Obama Thinks The Free Market Killed Neighborhood Diversity. In Fact, It Was the New Deal
Here is a very telling paragraph from the HUD's new proposed fair housing rule
Despite the existing obligation to AFFH, in too many communities, the Fair Housing Act has not had the impact it intended — housing choices continue to be constrained through housing discrimination, the operation of housing markets, investment choices by holders of capital, the history and geography of regions, and patterns of development and the built environment.
So, they list "discrimination" as a problem, but then look at the other four items they list as problems. These can all be summarized as "the normal operation of free markets, property rights, and individual choice."
Oddly missing from this list of causes is what many historians consider to be the #1 cause of lack of neighborhood diversity and ghetto-ization: The Federal Government and the New Deal. New Deal rules essentially forced the concentration of blacks into just a few neighborhoods. The biggest unmixing of races in New York can be seen between 1930 and 1950. Blacks in Brooklyn went from fairly evenly mixed to concentrated in Bed-Stuy, all directly attributable to New Deal rules. Basically, ever since then, we have just been living with the consequences. Via NPR in an interview with Richard Rothstein
On how the New Deal's Public Works Administration led to the creation of segregated ghettos
Its policy was that public housing could be used only to house people of the same race as the neighborhood in which it was located, but, in fact, most of the public housing that was built in the early years was built in integrated neighborhoods, which they razed and then built segregated public housing in those neighborhoods. So public housing created racial segregation where none existed before. That was one of the chief policies.
On the Federal Housing Administration's overtly racist policies in the 1930s, '40s and '50s
The second policy, which was probably even more effective in segregating metropolitan areas, was the Federal Housing Administration, which financed mass production builders of subdivisions starting in the '30s and then going on to the '40s and '50s in which those mass production builders, places like Levittown [New York] for example, and Nassau County in New York and in every metropolitan area in the country, the Federal Housing Administration gave builders like Levitt concessionary loans through banks because they guaranteed loans at lower interest rates for banks that the developers could use to build these subdivisions on the condition that no homes in those subdivisions be sold to African-Americans.
Postscript: Here is how the Ken Burns New York documentary series explained it, though the source page is no longer available:
Government policies began in the 1930s with the New Deal's Federal Mortgage and Loans Program. The government, along with banks and insurance programs, undertook a policy to lower the value of urban housing in order to create a market for the single-family residences they built outside the city.
The Home Owners' Loan Corporation, a federal government initiative established during the early years of the New Deal went into Brooklyn and mapped the population of all 66 neighborhoods in the Borough, block by block, noting on their maps the location of the residence of every black, Latino, Jewish, Italian, Irish, and Polish family they could find. Then they assigned ratings to each neighborhood based on its ethnic makeup. They distributed the demographic maps to banks and held the banks to a certain standard when loaning money for homes and rental. If the ratings went down, the value of housing property went down.
From the perspective of a white city dweller, nothing that you had done personally had altered the value of your home, and your neighborhood had not changed either. The decline in your property's value came simply because, unless the people who wanted to move to your neighborhood were black, the banks would no longer lend people the money needed to move there. And, because of this government initiative, the more black people moved into your neighborhood, the more the value of your property fell.
The Home Owners' Loan Corporation finished their work in the 1940s. In the 1930s when it started, black Brooklynites were the least physically segregated group in the borough. By 1950 they were the most segregated group; all were concentrated in the Bedford-Stuyvesant neighborhood, which became the largest black ghetto in the United States. After the Home Owners Loan Corp began working with local banks in Brooklyn, it worked with them in Manhattan, the Bronx, and Queens.
The state also got involved in redlining. (Initially, redlining literally meant the physical process of drawing on maps red lines through neighborhoods that were to be refused loans and insurance policies based on income or race. Redlining has come to mean, more generally, refusing to serve a particular neighborhood because of income or race.) State officials created their own map of Brooklyn. They too mapped out the city block by block. But this time they looked for only black and Latino individuals.
