Resolution: The greatest factor in today's broad and widening gap in household wealth between White families and Black families is the long history of systemic bias against Black Americans in government policies and private industry practices.
The Dissenting Position (Opening Statement)
- By Jacob Hansen
Wealth disparities between blacks and whites in the United States are beyond dispute. The cause of these disparities is a subject of much debate. While we all may agree that racism exists we do not agree on the level of impact it has in 2020 on racial wealth disparities., In the following I will argue that factors outside of racism do a much better job of accounting for the vast majority of the disparities we see between blacks and whites than claims of racial bias.
An important, but oft forgotten reality, is that income and wealth disparities exist between essentially every racial and ethnic group in the US and in every country in the world. The expectation of parity between groups that differ in culture, demographics and interests does not happen even in the most egalitarian of societies. Interestingly, despite the claims of systemic “white supremacy”, the groups with the highest incomes in the United States are not whites. Asians, Jews and most groups of 2nd generation immigrants tend to have the highest incomes.
Please do not mistake what I am implying. I am not denying that racism exists. However, the question we are exploring is how big of an effect racism has on income/wealth of a population in the US over time when compared with non racial factors like education level, marriage, spending/saving habits etc.
Luckily, the black Scholar Coleman Hughes has shown us an excellent way to test the magnitude of American systemic racism. In the US we have 2 groups that racially are indistinguishable but who have very different patterns of economic behavior and outcomes. These are native born American Blacks and the children of black immigrants from the West Indies. By comparing these racially indistinguishable groups who both come from a legacy of slavery, we are holding systemic racism constant against these other factors. Therefore, if systemic racism was the primary driver holding back black Americans we would find that same challenge holding West Indians back as well. But not only do we find the West Indians outperforming native born blacks by 58% in terms of income within 1 generation, we find them outperforming the National Average income by 15% (Sowell, Three Black Histories, in The Wilson Quarterly Vol. 3 No. 1, 102-103.). We find similar results among African immigrants from places like Nigeria.
Obviously, one of the major factors behind this difference is selection bias. The US selects immigrants with the highest probability of success. But that’s very much the point! The point is that systemic racism (to the degree to which it exists) does not hold back these immigrants' ability to thrive in the United States because of these other factors! Race just does not seem to be the determining factor in their outcomes. Instead things like skills, personal financial habits, family stability and a culture of high standards seem to be the PRIMARY reasons they succeed.
In a free market system, this makes perfect sense. Much has been made of studies that show a white employer is more willing to hire someone with a white name (with all other factors held equal) but as the black scholar Thomas Sowell points out, “While it may be true that a white business owner prefers people of his own race, we should remember that he prefers himself most of all.” So as soon as these other factors are taken into consideration (which is what happens in the real world) the business owner will almost invariably hire the person they believe has the greatest probability of benefiting their enterprise regardless of race. This is why even in apartheid South Africa blacks with the best skillsets were being hired ILLEGALLY even by racist employers. So the result is exactly what we see among the aforementioned black immigrant populations. We see people who have in demand skill sets and a who come from a high standards culture being hired. Economic prosperity does not correlate nearly as well with race/ethnicity as it does with what I have coined as “The Big 4”.
In Demand Skills/Education
Culture of High Standards/Performance
Stable Family Dynamics
Spending/Saving Habits.
History also supports this idea. Various groups in the US have faced persecution and discrimination (Blacks Chinese, Japanese, Jews, Irish, Mormons, Latinos, Gays, Native Americans etc etc). However, when the intergenerational economic hardships among these groups were overcome, nearly always the triumph came to the degree they embraced the Big 4 factors above. So its no major shock that this is exactly what we see when we compare native born blacks with the children of West Indian or African immigrants. Black immigrants come from more stable homes with higher expectations for performance and this results in higher levels of skills/education and healthier financial habits.
Again, this is not to say that racism does not exist, but it does make crystal clear racisms power over economic impact is not stronger than these non racially dependent factors. In fact these factors transcend race. Dr. Charles Murray recently examined the data behind the widening disparities between poor and upper class white Americans in his book "Coming Apart". He too found that these factor (which I call the Big 4) were the primary driving force in the ever widening gap between rich and poor white Americans. The bottom line is simple - If you embrace The Big 4, then your chance of ending up in poverty in the US over the long term are almost nothing regardless of your race.
