501(c)(3) of the U.S. Internal Revenue Service. We’re grateful to our funders, Bloomberg Philanthropies, the Walton Family Foundation, the Chan Zuckerberg Initiative, the Bill & Melinda Gates Foundation and the City Fund, for helping support the work of dozens of advocates, activists and contributors all across the country.

We’ve seen that these same five or six foundations give money to pretty much every ‘education news’ source I’ve covered here. What I don’t like about this Education Post-Brightbeam thing is that the there’s a front group for a front group. Brightbeam is “the operating name” for Results in Education Foundation, whose executive director is Peter Cunningham, a former Assistant Secretary for Communications and Outreach in Barack Obama’s Department of Education. (Which makes sense: Arne Duncan is on Education Post-Brightbeam’s board of directors.)

Follow the power bloc

I started this post with the cover of Sarah Reckhow’s 2012 book Follow the Money: How Foundation Dollars Change Public School Politics. You should read her account to get a deeper sense of the history behind these foundations that change education politics. One of the ways they do this is creating ‘news’ websites that advance their ideological position through analysis, reporting, and research.

But one thing I found in this little romp is that, while the money goes back to the same places, there’s a difference in power blocs running these websites. The Clintonite bloc in the Democratic Party, for instance, is different than the Obama bloc. Ther former is more associated with Eduwonk/The 74 while the latter goes with Education Post. These two blocs coming out of presidential administrations are different than the policy/think-tank institutions like Hoover and Harvard behind EdNext, which are distinct from the reporting focus of EdWeek.

So we have to follow the power bloc as well. The money behind most of these news sources ultimately wants market ‘reforms’ that favor capital. But the apparatchiks making those policies move are distinct.

A Fifth Formula

A couple weeks ago the Biden adminitration released a 60-page proposal for funding “Education for the Disadvantaged,” or Title 1A of the Elementary and Secondary Education Act. I’ve written about Title 1 a couple times before. It’s the law that distributes funds to poor districts.

Remember that very little of schools’ actual funding comes from the federal government. As you can see here, it’s about 8% on average.

The federal government just doesn’t get super involved in school funding, which is one of the reasons why it’s so badly distributed. Expropriation and superexpropriation can run rampant through state and local taxes, levied regressively on unequally valued real estate. The whole situation shows how school funding is kind of like the cell structure of modern US racial capitalism. Plus, the system is so complicated no one talks too much about it. Title 1A, just by itself, uses four formulas that basically no one understands.

I’ve suggested a way to make the federal government much more generous, which might actually be making its way through a legislative process right now thanks to some of my amazing readers. Fingers crossed. Meanwhile, we can understand the Biden administration’s new document as a different proposal.

The Fifth Formula

Luc Besson’s The Fifth Element is one of my favorite movies. Humanity is under threat from a mysterious dark force that only an ancient being can defeat. The species that can summon the savior being are long dead, but they have left instructions through the scriptures of a religious sect devoted to them. These scriptures say that priests must call forth the four earthly elements: air, fire, wind, and water (like another of my favorite 90s entertainments Captain Planet) which in turn will summon a fifth element: the divine warrior being.

I bring this up because the Biden administration’s proposal is pretty similar. They want to make a fifth formula for Title 1A funding authorization. Here’s how they say it would work:

The Administration recommends that the Title I Equity Grants program allocate funds through an even more targeted formula that advances equity to the greatest extent possible. This new program builds on—and leaves in place—the existing, foundational Title I Grants to Local Educational Agencies program, including the current formulas for existing funds. All States and districts would receive dramatically more funds under this proposal.

I don’t usually chuckle to myself when reading dense policy documents, but I did when I read the bolded lines above. I love how they wrote “even more targeted.” There’s already a formula that calculates a Targeted Grant.

Created in 1994, the Targeted Grant augments the Basic Grant by assigning weights to the “formula child count” (which means how many poor children are eligible for the funding–yes they’re referred to as ‘formula children’ in the policy world). Crucially, these weights are based on the formula count or rate at the county level. That means the Targeted Grant can ‘target’ districts where there are a lot of poor kids in absolute terms and a lot of poor kids proportional to the population, in relative terms.

This gets to one of the biggest tensions in federal education spending viz. poor districts: what does ‘poor district’ really mean? Does it mean a tiny district that has a proportionally large amount of poor kids in it (like a district with 100 students of whom 15 are poor) or does it mean a huge district with huge numbers of poor kids (like a big city that has 25,000 poor kids). The formula count favors the latter while the formula rate favors the former.