This site has some redlining maps, including one of Brooklyn, prepared by the Feds. Remember, this is not some evil Conservative business CABAL, these are Roosevelt Democrats making these maps. This site adds:
While the HOLC was a fairly short-lived New Deal agency, the influence of its security maps lived on in the Federal Housing Authority (FHA) and the GI Bill dispensing Veteran’s Administration (VA). Both of these government organizations, which set the standard that private lenders followed, refused to back bank mortgages that did not adhere to HOLC’s security maps. On the one hand FHA and VA backed loans were an enormous boon to those who qualified for them. Millions of Americans received mortgages that they otherwise would not have qualified for. But FHA-backed mortgages were not available to all. Racial minorities could not get loans for property improvements in their own neighborhoods—seen as credit risks—and were denied mortgages to purchase property in other areas for fear that their presence would extend the red line into a new community. Levittown, the poster-child of the new suburban America, only allowed whites to purchase homes. Thus HOLC policies and private developers increased home ownership and stability for white Americans while simultaneously creating and enforcing racial segregation.
The exclusionary structures of the postwar economy pushed African Americans and other minorities to protest. Over time the federal government attempted to rectify the racial segregation created, or at least facilitated, in part by its own policies. In 1948, the U.S. Supreme Court case Shelley v. Kraemer struck down explicitly racial neighborhood housing covenants, making it illegal to explicitly consider race when selling a house. It would be years, however, until housing acts passed in the 1960s could provide some federal muscle to complement grassroots attempts to ensure equal access.
HenryBowman419:
A version of what the BO Admin is proposing was actually attempted in Memphis, TN. The results were nothing short of disastrous. This 2008 Atlantic article provides details.
June 17, 2015, 2:44 pmmlhouse:
The entire concept can only be contemplated by complete lunatics and forcing these decisions HURTS, lets repeat that HURTS, poor people. Why? Because if you have $100 million to spend on building low income housing you can build many more units of housing in lower cost areas than higher cost areas. Buy a lot in an exclusive area of Naples, FL for example you are going to pay $1 million or more just for the lot. Buy lots in Lehigh Acres you can pick up lots for $15-20,000. So, $100 million buys you 100 lots in Naples and 5000 lots in Lehigh Acres. Tell me where our tax dollars can do the most good if it weren't for our idiotic liberals in charge hoping to stick it to the rich people that they hate (not all rich people because if you are like Hillary Clinton you are ok).
June 17, 2015, 7:04 pmNL7:
Although I agree that the New Deal was a white supremacist perfidy for real estate, there were also lots of earlier zoning and covenant issues that worked to separate people. My old town of St. Louis had zoning and covenants that, along with later New Deal rules, managed to restrict black residences in a way that's still noticeable today.
http://mappingdecline.lib.uiowa.edu/map/
June 18, 2015, 6:33 amjoshv:
Segregation in Chicago is much more complex that most in the media will acknowledge. For example, they will paint the poverty and economic desolation of our worst neighborhoods with a broad brush as a direct result of read lining policies of the past. In some cases true, but some of our worst neighborhoods once were affluent and white - they turned over, rather dramatically, in the 60s and the 70s as the result of legal reform in housing policy. Now they are poor and mostly black. And yes, some or our suburbs are lily white and exclusionary, but it's not only white people who fled the crime in the city, so we've got a large belt of suburbs that are majority 'minority'.
June 18, 2015, 9:30 amdemockracy:
You are exactly right. The New Deal was plenty racist, and redlining (restricting government-backed mortgages to white suburbs) was widely practiced. Also widely practiced, as NL7 says, were zoning and convenants that racially segregated neighborhoods.
You don't mention that no lesser light than Henry Ford published anti-semitic tracts, and revived the Czarist forgery "The Protocols of the Elders of Zion" (spoiler alert: if it was bad, the Jews did it). The Klan endorsed prohibition, because they didn't want any drunken people of color raping the helpless white women.
So racism has been part and parcel of American history.
But you ignore the basic reason: divide and conquer. Henry Ford's real message: "You wouldn't want to join a union with a Jew, would you? Be a *real* American!"
Similarly, your focus on the faults of public policy (like shooting fish in a barrel, IMHO) rather than the equal-or-worse faults of the private sector--who nobody gets to vote for--is another divide-and-conquer message. "You can't trust government!" (But Enron, Adelphia, Silverado Savings and Loan, Credit Mobilier...all those we can ignore.)