Some will concede the major need for the Big 4 but will claim the “Legacy of Slavery” is to black for a lack of those factors in the black community. Not only does this explanation ignore the fact that black immigrants from places like the West Indies were also descendants of slaves, it also ignores that fact that black families were more stable during the rampant systemic racism of 1950’s Jim Crow than they are today.
If systemic oppression drove the breakup of the black families, why would the greatest breakup of black families happen after the Civil Rights movement and the decline of explicit racism in the United States? It cannot be understated how important stable families are. Even a quick glance at the graph above and will reveal an almost exact correlation between the groups with high single motherhood rates and high rates of poverty and those same correlations between single motherhood and poverty are found within racial groups. It cannot be understated how devastating high rates of single motherhood can be on a population REGARDLESS OF RACE.
Single mothers do their best, but raising and providing for a family without the other parent is too often too much for one person to do as effectively as a 2 parent household. It makes no sense to say that racism is the primary driver of poverty in the black community when the levels of poverty we see are almost exactly what we would expect in any population with a 70%+ single motherhood rate regardless of the race involved.
This is not to imply that the breakdown of black families was “just because they are black.” For instance, in the 1950s blacks had more stable families than whites do today. The breakup of the black family was a complex phenomena rooted in a storm of economic, political, and cultural forces that went to work in the 1960s-80s as I explain in a recent video. To make matters worse, the pathologies of fatherlessness are nearly all amplified when single motherhood or family instability is multi generational and widespread. In this context a single mother is less likely to have help from a more stable household in the extended family and thus will more likely have to rely on government. It also becomes even harder for young men to find stable male role models in environment where stable families are less common and poverty is more rampant. Any analysis of the causes of black and white income/wealth disparities that does not account for this massive difference in single motherhood rates and the economic impact of single motherhood should be regarded as woefully incomplete.
So what can be done about these disparities? Based on the history of marginalized groups that have overcome poverty in the US, the solution is nearly always the same and nearly never driven by political activism. Instead the solution is found in a cultural embrace of The Big 4 values coupled with a free market economy. Transfers of cash from whites to blacks, as was tried in the great society via welfare and now as proposed in reparations don’t create The Big 4 values/behaviors and thus does not treat the root problem. If money could solve the wealth disparity then it would have been solved long ago.
The black scholar Coleman Hughes has an excellent analogy of someone who was hit by a car and damaged their spine. They were not at fault and the only way they can walk again is to do an exercise routine each morning. There is nothing the driver of the car (who is long since dead) can do to fix the problem. It’s not fair but merely talking about how bad the driver was and how he was responsible does not fix the problem. He is dead. The only thing to do is begin the exercise routine which requires personal responsibility and change. The solution for native born blacks is to begin doing what black immigrants are doing. The problems in the black community are not going to be solved by “white saviors” like Robin Deangelo or political race hustlers like Al Sharpton. It will happen when there is a popular embrace and amplification of black icons like Carol Swain, Denzel Washington, Thomas Sowell, Les Brown, Terry Crews etc who properly understand the problem and who are pushing the big 4 values. In conclusion, there is no denying that racism still exists in America today, but when we actually examine the data laid out above it would be foolish to conclude that racism is the primary cause of black poverty in 2020 when so many other factors better explain the data.
The Affirmative Position (Opening Statement)
- By David Preece
Introduction
The socioeconomic disparities that characterize the contemporary African-American life experience can clearly trace their origins to slavery, but damaging and subtle remnants of systemic racism remained in more recent American history which directly affect today’s wide gap in household wealth between Black and White families. A key factor in family wealth and intergenerational asset transfer is home ownership, and the long-standing disparity in Black and White home ownership is rooted in institutional bias that has contributed heavily to the racial wealth gap. The impact of this net wealth disparity not only presents a current economic security challenge for Black American families, but its legacy is manifest in a variety of social problems within many predominantly Black neighborhoods. By referencing existing research data and historical facts, this position paper affirms that past and present institutional bias in public policy and parallel discrimination in key industries are the primary influencers of racial disparity in household wealth and the resulting social effects on Black communities.
