Secondary Research: Individual / Rachel Kraimer

Topic: Race & Re-Segregation

  1. Housing Market Constraints and Spatial Stratification by Income and Race

Summary:

  • I believe this article (published in 1995) takes on an interesting perspective as a half-way point between now and when discrimination prevention policies were first enacted. It allows for comparisons in the progressiveness (or lack thereof) of our nation from the time I was born to being a college-aged student.
  • Despite the Fair Housing Act being established many years ago, racial segregation in many metropolitan areas of the United States remains high (African Americans make up 22% of population in central cities versus 7% of the suburban population).
  • Both local government and federal regulations of subsidized housing programs are main sources of the gap surrounding income and race in the United States.
  • Defaults in the capital market often prevent lower-income homes from gaining better public goods and relocating to higher priced communities. Due to the rise in housing prices homeownership becomes more inaccessible.
  • “In many urban areas, the public housing program has substantially contributed to concentrations of nonwhite and impoverished households. These patterns are rooted in the structure of the program, federal mandates, judicial rulings, local mismanagement, and the changing demographics of U.S. cites.”
  • Not only did public housing developments directly concentrate poverty, but also created a negative reputation for the communities where they were located, ultimately leading to increased poverty in metropolitan cities.
  • “In municipalities where most public housing tenants are racial or ethnic minorities, construction of subsidized united in integrated or all-white neighborhoods may cause residents to move elsewhere.”
  • Although discrimination in both public and private housing has been banned since 1968, evidence shows that minority consumers still face discrimination in all-white neighborhoods

Thesis:

Racial, ethnic, and economic segregation has been influenced by the discriminatory behavior of both the federal government and private establishments, placing constraints on the financial and social mobility of many U.S. citizens. This ultimately restricts both career and educational opportunities for individuals, potentially increasing spatial patterns of inequality.

2. How Redlining’s Racist Effects Lasted For Decades

Summary:

  • Despite the policies that have been put in place to end racial and economic discrimination of homeownership and financial lending since the 1930s, in 2010 differences in credit scores, home values, homeownership rates, and levels of racial segregation is still apparent in the areas that which once redlined.
  • “Blacks who did not have access to conventional home loans had to turn to schemes like contract sales that entailed steep interest rates (the practice is returning today in many of these same communities). Because those homes could be frequently repossessed by predatory lenders, these neighborhoods would experience more population instability.”
  • As our country attempts to navigate through racism of the past and its lasting effects, it is clear that this history still lives on through access to housing as well as credit and wealth accumulation.
  • “The redlines that were drawn were based in large part on the belief that the presence of blacks and other minorities would undermine property values, altered what would happen in these communities for years to come. Maps alone didn’t create segregated and unequal cities today. But the role they played was pivotal”

  •  

     

    Thesis:

Although metropolitan areas are no longer sectored off by grades depicting ‘mortgage risks’, the lines that were once drawn 80+ years ago still play a negative role on the access and opportunity of minorities today, and depict that levels of racial segregation and economic disproportions are apparent in our world today.

3. The Racial Wealth Gap: Why Policy Matters

Summary:

  • In this source the racial wealth gap is defined as: “an absolute difference in wealth holdings between the median household among populations grouped by race or ethnicity. In the U.S. the racial wealth gap shows that the typical white household holds multiple times the wealth of Black and Latino households.”
  • One cause of lower ownership rates of Black and Latino families can be attributed to the concept of “redlining,” or marking minority neighborhoods as being credit risks and not condoning lending in these areas. Redlining was predominant aspect of the 1934 National Housing Act.
  • Although there was previous home equity/homeownership discrepancies, the 2008 financial crisis did farther damage to families of color’s housing wealth (Latino families lost 66% and black families lose 53% compared to white families’ loss of only 16%)
  • Homeownership Policies that can be enacted to help reduce the wealth gap: “Stricter enforcement of housing anti-discrimination laws, authorizing Fannie Mae and Freddie Mac to reduce mortgage principle and make other loan modifications for struggling homeowners, and lowering the cap on the mortgage interest tax deduction.”
  • Education Policies that can be enacted to help reduce the wealth gap: “Investing in universal and high-quality preschool education, making K-12 education funding more equitable, recommitting to racially integrated schools, colleges, and universities, and estabishing an Affordable College Compact.
  • Labor Market Policies that can be enacted to help reduce the wealth gap: “Establishing a direct federal job creation program, raising the minimum wage, and making it easier for workers to form unions.”

Thesis:

– Policies that effectively confront issues in homeownership rates as well as returns to income will prove to be most successful in shrinking the racial wealth gap. In order to challenge the previous structures that have created skewed advantages in white households, policymakers must remove barriers prevented access and achievement.

