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Maybe you've already heard of all the drama going down
in the real estate industry lately.
How there have been all of these lawsuits
about how realtors get paid.
The big one in the news,
Burnett versus the National Association of Realtors.
Today we've got the behind the scenes story
of what went down.
It starts in 2019 in Missouri with a lawyer named Mike Ketchmark.
What I'm picturing is you at your desk,
like a shingle out front,
you open the door and a bell rings and somebody walks in
and is like, have I got a case for you?
Is that what happened?
It was myself on that one off.
One of my really good friends in Kansas City is a lawyer,
a friend in Bowwer, and he called me on a Monday and said,
hey, can I stop by your office and talk to you about a case?
I want to get you involved then.
And I said, sure.
Now Mike was maybe an unusual choice
to work on something like this.
He doesn't know anything about real estate law.
He's actually a personal injury lawyer.
I represented families usually in bronch-flat death cases
where somebody had lost their life
because of a tragedy of a product
or a work related tragedy.
The friend wants him on the case
because Mike is great in front of a jury.
He's got this folksy charm about him.
He uses football and barbecue metaphors.
And he'd won these huge verdicts.
One for the widow of a truck driver
who was killed on the job.
And another against a corrupt pharmacist
and a handful of pharmaceutical companies.
So the lawyer friend drops by Mike's office
and pitches him the case.
He just explained it and told me the story of this couple
in Kansas City, Rodent Scott Burnett,
who had bought a house.
And when they went to sell it,
they got charged a commission.
And they didn't understand why.
Scott and Rhonda sold a house
that they owned for $250,000.
And out of that amount,
they paid about $15,000 in commission
that got split between two real estate agents.
One who represented them, helped them list and show their home.
And one who represented the buyer,
the real estate agent on the other side of the transaction.
And Mike's lawyer friend is like,
sure, this is how selling a home in the US usually works.
But it is also kind of weird.
Rhonda and Scott were essentially paying
for both sides on the sale of their home.
A seller's agent, Andy Biers agent,
who were both incentivized to get a high commission.
Kind of maybe seems like a conflict of interest.
A conflict of interest?
That most people never really question.
And like, well, this is how people buy and sell houses.
I guess I just never thought about it.
And made me feel kind of dumb.
Because I thought, well, why didn't you know that?
Another problem for the Burnett's
was just how high that commission was.
So back when they first signed some paperwork to sell their house,
they were given a choice of what to pay their real estate agent.
They could pay six or seven or eight or nine percent commission.
These are like these little boxes
that they can check on the paperwork.
And Rhonda is like, uh,
yeah, I'm going to pick six percent commission.
So I pay less.
She then asks her realtor
if she could negotiate an even lower rate.
And the agent says, no.
Yeah, five to six percent commission is kind of the going rate in the US.
It's worth pointing out that this is really high
compared to most other countries
where it is also way less common to have agents
at all who represent buyers.
Now Mike's lawyer friend, he says, look,
the way commissions work in real estate in this country,
it isn't just peculiar.
It's illegal.
So Mike agrees to take a closer look.
I started looking at this and taking into it.
And I was stunned.
And I just couldn't believe it.
Mike was like, it does look like something illegal happened here.
You know what?
I'm in.
Hello, I'm welcome to plan a money.
I'm Amanda Orantik.
And I'm Keith Romer.
That case that Mike had just signed on to
would soon become a much bigger fight.
A fight about the way homes are bought and sold in the US
at a time when home prices seem like they just go up and up.
A fight about how real estate agents have done business
for more than 100 years.
Today on the show, how a personal injury lawyer
teamed up with a bunch of masurians
to radically change the housing market.
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Scott and Rhonda Burnett,
the couple that Mike Ketchmark had agreed to represent,
did not like how things had gone down when they sold their home.
They especially didn't like the part
where 3% of the proceeds from the sale
had gone to the real estate agent who represented the buyers,
the people who bought their home.