They bury so much ideology in numbers.

Politically, you can guess who fights for these different operationalizations of ‘poor district’. Suburban and rural representatives (who trend right) will fight for the rate while urban representatives (who trend left) will fight for the count. It’s this battle–combined with neoliberal austerity–that’s eroded the generosity of Title 1A funding since the 1980s and made it absurdly insufficient over the last 40 years.

The new fifth formula, the Equity Grant, is a salvo from the urban-left-absolute count side of this debate. How does it do this? The Biden proposal says

A new allocation formula would leverage the proposed Title I Equity Grants on behalf of students from low-income backgrounds and students of color in districts and schools with the greatest concentrations of poverty. In addition to directing a greater share of Federal funds to the highest poverty districts, the new formula would create new incentives for more equitable State and local education funding systems. (28)

So it’d be a new authorization process. But they also propose a pretty hefty appropriation for it: $20 billion. I say hefty because that’s almost as much as the other four formulas combined. It’s a good amount of money for appropriations (but actually not that much of an increase when all is said and done). We should note however that we don’t really know exactly how much of an increase this will mean for poor districts and schools, since it doesn’t give us the details of authorization. It only tells us about appropriation.

Weirdly, I can’t find details about the formula itself. The proposal document mentions some bells and whistles on the Equity Grant program, like encouraging states to set up “voluntary” commissions to study school funding distribution in their state and increasing teacher compensation. They cite work coming out of Rutgers University and the Shanker Institute (which is a good sign about the power blocs inside the administration: this tells me it’s a progressive bloc), but I don’t see an actual formula.

My best guess is that this equity grant fifth formula will literally just be the formula that the Obama administration tried to pass in 2015 but couldn’t. Let’s look at how that was suppose to work.

An absurdly bourgeois and additive history

There’s a history of the Title 1A formulas which is begging to be told by a wonky historian with a sense of humor. Most of my understanding of this history comes from the Congressional Research Service report linked above which, for all its rigor, is extremely dry (most of my summaries of the formula calculations below come from there).

The basic premise of this more fun history could be how policies in bourgeois democracy keep getting added on to one another rather than changed due to the nauseating shifts in political power between constituencies. In the back and forth between small government, suburban-rural conservatives and more social-democratic urban moderates over the last 60 years, people kept making new formulas. That’s how we got four. It’s the absurdity of bourgeois deliberation: just keep tinkering, adding on, and making little changes as part of the art of compromising and ultimately maintaing capital’s power. (I know there’s a political science term for this, but I couldn’t find it. What I did find was psychological addition: the tendency to add rather than subtract.)

In 2015, the Obama administration tried to continue this sacred tradition and propose a fifth formula: the Equity Grant. It was going to be part of the Every Student Succeeds Act (ESSA), which even Republicans agreed to pass. But they couldn’t agree on this fifth formula so it got cut. Like I said, I have to imagine that Biden’s team is going to base their Equity Grants on this previous attempt.

The Equity Grant formula from 2015 was essentially the same as the Education Finance Incentive Grant (EFIG). We’ve talked about the Basic and Targeted Grants thus far. The EFIG is the fourth formula. It’s based on total school-age population (not just formula children) multiplied by an effort factor and an equity factor. The EFIG effort factor was based on state and local education expenditures as compared to income data, and the EFIG equity factor is based on a comparison of state and local education expenditures among LEAs within a state.

Get all that? As a teacher, I want to find a way of explaining all this so it makes sense. But it’s hard! A student in my history of school funding course came up with a pretty good metaphor. Think of the Basic Grant as a kiddie pool: it has a little bit of water that’s spread out evenly. The targeted grant is like carving out a deep and shallow end. The EFIG is like adding jets to different parts of the pool so it’s like a massage for specific parts of your back? Ugh, I don’t know. If you have any metaphor ideas let me know. (I was also thinking of likening each formula to characters from Winnie the Pooh: Targeted would be Tigger, for instance.)

Anyway, back to reality. The 2015 Equity Grant was actually just like the EFIG, but with two major exceptions: it removed the effort factor and used the same expenditure factor for all states as opposed to a state level expenditure factor.

Under the House bill that created the fifth formula, states would have had the option to redistribute all of the Title I-A funds received to LEAs based on each LEA’s share of children in poverty. LEAs would, in turn, distribute the funds received to schools in the LEA based on each school’s share of enrolled children in poverty. This option was sometimes referred to as the “state option” or “Title I portability.”

I’m going to guess that the Biden administration will push for this type of formula in the coming weeks.