The only place most poor people have a voice is in public policy. And finding fault with public policy is easy; the meetings and records are public. We had to wait for the bankruptcy trial to read the minutes of Enron's board meetings.
...so I'll agree particularly lending and land use is an open sewer in public policy. And not 60 years ago! Now! Where do you think the sub-prime mortgage crisis at the root of the Great Recession originated? (hint: it wasn't government, or quasi-government, unless you count the de-regulation and de-supervision practiced by both R's and D's.)
Heck, 75% of W's net worth comes from scamming Arlington Texas out of a stadium for a previously (private) money-losing baseball club.
So let's clean up public policy in that area rather than narrowing our focus exclusively to the failings of FDR.
June 18, 2015, 11:15 amIke Pigott:
Please go back and look at the first two paragraphs. The history lesson here isn't to proclaim Markets Good - Government Bad... merely to rebut the State's position that the vast majority of what ails poor people in poor housing is a result of market failure.
And I can't speak for Warren, but asking for poor people to exercise their vote for political redress is laughable. The Poor only have the power that Randolph and Mortimer Duke wish them to have.
June 18, 2015, 4:17 pmjhertzli:
The really annoying part is that the wrong side of the Right also thinks segregation is part of the free market but they're in favor of it.
June 20, 2015, 7:49 pmAnn_In_Illinois:
"Where do you think the sub-prime mortgage crisis at the root of the Great Recession originated?"
That's easy - it originated with the push by politicians and activists in the 1990s to get banks to lower their lending requirements. The Clinton Administration turned the CRA (Community Reinvestment Act) into more of a quota system (it was no longer enough to have the same standards for all - bank were expected to do whatever it took to meet their loan quota), and Fannie and Freddie actively pushed all banks to lower their downpayment requirements and keep less documentation on each mortgage loan.
Activists wanted the standards lowered to "help" certain groups, but the push expanded to all loans, which was a big mistake. Think how much more easily we could have recovered from the housing bubble if everyone had put down 20%. It all originated in the 1990s under Clinton, although Barney Frank gets more of the credit.
June 21, 2015, 9:21 pmdemockracy:
Ann_In_Illinois, you are repeating a right-wing talking point that happens to be entirely false. Europe had no Fannie, Freddie or CRA (which had been present for roughly a decade when the sub-prime loans came along), yet it had exactly the same kind of housing bubble / bust. CRA was manifestly *not* responsible for the sub-prime mortgages (nor were FNMA nor FHLMC). Google with the word "debunk" added to the search for many, many footnotes affirming what I say; don't take my word for it.
Along with Newt's congress, Clinton was responsible for the end of Glass-Steagall and the Commodities Futures Modernization act. These were Republican measures Clinton signed in the name of "triangulation," but he (Clinton) is pond scum, IMHO, regardless of those things. Nevertheless, that doesn't make him or Barney Frank the initiator of what led to the sub-prime mortgages. The origin of the deregulation Clinton signed, and those it favored, was entirely private, not CRA or any other government-initiated scheme. That's just B.S.
About Barney, you might find this instructive (his words): http://www.huffingtonpost.com/rep-barney-frank/is-there-an-antidote-to-t_b_176538.html
June 22, 2015, 9:58 amAnn_In_Illinois:
Europe experienced a housing bubble, but did not have the degree of problems with subprime loans. The housing bubble was so costly for the US precisely because our lending standards had been deliberately lowered by so much.
I'm not saying that all responsibility for the crisis was due to these changes (although it certainly wasn't because of the changing of Glass-Steagal!). This is about the origins - the first step in the process was the shift towards lower lending standards, which indisputably began in the 1990s under Clinton. The head of Fannie Mae was boasting in NYT articles in 1999 about how Fannie had successfully gotten banks to lower their downpayment standards, and how it was working to push them even farther (but the NYT was careful to say that many also credited the Clinton administration for this change).
The CRA had been around since the 1970s, but as I said, the Clinton administration changed it to more of a quota, so that banks could not simply apply equal standards to all - certain loans had to be made regardless of how much standards were lowered in order to accomplish this. There's a relatively recent academic paper which found that, before CRA reviews, banks lowered their lending standards and made worse loans that later had higher default rates.