Hypotheses H1: "The greatest factor in today's broad and widening gap in household wealth between White families and Black families is the long history of systemic bias against Black Americans in government policies and private industry practices." H2: “Extended home ownership is the largest factor in the development of household wealth and the multi-generational transfer of financial assets, and thus the lower home ownership rate among Blacks is a key contributor to household wealth disparity.
Definitions and Data
Institutional discrimination, also called systemic bias, is very different than prejudice on an individual level. A person may exhibit racial bias in their specific dealings with others, and research indicates these racist inclinations are still far too common in America. Nearly 70% of Blacks report they experience discrimination from “time to time” or “regularly”.(1) A 2011 study after the election of President Obama found that “symbolic racism” may be on the rise, with examples of highly successful Blacks leading to White beliefs that discrimination is a bygone and persisting inequities can only be explained by personal weaknesses of Blacks. (2)
While such forms of personal discrimination are not the focus of this paper, if enough individuals within an organization display such bias, the institution itself may be considered discriminatory—despite stated policies, practices or training to the contrary. This is why responsible organizations, both private and public, regularly monitor their affairs and outcomes to ensure bias of any kind is minimized.
As the adjacent definition suggests, systemic bias is present when an organization’s policies or practices unfairly affect a group of people, most often those who are already disadvantaged due to race, gender, financial status, faith or other factors. This type of inequity can harshly limit the opportunities for economic, social or personal advancement as guaranteed by the United States Constitution.
Wealth disparity is a major issue in the equity of American socioeconomics and the racial gap has steadily widened in the post-WWII era. In 2016, the net wealth of the average White household was $149,703 (adjusted for inflation), a factor of 11.5 times more than the $13,024 average for Black households. (3) Disturbingly, the median wealth of Black families whose head graduated from college is less than the median wealth of White households whose head dropped out of high school. (4)
It is important to distinguish between income and wealth since those terms are sometimes mistakenly interchanged. The Census Bureau defines income as the total annual resources available to families, including earnings, dividends, and benefits from government or employers. Wealth is more narrowly defined as the value of a household’s property and financial assets, minus the value of its debts. (5)
Naturally, a family’s income has some impact on its total wealth, as any cash on hand is part of the wealth formula. Annual household earnings are also a key credit worthiness factor and therefore have a significant influence on loan approval to buy a home. The average Black household income was 55% of White average income in 1967. That ratio in 2014 was 60% which shows some relative marginal improvement, but this large disparity remains a factor in access to capital and the lower rates of Black wealth and home ownership. (6) If verifiable annual income is too low to qualify for a mortgage, then one cannot buy a home.
The root of the racial wealth gap is a corresponding disparity in home ownership across recent decades. Home equity is the main component of household wealth.(7) In 1970, two years after the Fair Housing Act was signed into law, only 42% of Black Americans owned a home compared to 66% of Whites. While Black the home ownership rate is approximately the same today, the gap versus Whites has increased from 24 to 30 percentage points. (8)
If a Black family has been historically limited by low income and institutional bias in buying a home to develop equity-based wealth, the financial challenges of each succeeding generation may amplify and the wealth gap widens compared to a White household with no such restrictions.