But for a court to consider this illegal,
Mike was going to have to prove
that there had been some kind of conspiracy
between agents on the seller side
and agents on the buyer side to keep that commission high.
There's a law,
it's the Sherman and I Trust Act
that says that you cannot join with competitors
to follow a system that's designed
to inflate or stabilize prices.
Mike starts digging.
And pretty quickly, it becomes apparent to him
that what had happened to Rhonda and Scott Burnett
wasn't just some isolated case.
They were not the only ones who had paid an inflated fee
and didn't really seem to have much choice about it.
We started investigating this
and saw that this was happening
statewide in Missouri.
And it was a system-wide practice
so we decided to expand the class.
Within months of joining the case,
Mike and the team expanded it
to a statewide class action
representing 500,000 Missourians.
And they weren't just going to sue the two companies
that had worked on the Burnett's house sale,
but all told four of the country's largest
Realtor franchises,
companies like Keller Williams
and Home Services of America.
And also the National Association of Realtors.
I had never heard of the National Association of Realtors
at then.
When I started looking into it,
I thought, wait a minute,
they're the largest, lobbyist in the country,
bigger than Big Pharma,
bigger than the NRA,
than all of these organizations and the answers, yes.
The National Association of Realtors
has over a million and a half members.
It is the biggest professional organization in the country
and it sets standards for the industry.
They even trademarked the word Realtor,
Tim.
And there's this one moment early on
when Mike starts to realize
just what kind of behemoth he's up against.
He dialed into this routine call
to figure out some scheduling issues with the defense.
And I remember at one point in time,
there were 123 defense lawyers on the phone.
And I just thought, man,
what have we done here?
It's possible that Mike is exaggerating here,
but...
But a lot of lawyers in any of that.
Definitely, definitely more lawyers
than what Mike has at his law firm,
where there are four.
Mike, Mike's best friend,
Mike's son,
and a lawyer named Ben.
To Mike, a Gabylian lawyers,
that was a sign.
The other side was scared.
You know, I'm a trial lawyer.
And in a lot of ways,
I feel that sometimes these corporations
bring a briefcase to a good old street fight.
And that's what jury trials are.
jury trials,
the street fight of lawsuits.
Now, unlike most corporate litigation,
this was not going to be quietly sorted out
behind closed doors in arbitration,
or settled between the parties
in a judge's chamber somewhere.
Mike was determined to make his case before a jury.
Remember, that is why his lawyer friend
tapped Mike in the first place.
Mike knows how to work a crowd,
or, you know, a jury.
So as Mike and his team get their arguments together,
they practice.
And they do this in front of mock juries
made up of real people.
We pull 24 people,
literally just kind of off the streets.
And we would present the case.
I put on the plaintiff's side,
some of the lawyers I was working with
would put on the defense side.
We'd give them the jury instructions
and we'd watch them deliberate.
Mike says that they ran
these mock trials 18 separate times.
This is where Mike would try
out his Americana-laced metaphors.
I said, look, I mean,
I live in Kansas City
about a huge fan of the Kansas City Chiefs,
were champions.
And I said,
when the Kansas City Chiefs host the Denver Broncos,
we don't pay for their coaches' salary.
When you sell your home,
why are you paying the buyer's agents?
Mike's argument to those mock juries
was that the high commission being paid
to the buyer's agents
that had become baked
into the way houses are bought and sold.
It was at the very heart of this price setting conspiracy.
Mike explained that most homes for sale in the U.S.
are posted on databases
called multiple listing services.
Consumers can usually search these databases,
but they can't post a listing of a house for sale.
Only realtors can do that.
There are about 800 of these databases
for different markets across the country,
including one around Kansas City.
When you logged into that,
it would list every house that's for sale on Kansas City.
You pulled up and you see 7,000 houses that are for sale.
You would see that these are the houses
if you're on the buyer's side
that you're going to get paid at 3% commission on.
