Posts Tagged ‘The Color of Money’

How the U.S. mandated racial segregation

April 30, 2020

I am old enough to remember when black people were barred from living in the suburbs of American cities, including those in the North and West.

 I attributed this to the racism of middle-class white Americans.  Although backed up by the real estate industry and sometimes enforced by mob violence, I saw it as the total result of the racist attitudes of many, many separate individuals.

Most of my liberal white friends did the same.  It was not, so we thought, de jure segregation, imposed by government as in the South, but de facto segregation, the result of uncounted individual decisions.

Richard Rothstein, in THE COLOR OF LAW: A Forgotten History of How Our Government Segregated America, showed this isn’t so.  Segregation was imposed by the government, including the federal government.

Much of this is a product of the  Franklin D. Roosevelt’s New Deal. As Rothstein depicted the New Dealers, a majority of them were unapologetic white racists, with a minority of white liberals mostly too timid (there were a few exceptions, such as Eleanor Roosevelt) to object.

He described in great detail how the New Deal excluded black people.  Even though such policies no longer exist, at least not in such blatant form,  their impact continues into the present day.

According to Rothstein, these policies were illegal.  They violated the 5th, 13th and 14th amendments to the Constitution.

Therefore, he wrote, the U.S. government owes compensation to the heirs of those whose rights were violated.  Just how you do this is a hard question, for which I don’t think Rothstein has a good answer.  This said, even though I was brought up to admire FDR, I can’t deny the justice of his indictment.

Rothstein’s focus is on housing policy.  President Franklin Roosevelt’s New Deal made home ownership a new reality for millions of Americans, but U.S. subsidies for homebuilders and home buyers were conditional on racial segregation.

The government, backed by the real estate industry, insisted on racially restrictive covenants, barring black people from better neighborhoods.  Black people could not get Federal Housing Administration loans to buy houses outside all-black neighborhoods.

The Home Owners Loan Corporation (HOLC) was created in 1933 to rescue homeowners in danger of defaulting on their mortgages.  It purchased existing mortgages and refinanced them so that homeowners could afford the payments.

Payments also amortized the mortgages so that the homeowners built up equity in their homes.  If they sold their homes, they’d have something to keep.

In order to assess the risk. the HOLC hired real estate appraisers to assess risk of default of mortgages.  They created maps covering every city in the U.S., with the safest neighborhoods colored green and the riskiest colored red.  Any neighborhood with an African-American living in it was colored red, even if it was a middle-class family with a good credit rating.

Then in 1934, the Roosevelt administration created the Federal Housing Administration, which insured 80 percent of the amount of bank mortgages.  But for a homeowner to be eligible for a mortgage, the home had to be in a non-risky neighborhood.

Not only that.  The FHA would not insure any mortgage for a non-white homeowner in a white neighborhood.

During World War Two, the federal government subsidized public housing projects for war workers.  But the projects were racially segregated, with African-Americans getting proportionately few and less desirable places.

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