 

Reading Response 1 / Rachel Kraimer

The first article,  illustrates an inside perspective of the financial institutions and regulatory agencies that contributed to the ultimate demise of the United State’s economy in 2008. Not only were Wall Street power-houses taking part in high risk mortgage lending as well as other ethically deficient practices, but offices put in place to prevent unsound actions such as these declined to do so. This behavior ultimately boils down to a failed system of checks and balances, truly calling into question the conduct that took place behind closed Wall Street doors. The key factors that played extensive roles in the economy’s 2008 crash consist of high risk lending, regulatory failure, inflated credit ratings, and investment bank abuses. Washington Mutual Bank and Long Beach Mortgage Corporation truly set the tone and influenced system corruption as they engaged in questionable lending practices that curated billions of revenue dollars in poor quality mortgages. By consciously choosing to value volume and speed over loan quality in order to make a quick dollar, these corporations failed to consider the lasting consequences their actions would have. Instead of taking meaningful enforcement against WaMu and Long Beach, even after violations had been identified, the Office of Thrift Supervision turned a blind eye to their regulatory duties. This was a very pivotal moment in the storm of financial crisis factors, adding to the severity of damage that could easily have been halted early on. Credit inflation proceeded to mask security risks as is apparent in the actions of credit rating agencies, Moody Investors Service Inc. and Standard & Poor’s Financial Services LLC. By ignoring unsustainable rises in housing, risky loans, and mortgage fraud and continuing to issue AAA ratings to thousands of securities, financial markets experienced extreme shock when downgrades and losses ensued. Finally, investment banks such as Goldman Sachs and Deutsche Bank continued to instigate economic instability by steadily streaming funds to lenders generating poor quality loans, and profited from corrupt mortgage related structured finance products. The United States economy is a structurally convoluted system that would be able to withstand some of these factors, but it is the interconnectedness and force of all these components that simultaneously destroyed the country’s financial system.

While “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse” takes on the perspective of private banks who played key roles in the financial crash, “The 2008 Housing Crisis” takes on a new viewpoint revolving around the role of the federal government during this time. While some critics chose to blame federal housing policy for the downfall of the United States financial system, it has actually provided long-term benefits to both the economy and consumers through its promotion of liquidity and affordability. These policies stem from the after-effects of the Great Depression, and have served critical roles in the lives of many Americans as they seek to establish homeownership. By intervening in the frozen mortgage market in the 1930’s the federal government was able to bring forth much needed stability to the national housing market, including the establishment of the Federal Housing Association (FHA), national mortgage associations, and the GI Bill. With the formulation of the FHA the government created an insurance policy on mortgages to help protect banks against losses on FHA-specific loans. Along with the Federal Housing Association’s foundation, national mortgage associations also became required principles, which served as another layer of economic security promotion. When the United States faced financial stress after World War II, it was the GI that fueled the Veteran’s Administration to provide government backing for affordable mortgages to millions, ultimately stimulating impressive economic growth. Unfortunately these benefits did not apply to all Americans for the better half of the 1900’s, as families of color were excluded from such federal investments in homeownership. It wasn’t until the 1960’s and 70’s that civil rights legislation required such adverse and toxic policies to be reversed, bringing about changes in the FHA’s lending practices and the establishment of the Fair Housing Act and the Community Reinvestment Act. But despite these corrections, years of discrimination have garnered irreversible damage that has heavily contributed to racial household wealth gaps in our country today. While the federal housing policy certainly hasn’t always been the most ethically sound entity over the years, it still cannot be credited with inducing the financial crisis of 2008. Predatory private mortgage lending and unregulated markets ran rampant on Wall Street leading up to the crash, placing an unsupportable strain on the economy. Meanwhile federal housing policy bolstering access, liquidity, and affordability has continued to generate high rates of homeownership following the 1930’s failure in the housing market.

Although 10 years have past since our country has experienced economic turmoil at such a severe extent, economic recessions are not short-term events, and have lasting effects that are still prevalent today. According to an article published during the midst of the economy’s tumult, long-term consequences include negative effects on educational achievement, opportunity, private investment, and entrepreneurial activity and business formation. Education is a fundamental value of our country, but income losses or even unemployment induced by the crash can reduce families’ abilities to cultivate a supportive learning environment, threatens early childhood nutrition, and can force a delay or abandonment of a college career. As you can see in the images below, the correlation between parents and children comes at a high-degree and can last for many generations to come.

Children from higher income families are more likely to pursue a higher education in their future, and downfalls in the county’s economic state can have very damaging effects on families who feel the brunt force of this. Not only do individuals and families suffer lasting effects but investment levels plummet, reducing the development of future innovations and severely deteriorating small/new business in years to come. Together these articles should serve as a lesson that history is prone to repeating itself, and if we as citizens and consumers don’t remain educated and promote regulation for the occurrences on Wall Street and of our economy, then another financial crisis will certainly be looming in our country’s future.