This is a rule.
Real estate agents listing a home on one of these databases
have to post how much commission they're offering.
Commission that will go to the real estate agent
on the other side of the transaction,
the agent representing the buyer.
It's been like this for decades on the MLS.
It had been a platform for collusion before.
It had been this vehicle for agents
who represent the sellers
and agents who represent the buyers
to kind of know, pre ahead of time,
what the commission was going to be.
Mike explains all of this to the mock jury.
And he says, here's where things get a little thorny.
Imagine an agent lists a house on the MLS
and posts that this sale comes with a 3% commission
for the buyer's agent.
Great.
All of these agents are going to bring their clients
to come see this house.
But what if the agent posts a listing
offering a low commission,
like more like 1%,
the incentive of a sudden for buyer's agents
to show that house becomes much less?
Mike says he could tell that the mock jury
was totally buying his arguments.
I'm like, they get it.
They understand.
They get it.
Mike says that posting the commission
on a database can lead to what is known as steering.
Where agents steer their clients away
from homes with low commissions
to homes with big commissions,
where they're going to make a lot of money.
So when people want to list their homes for sale,
their agents push them to offer a big commission,
usually that 6% number.
To ensure that buyers agents show their house,
spring in potential buyers.
But the problem with that, Mike, says,
is that it is anti-competitive.
Real estate agents, we should say,
disagree with this characterization.
Back in October,
Planet Money's Daily podcast,
the indicator spoke to Ron Fipps,
a former president of the National Association of Realtors.
Ron is also a realtor, TM.
And he says,
imagine you were looking to buy a house.
If you were to come into my office,
we would sit down and have a conversation saying,
these are the services I'm going to provide.
And we're going to have a conversation as
to what the nature of my fee structure is
and what my compensation structure is.
And if we come to terms and say,
look at his ex amount,
when I start searching,
I'm going to show you everything in the market.
Ron says he's going to show you all of the houses,
the ones where he would get the usual 3% commission
and the ones where he'll make much less,
like 1% commission.
He says he is not going to steer you away
from the homes where he gets paid less.
Also, he says it makes sense to take commissions
for both the seller's agents
and buyer's agent out of the sale price of the home.
Because buyers are usually so stretched financially,
they wouldn't otherwise be able to afford to pay an agent.
And Ron says the service agents provide is really valuable.
He thinks it is worth it to have someone like him
help you when you're trying to make a big purchase like a home.
It's not like picking a car or picking a meal.
It's a significant permanent investment
that you really want to have that expert trusted advisors advice.
So in a nutshell, those were the realtor's arguments.
The trial began last October.
It took place in a windowless federal courtroom in Kansas City,
kind of like the sort of room you'd see in a TV drama.
And when personal injury lawyer Mike walked in,
he said there were an uncountable number of defense lawyers
on the left and on the right, a table for three.
Him, his partner, and the man who brought him the case
in the first place.
Over the course of two weeks, both sides make their cases.
Mike says in his opinion, the realtor's arguments
kind of missed the point.
They defended this case by saying, well, you know,
but people were happy when they sold the house.
But Mike was like, this isn't about the quality of the service.
It's about collusion, whether or not the real estate agents
were getting together and agreeing on prices,
which is bad for consumers.
Now, Mike, he did not want to do some long boring explanation
about how competition works.
He wanted to use the example that the jury could relate to,
like buying chicken for a barbecue.
The way I described it to the jury is if you think about it,
like if you have five companies that are chicken producers,
they can't get together and say they're going to charge
$5 a pound on chicken since it's a law.
It's collusion.
Mike says the same rules apply to realtor's,
no matter how happy their customers might be.
Well, that's like saying people at my barbecue were happy
because the chicken tasted good.
That doesn't matter, right?
I mean, like, you can't do that.
It's not the free market.
Next, Mike went after the argument that clients could always
negotiate their agents commission.