The Socioeconomic Legacy of Slavery The severe individual economic limitations of slavery and the post-Emancipation era are well documented and indisputable. With very few regional exceptions, slaves could not legally own any assets, let alone a home. Even freedmen could not take advantage of post-Civil War homesteading opportunities until passage of the Fourteenth Amendment in 1868 which recognized them as citizens.8 After Emancipation, many Blacks worked in a sharecropping system that was not much better than slavery.9 Vagrancy laws in the South that required holding a job allowed states to force free Blacks into labor, or to sell them back into slavery.10 The promise of “40 acres and a mule” for former slaves never materialized. Widespread Jim Crow laws established strict segregation and institutionalized discrimination until their dismantling began with the 1954 Brown v. Board of Education Supreme Court decision. Nevertheless, the stain of racial bias had deeply seeped into American culture. The awful legacy of slavery deprived generations of Black families the opportunity to pursue life, liberty, happiness—and economic wealth. Systemic Bias in Housing In the 1930s, the New Deal's Home Owners' Loan Corporation instituted a “redlining” policy with color-coded maps that used racial criteria to classify lending and insurance risks. Affluent White communities received green lines while Black and poor White neighborhoods were often circumscribed by red lines denoting their undesirability. Banks and insurers soon adopted the HOLC maps to guide lending and underwriting decisions, and the Federal Housing Administration later adopted redlining to assess locations for federally insured new housing developments. These policies were abolished by law in 1968, but they had essentially institutionalized discriminatory mortgage and development lending behaviors by private financial organizations that did not fully disappear with the passage of the Fair Housing Act.11 Fighting in WWII against Hitler’s white supremacist notion of a “master race” had some softening impact on American racial attitudes, but this did not translate into meaningful improvement of Black socioeconomic conditions. Discrimination in job hiring and compensation was common practice. Black students were segregated into crowded, sub-standard schools. Black families were not welcome in the fast-growing suburban neighborhoods. Thousands of Black veterans were targeted for mistreatment and violence following WWII and some were even lynched.12 One little-known outcome of Jim Crow was a proliferation of “racial covenants” in home deeds that did not allow sales to African-Americans and other minorities. As described by the National Association of REALTORS, “First appearing in the early part of the 20th century, these so-called deed restrictions legally prevented people of certain races from buying, renting, or living in individual homes in White communities well before the practice of redlining officially marked those areas as off-limits to minority buyers.”13 The GI Bill of 1944 established a range of benefits for WWII veterans including college tuition and low interest home mortgages. The Veteran’s Administration did not actually provide home loans—that was left to private banks. Southern members of Congress were successful in giving states the responsibility for GI Bill administration, enabling White-run banks to practice discriminatory lending that excluded Black veterans. In 1947, only two of the more than 3,200 VA-guaranteed home loans in 13 Mississippi cities went to Black borrowers. In New York and the northern New Jersey suburbs, fewer than 100 of the 67,000 mortgages insured by the GI bill supported home purchases by non-Whites.14 These racist housing restrictions only exacerbated the mobility challenges for Blacks attempting to follow the relocation of many manufacturing facilities from urban centers to industrial sites outside the cities. Between 1970 and 1996, the city of Chicago lost more than 300,000 manufacturing jobs as companies shuttered their urban factories, it and now has one-quarter the manufacturing employment it enjoyed in the 1950s.15 Millions of Blacks with a slave family legacy moved to the industrial North to take well-paid factory jobs. When those plants and their jobs began moving outside the urban core where most Blacks lived, many of these workers found it too difficult to find housing in the segregated suburbs and most jobs were filled by White suburbanites who could invest in homes. The combined effect of these biased policies and practices is succinctly characterized by Donnell Williams, president of the National Association of Real Estate Brokers: “The homeownership gap between Blacks and Whites is larger today than it was in 1934 when the Federal Housing Administration was established”16 Other Wealth Influencers This paper maintains that home ownership and its singular effect on the multi-generational transfer of financial assets are at the root of racial wealth disparity, but are there other factors involved? Of course, and the combination of influences vary by individual situation. Conventional explanations of the Black household wealth gap may include a lack of frugality, lower income and education, poor asset management, little entrepreneurship, single motherhood, and even cultural laziness. Space limits do not allow for a full discussion of each topic. However, research shows that after accounting for household income, Blacks have a slightly higher savings rate than Whites, and there is no significant racial difference in historical investment asset appreciation.4 Business ownership plays a role in building and transferring wealth, and while Black entrepreneurship is increasing, the rate of Black business ownership still lags Whites, with inequitable capital access and capital cost being a major reason—another example of bias within the banking system.17 Assertions that household characteristics like educational attainment and marital status have been major contributors to the historical data of accumulated, transferred wealth are dispelled in the research. When those factors are controlled in the analysis, there is still a large household wealth disparity between Blacks and Whites. Indeed, even given substantial gains by Black households in educational achievement and income over the past 30 