Resources Used:

Wall Street and the Financial Crisis: Anatomy of a Financial Collapse

The 2008 Housing Crisis

Economic Scarring: The Long-Term Impacts of the Recession

Secondary Research: Individual | Calista Bohling

Topic: Race & Re-Segregation

1. Housing Discrimination Redlining Maps

Miller, Greg. “Newly Released Maps Show How Housing Discrimination Happened.” National Geographic. 17 October 2016. http://news.nationalgeographic.com/2016/10/housing-discrimination-redlining-maps/

Data/Summary

  • Home Owners’ Loan Corporation (HOLC) was a federal program established during the Great Depression with the task of figuring out investment risks in cities so banks could determine where to give out loans
  • Significant minority and poor neighborhoods often would get lower ratings, colored red on maps (redlining), which made it difficult for these families to take out loans on a house
  • Highlights a collection, called Mapping Inequality (https://dsl.richmond.edu/panorama/redlining/#loc=4/36.71/-96.93&opacity=0.8) which includes maps of redlining and notes from the HOLC
  • Some of the documents are blatant in the racial discrimination, with notes including, “Close to dump and Negro area,” or “Infiltration of subversive racial elements.”
  • “These residential decisions had decades-long consequences. So much of the wealth inequality that exists in America is driven by inequality in real estate market and the ability to generate equity and pass it down from one generation to the next.”

Thesis
The HOLC made it very difficult for minority families and poor whites to secure a loan on a house through the practices of redlining. These maps and notes are now publicly available and clearly outline how race played a factor in these policies.

2. A ‘Forgotten History’ Of How The U.S. Government Segregated America

Gross, Terry. “A ‘Forgotten History’ of How the U.S. Government Segregated America.” NPR. 03 May 2017. http://www.npr.org/2017/05/03/526655831/a-forgotten-history-of-how-the-u-s-government-segregated-america

This source was a podcast along with a summary of an interview with the author Richard Rothstein, who recently wrote the book The Color of Law, which “examines the local, state and federal housing policies that mandated segregation.” I have downloaded the book as well in hopes it will provide as a resource in the future.

Data/Summary

  • Redlining: a policy that would mark neighborhoods (often minority neighborhoods) in red that were considered to be high-risk for mortgage lenders
  • Rothstein argues that the housing programs created in 1933 under the New Deal were equivalent to a “state-sponsored system of segregation.”
  • FHA (Federal Housing Administration) actually furthered the segregation efforts by refusing to insure mortgages in and near African American neighborhoods
  • FHA manual called the Underwriting Manual explicitly laid out segregationist policies, which said that “incompatible racial groups should not be permitted to live in the same communities.” (https://epress.trincoll.edu/ontheline2015/wp-content/uploads/sites/16/2015/03/1936FHA-Underwriting.pdf)
  • Long term effects for African Americans, “Today African-American incomes on average are about 60 percent of average white incomes. But African-American wealth is about 5 percent of white wealth. Most middle-class families in this country gain their wealth from the equity they have in their homes. So this enormous difference between a 60 percent income ratio and a 5 percent wealth ratio is almost entirely attributable to federal housing policy implemented through the 20th century.”
  • 1968 Fair Housing Act as an empty promise as the minority families who could now buy homes in suburban neighborhoods could not as the homes were no longer affordable to those families

Thesis
The federal government housing policies created in 1933 pushed mandated segregation by refusing to insure mortgages in and near African American neighborhoods. These housing policies have had a lasting affect on our society today as this segregation in metropolitan areas still exists and has lead to a stagnant inequality.

3. The Recession’s ‘Racial Slant’

White, Gillian B. “The Recession’s Racial Slant” The Atlantic. 24 June 2015. https://www.theatlantic.com/business/archive/2015/06/black-recession-housing-race/396725/

Data/Summary

  • Report from the ACLU says that by 2031, white household wealth will be 31% below what it would’ve been had the recession never happened, but for black households wealth will be about 40% lower
  • Black households have always trailed significantly behind their white counterparts in wealthy accumulation, the recession will expand that gap
  • 2013, the net worth of white households was 13x greater than that of black households, the largest gap since 1989
  • Between 2007 and 2009, home equity for white Americans decreased by about 9%, for black Americans the decrease was 12%
  • The study also points to the predatory loans, high-interest mortgages, and unaffordable payment structures that were targeted toward people of color and the poor
  • African Americans make up 3% of conventional mortgage applications and face the highest denial rate (25%) versus a 10% denial rate for whites

Thesis
The recession was especially painful for African Americans, as it is clear there is a racial slant. The recession has widened the gap between black and white Americans in wealth accumulation; a gap which was already in existence largely due to the former policies of redlining.

Synthesis
It is clear from these documents that discriminatory lending practices and redlining has a long history and that its effects are still being felt today. In the article we previously read, the 2008 Housing Crisis, the author strongly defends some of these government housing policies, yet in the research I have gathered their were many critics of the policies. Some of these government housing policies has made it difficult for people of color and the poor to secure mortgages on their homes. These redlining and discriminatory lending practices has only lead to the widening of a wealth gap, a gap that has only further expanded due to the recession.