You know, it's even more compelling than a folksy metaphor
about barbecue or football, a startling piece of video evidence.
On the second day of the trial, Mike played a video
featuring the CEO of Home Services of America,
guy named Gino Belfari,
at a presentation training filters from different companies
to insist on a 6% or more commission.
For example, one home seller saw that I had written in
a 6% commission into the contract
and would ask Gino, aren't commissions negotiable?
I would always answer confidently,
yes, commissions are negotiable,
but I can only go up.
Then Mike played a video of his deposition with Gino Belfari,
asking about this training video.
Do you believe it's appropriate to get a group of competitors
in the real estate industry together
and tell them to write 6% in on the commission line
and then to tell the buyer it's negotiable,
but it only goes up.
Do you believe that that's appropriate?
It's a generic training.
Okay.
What?
Thank you.
Whether it's generic or not, it's not my question.
I'm asking you if it's appropriate.
Mike dropped the real shocker on the seventh day of the trial.
A video clip of a podcast interview with Alan Dalton
had a real living real estate,
explaining his best practices for keeping a big commission.
This is the only technique that I know works every time.
Yeah.
In this video, the CEO says he learned this technique
from one of his top realtors.
She had a client ask her to reduce her commission
by $10,000 at closing,
but she did not want to take a pay cut.
So she used the tried and true technique
that she had been using for 40 years.
You might want to write this down.
If you have your iPhone, it's first of all, the technique
is profanity-laced,
but I'm not going to use any of the swear words
because I'm not going to end my career today.
Yeah.
Here's a technique.
There's no bleeping, bleeping way.
I'm going to cut my bleeping, bleeping commission.
What do you think I'm a bleeping, bleeping hooker,
standing outside the Lincoln tunnel at three o'clock
in the morning, giving bleeping bleepings to sailors?
If you think I'm going to cut my bleeping, bleeping commission,
you can take this home and shove it up,
you're bleeping, bleeping,
and I know that it will fit, right?
Did you get everyone to get that?
Oh, yes.
I think everybody heard him loud and clear.
When this played in the courtroom, people were like,
oh, the realtors side said that not only was this video
totally vulgar, it wasn't even on the exhibit list.
So they tried to get the judge to declare a mistrial,
but motion denied.
So smoking gun is like you're accusing somebody
robbing a bank and you got a video of them doing it.
But Mike's argument wasn't just that realtors were refusing
to negotiate on commissions with their customers,
but that there was collusion.
That sellers agents and buyers agents were working together
to ensure high commissions.
You know what's even more compelling than folks
who metafors and vulgar videos?
Data.
Data.
Data that they said proved that the realtors had colluded.
Mike's team had hired an economist who looked at homes
in the Kansas City area that had been sold
by three big realty companies, thousands
and thousands of transactions.
And he was looking to see what commission was being given
to the buyer's realtor.
Now in a truly competitive market where people
are negotiating back and forth, you would see a range,
one percent commission, two percent, sometimes four percent
commission, but that is not what was happening in Kansas City.
To help drive home the point, Mike puts up a chart
of the economist's analysis.
It was a very visual image.
If it's a randomness to it, you would
expect on a chart like all these dots all around.
But because it wasn't, it was a single bar graph.
It was basically one red line practically all the dots
right there at 3%.
In almost every sale over seven years, in fact, in 92.6%
of the home sales in Kansas City, the realtor representing
the buyer was getting the exact same commission, 3%.
3% of the total value of the home.
The economist told the jury that this
was one of the clearest cases of collusion and price
fixing he had ever seen.
The prices were so stabilized that this exactly what
the commissions were and the chances of that happening
without collusion was almost zero.
Then, Mike's team presented evidence
that this wasn't happening only in Kansas City,
but also in other markets across Missouri,
Columbia and Springfield.
And each of those individual markets had their own data.
And in each of those markets, they saw the same thing.