years, the wealth differential has widened.18 Wealth is a paramount indicator of social well-being. Wealthier families are far better positioned to finance elite educations; access capital to start a business; finance medical procedures; reside in higher amenity neighborhoods with less crime; exert political influence; purchase better legal counsel; leave a bequest; or withstand financial hardship resulting from any number of emergencies. (4, 19) Studies have even demonstrated the negative health effects of living in low-income neighborhoods. When compared to lifelong residence in high-income neighborhoods for both Black and White women, babies born in poor areas have a higher risk for low birth weight and its accompanying health issues.20 Some have questioned why recent immigrants of color to America seem to have fared better economically than resident Blacks. One obvious factor in the case of Black immigrants is they were not subjected to the multi-generational biases and limitations of slavery, Jim Crow and historical institutional racism discussed above. Relative wealth development by immigrants is often accounted for in research by “self selection.” They are better-educated with a necessity to succeed supported by higher levels of income and a network that provides access to human, social and financial capital. While many immigrants— especially illegal immigrants—do arrive in the United States with few financial assets, legal immigrant entrepreneurs typically have access to personal and family savings and depend less on (potentially biased) commercial lending to launch businesses.17 A recent study sheds a different light on the topic of immigrant wealth development. These researchers identified greater geographic mobility as the key: To a larger degree than native citizens long-settled in communities, immigrants tend to locate where there is more economic opportunity and take jobs below their true skill level. Princeton researcher Leah Platt Boustan explains, “We don’t even have to reach for these cultural explanations. [Mobility is a choice] that immigrants are making that [is] different from the US-born and that could be a feature of immigrant success.”21 Home Ownership and Wealth Withers and Reid of the University of Washington state that homeownership remains the primary form of wealth in the United States, and that approximately 30% of all household wealth is invested in owner occupied housing.22 The Pew Research Institute reinforces this point, affirming that the equity developed through home ownership is the chief contributor to household wealth.7 Given the lower home ownership rate of Blacks, it follows there would be a corresponding disparity in household wealth, and as presented above, the wealth gap disparity is actually 11.5x for Whites. Federal data shows the home ownership rate in 2018 for Whites was 74% and 44% for Blacks. Extrapolating this into financial impact, in 2015 the average net worth of a homeowner was $195,400, compared to just $5,400 for a renter (Federal Reserve), and wealth from equity in a home constitutes 51% of total wealth of the average White household, but 71% for Black households.23 Even when Blacks do own a home, the comparable market value and net equity are negatively affected by the legacy of now-illegal redlining. A recent study by Redfin found that the typical home in a redlined 5 neighborhood gained $212,023 or 52% less than one in a “greenlined” neighborhood over the past 40 years. Today, Black homeowners are five times as likely to live in a formerly redlined neighborhood than a greenlined one.23 This clear relationship between lower wealth and not owning a home is only exaggerated with each succeeding generation that does not inherit home equity-based assets from its progenitors. For Black Americans, the origins of this tragic phenomenon go all the way back to slavery and Jim Crow, and some systemic obstacles even persisted into modern times. Regulatory Remedies With the 1968 passage of the Fair Housing Act, racially discriminatory policies and practices that limited Black access to home ownership were outlawed. This regulatory proscription was further strengthened with the Community Reinvestment Act of 1977 that motivates depository institutions to better meet the credit needs of low- and moderate-income neighborhoods with greater access to mortgages and other financial tools. Federal examiners monitor banking institutions and assign an evaluative performance score that is publicly published. The CRA Modernization Act of 2009 expanded the type and number of financial institutions with an “affirmative obligation” to invest more in formerly redlined communities. Did these acts of government result in real changes? In the decade between 1989 and 1999, banks directed over $5 trillion in loans and investments to low-wealth neighborhoods. Community development organizations and other groups that had struggled to find grants, loans, and investments for their projects experienced an exponential growth during that time in their ability to provide affordable housing, economic development, and community development loans.24 However, the CRA is not without critics, especially as it relates to what is perceived by many financial institutions as onerous compliance and reporting procedures. Indeed, the author’s interview with a Midwest bank president revealed frustration that a federal CRA auditor lauds efforts to lend in low income areas, while a Federal Deposit Insurance Corporation bank examiner criticizes the presence of these “risky” loans in the lender’s portfolio. The law also did not cover the presence of bank branches in poor neighborhoods. Since 1989, there has been a systematic closing of bank branches in these communities, and high-cost mortgage firms or predatory lenders filled this vacuum.25 While these regulatory actions appear to have generated some positive impact on urban minority neighborhoods, the wide gap in Black and White home ownership has not changed significantly over the past four decades. This stagnance has been a major contributor to the continuing racial wealth gap. Is Systemic Bias Still with Us? While America has made important progress on the front of individual and institutional racism, it is clear that significant obstacles remain for Blacks in their equitable pursuit of socioeconomic advancement and the “American Dream.”