A commission rate was basically fixed.
Finally, both sides had finished calling on their witnesses
and presenting all their evidence, vulgar and otherwise.
And Mike turns to the jury to make his closing argument.
What I told the jury was that they had the chance
to hit the reset button on the housing market.
And that they had the ability and the power
to say follow the law.
Don't collude with your competitors.
Don't fix and set prices to benefit you.
On October 30th of last year, Mike wraps up his statement.
The realtor side says, there, peace.
And then, the jury goes out.
And then you sit there and you get a pit
and the bottom of your stomach because they're literally
just answering five questions.
It's like question number one.
Do you find that there was a conspiracy
and then they answered yes or no if it's no the cases over?
The four and a half years that Mike and his team
had spent preparing for this trial,
everything hinged on the jury's decision.
Coming up after the break, the jury returns with their verdict.
An update on where things stand today.
And what this all might mean for you as a consumer.
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After two weeks of trial, Mike and his team
sit at their table for three
and wait for the jury's decision.
Mike's parents, a bunch of his cousins
are also there sitting behind him in the gallery.
Finally, after a couple of hours of deliberating,
the jury comes back into the courtroom
to present their verdict.
Their answers to a series of questions.
Was there a conspiracy?
Did you find that these defendants engaged in it?
Did you find that it harmed the plaintiffs?
The jury says yes, yes, and yes.
And then the final question,
how much endamages is owed to the victims?
And they awarded to the penny what we asked for.
How much were you asking for?
$1.8 billion.
The amount of commissions that were taken
that they shouldn't have had to pay.
$1.8 billion for the 500,000 Missourians
who recently sold their homes.
Now, one interesting thing about antitrust cases
is that they sometimes fall into this category of cases
where the law says the penalties should be more than just
a refund of what is owed.
Under the law, it's called tripling damages.
Under the antitrust laws, you automatically triple that amount.
So it's going to be tripled to $5.4 billion.
Mike, is this the biggest case you've ever done?
Oh, yeah, by far, hands down.
By far.
Yeah, but yeah, can't compare anything else to it.
In the months that followed the verdict,
things went from bad to worse for the National Association
of Realtors and the big real estate firms.
In addition to the Missouri case,
they were soon facing more than a dozen similar lawsuits
with similar sets of facts in a bunch of different states.
And Mike, he has been working to expand the case,
this time from Missouri to the entire country.
Mike knew that the damages, the companies, and the NAR owed
were so large that they could go bankrupt.
And he says that this case, it wasn't just about the money.
The people he was representing wanted
to change the whole system.
So with all of that in mind, Mike went to the NAR with an offer.
You can either go on a pill.
If you lose it, we'll collect this money.
We'll seize your assets, your corporate buildings.
They've got these beautiful corporate buildings
in Washington, D.C., in Chicago, and all around.
Or you can pay the money now and change the practices.
And so that's what they agreed to do.
Couple of the real estate companies paid tens of millions
of dollars to settle.
And then a couple of weeks ago, the NAR settled as well.
And while they would not acknowledge any wrongdoing,
they did agree to pay $418 million
and make a few fundamental changes
to the way Realtors do business.
The biggest practice changes that this MLS
is the multiple listing services,
the way that homes are listed.
The biggest changes that homeowners are no longer required
to make an offer of compensation to a buyer's agent.
Once the settlement goes through,
sellers agents will no longer be able to use the MLS
to offer a particular commission to the buyer's agent.
That box will be scrubbed from the database.
Also, all Realtors who are members of NAR,
they will be required to provide prospective home buyers
with a written agreement, paperwork,
that clearly lays out exactly what commissions
the agents are going to get paid.
After the big settlement, we checked in again
with Ron Phipps from the National Association of Realtors.
He was watching the whole trial,
the way it all played out.
Did you agree with the verdict?
No, I thought it was sad.
I thought it was a mischaracterization
and misrepresentation of the value we bring to consumers.
Ron is still thinks that the way it's been working,
where the commission for both Realtors
is part of the sale price, that that makes sense.
And that buyer's agents provide a valuable service
worth paying for.
But now, without this kind of guaranteed compensation
baked in, it is not at all clear
what will happen to all those buyers agents.
Do you think there's a chance that real estate agents
who represent buyers will just disappear completely
and everyone who wants to buy a house will just go on Zillow
and they'll watch some videos
and they'll figure out the house
that they want to buy on their own?
I think that there will be some agents
that do not stay in the industry.
I think that's possible.
I'm not terribly concerned about that.
I'm actually looking forward to the people
that think that they can search online,
see a couple videos on a website
and then master getting through the process
of obtaining a house.
I just were going to hear stories on that
where people know I had no clue.
These changes are expected to happen this July.
So it is a little early to say exactly how
this is going to disrupt the housing market.
But there are a few possible scenarios
floating around out there
in the rosiest version of things for consumers,
commissions come way down, buyers and sellers,
save tens of billions of dollars every year
and maybe even home prices come down a little.
Or realtors could just figure out a workaround
to the new rules about not including a commission offer
on every listing on the MLS databases.
Real estate agents are still allowed to send an email
or a text to the person on the other side of a deal
and just agree on a commission.
So maybe commissions do not end up coming down all that much.
Or maybe everything lands somewhere in the middle.
Some home buyers and sellers pay their agent the old way
and maybe now in this new world,
some people decide to negotiate with their agent.
Get a lower rate or they just pay agents for services,
allocart, pay a fee for help searching for homes
or like running some price comparisons.
Mike, the personal injury lawyer at the center of the story,
he also does not know how this will all shake out.
For now, he and his team are working on putting together
a list of the home sellers who are eligible
to receive money from the settlement.
They think the number is something like 40 to 50 million people.
So what happens in cases like this,
we have to get notice to people.
And so we're in the process now
of sending out notice to all of the people
who have sold homes in the United States
so that this money can be returned to them.
So now some news you can use.
If you sold your home in the last several years,
you might want to keep your eye out for a postcard
about the settlement.
Looks a bit like junk mail, it isn't.
Or you can head on over to realestatecommissionlitigation.com.
Coming up next on Planet Money,
how one of the world's most vibrant advanced economies
fell down one day and could not get back up.
That's when the people started to think
this is unprecedented and we may be in a recession
for a long time.
The spooky story of Japan's lost decades
and how it changed modern economics.
Today's episode was produced by Willa Rubin
with help from Sam Yellow Horse Kessler.
It was edited by Keith, thanks so much Keith,
and it was engineered by Valentina Rodriguez Sanchez,
help from Robert Rodriguez.
And it was fact-checked by Sierra Juarez.
Thanks today to Professor Roger Alfred, Christopher Ballog,
to Andrew Jeffrey, Paul Paglia, and Elizabeth Cohen.
Also to Adrian Ma and Whalen Wong, two of the hosts
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Thanks for listening.
This is my voice.
I can tell you a lot about me, and I'm not changing it
for anyone.
In NPR's Black Stories, Black Truths,
you'll find a collection of NPR episodes
centered on Black Experiences.
Search NPR Black Stories, Black Truths,
wherever you get your pocketness.
In this country, some truths aren't self-evident.
In NPR's, Black Stories, Black Truths,
the collection of stories is wide-ranging and real,
is the people who tell them, we celebrate the Black Experience
for all its soul and richness.
Search NPR Black Stories, Black Truths, wherever you get podcasts.
It's a high stakes election year, so it's not enough
to just follow along.
You need to understand what's happening,
so you are fully informed on November.
Every weekday on the NPR Politics Podcast,
our political reporters break down important stories
and back stories from the campaign trail.
Do you understand why it matters to you?
Listen to the NPR Politics Podcast,
wherever you get your podcasts.