When reporting on the 2012 marketing practices in the housing sector, the Department of Housing and Urban Development found that racial discrimination persists. As the adjacent chart shows, Black auditors from HUD posing as buyers were told about and shown approximately 17% fewer housing options when seeking a home purchase.26 Interestingly, when seeking housing for rental, the “Told About” and “Shown” gaps are 11.4% and 4.2%, respectively.6 When this data is considered on an individual basis, a significant number of real estate agents or other buyer representatives are clearly exhibiting personal bias against Black clients. In the aggregate, however, the collective behavior of these agents amounts to systemic bias in the home selling sector.
Systemic bias in mortgage lending also remains an obstacle to Black home ownership aspirations. Research from Northwestern University shows that Black applicants are 60% more likely to be denied home loans than White applicants, even when controlling for income, gender and indicators of credit worthiness such as debt, down payments, and credit scores.27 Other studies demonstrate that minorities also pay higher interest on loans, further diluting their ability to build home equity. This data is a strong indicator of institutional bias in mortgage lending.
Further evidence of current discrimination in the financial services industry comes from a 2020 study28 by researchers from Rutgers University, Brigham Young University and Utah State University about the distribution of federal relief funds from the Paycheck Protection Program of the coronavirus pandemic driven CARES Act. As the study reminds, “COVID-19 has had a disproportionate negative effect on Black communities. Not only is the death rate for Black people 2.3 times higher than the rate for White people, the number of Black businesses lost between February to April 2020 is almost twice that of the national business loss rate.”
These PPP researchers directed matched-pair White/Black auditors to Washington, DC lenders to apply by telephone for support for their small business. Profiles were controlled with racially identifiable names and each tester was required to pass a voice panel test to determine that their perceived race could be determined over the phone. To add research strength, the income, assets and credit score profiles of Black auditors were actually inflated. The results? In 43% of the tests, the White auditor received more favorable support in pre-application activities. Black male testers were more often offered home equity line of credit products instead of/in conjunction with small business loan products. In 44% of the cases, lenders not only discouraged the Black testers from applying for a loan, but simultaneously encouraged similarly-situated White testers to apply for one or more loan products.
The answer to the question posed in this section’s title is a demonstrable “yes.”
Conclusions
This subject of this paper, “The Impact of Historical Systemic Bias and Home Ownership Rates on Black and White Household Wealth Disparity in America,” presupposes two hypotheses for review and affirmation:
H1: "The greatest factor in today's broad and widening gap in household wealth between White families and Black families is the long history of systemic bias against Black Americans in government policies and private industry practices."
H2: “Extended home ownership is the largest factor in the development of household wealth and the multigenerational transfer of financial assets, and thus the lower home ownership rate among Blacks is a key contributor to household wealth disparity.”
The historical accounts of the systemic racism of slavery and the Jim Crow period were a starting point for this discussion. The residual effects of this legacy on the opportunity for American Blacks to obtain full socioeconomic equity cannot be minimized.
Further, the demonstrated racial bias in government policy and private practice in the housing and financial sectors during the 1930s-1960s period had the effect of severely limiting Black access to the post-WWII economic boom enjoyed by most White families. Industrial evolutions that moved jobs to the White suburbs where Blacks were not welcomed accelerated the decline of urban neighborhoods. Despite modern regulatory remedies, institutional discrimination is still a factor in limiting the fair access of Blacks to housing and home loans. 7
Lower average Black incomes and their higher costs of credit certainly contribute to the wealth gap. Nonetheless, the singular influence of home ownership on the accumulation and multi-generational transfer of financial assets has been confirmed by the information presented in this paper. When controlling for other factors such as education or marital status, the equity built through home ownership is the chief contributor to the development of personal wealth. Due to the large and growing disparity in Black home ownership (30 percentage points), it is no surprise there is a corresponding and widening gap—currently 11.5x—in Black and White household wealth.
Based on this thorough analysis, this paper confidently affirms both Hypothesis 1 and Hypothesis 2.
As the African-American poet Langston Hughes penned, "A dream deferred is a dream denied." That sentiment appears to still apply for Blacks pursuing American Dream of owning a home and building family wealth.
Link to the original paper and all sources. Click Here
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Rebuttals
Jacobs Rebuttal to Davids Opening Statement Above- CLICK HERE
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