Much of the 'debunking' is refuting nonsensical side claims, for example by pointing out that Countrywide was not subject to the CRA. No, it wasn't, but 1) it was responding to the lower standards that were being pushed on all banks, and 2) many of the subprime loans it made were done specifically so that they could be sold to banks that needed them to meet CRA quotas (i.e. directly tied to the CRA, even though Countrywide was not). Countrywide was the darling of the left during the bubble - Barney Frank thought it was great that banks such as Countrywide were making loans to people who couldn't afford to pay them back. Roll the dice!
June 22, 2015, 1:33 pmmarkm:
"But Enron, Adelphia, Silverado Savings and Loan, Credit Mobilier...all those we can ignore."
Don't you have even one example of corporate malfeasance that wasn't enabled by government corruption and incompetence?
Enron: Feasted on the market distortions caused when so-called energy "deregulation" still left electricity delivery and sales heavily regulated.
Adelphia Communications Corporation: Sold cable TV service with a monopoly established by government regulations, at regulated rates.
Silverado Savings and Loan: Government regulators and insurers made sure the books were all neatly filled out, but failed to notice - or were threatened by a group of Senators to ignore - that most of the loans were high-risk and likely to all go bad at once. (I don't know about Silverado in particular, but if it was like the bankrupt S&L's in my backyard, these loans were concentrated in wildcat oil exploration. All it took to bankrupt those wildcatters even though they hit oil was for the price of oil to drop sharply from the sky high prices of the 1970's, and the oil became worth less than the cost of drilling for it. No bank can survive most of it's loans going into bankruptcy.) The regulators, insurers, and Senators didn't have to be right; when it crashed, they weren't out 1.3 billion, that was the taxpayers.
Credit Mobilier: Sold stock cheap to Senators and Congressmen as well as the corporate leaders, and collected federal subsidies to build a railroad, with the Union Pacific acting as a front. Besides financial manipulations, they cut corners on the construction. In the end, the Union Pacific was the penniless owner of a thousand miles of track that needed to be replaced before it could be used, and Credit Mobilier's insider investors - including many members of Congress who had voted for the subsidies - were rich, rich, rich. And the best part: This was all legal!
June 24, 2015, 7:15 pmdemockracy:
Ann, Ann, Ann...please. You have no concept of how bad the housing crash was in Europe. Iceland, Ireland, Spain, Greece, Italy...all had a housing bubble / bust. They are still digging their way out of it.
The CRA was not present in these places. You can *wish* it were, but it wasn't. You can *wish* Spain's bad debts, Ireland's bankrupt banks, etc. were the product of some nefarious U.S. government scheme, but you have to live in denial to believe it.
If you Google "debunk fannie freddy caused sub-prime mortgage meltdown" you'll get 153,000 hits. There are *lots* of studies demonstrating these quasi-government entitities had nothing to do with it.
In any case, Fannie and Freddie never held more than 14% of the sub-prime loans, and did so only after they followed the private sector into the market. Despite the propaganda otherwise, their loans were actually underwritten. (Private company) Countrywide's mortgages sold to Wall St. were surveyed: 80% were frauds. Bottom line: the foreclosure rates for Fannie and Freddie's sub-prime mortgages were far lower than the "liars loans" originated in the private sector.
As stated before, and you can verify in the 153,000 hits, the private sector *led* the way, not government regs.
Your belief that this "certainly wasn't because of the changing of Glass-Steagal!" is truly incredible. All of the derivative action backing up these frauds would have been either a) much smaller, or b) impossible if investment and depository banks couldn't get into each others' businesses (the effect of the repeal of Glass-Steagall and the "commodities futures modernization act").
But, in my experience, not even 153,000 hits will convince you, because there simply is no study addressing willful ignorance.
July 1, 2015, 7:22 pmdemockracy:
Sorry, corrupt private companies lobby government to make bad behavior legal. Do you believe the de-regulation and de-supervision of the banks was accidental in the recent sub-prime / derivatives meltdown?
The system of legalized bribery...er, I mean campaign financing, is certainly not helpful, and the fact that private companies can pay a few dollars to alter public policies that bring them thousands of times more money in profit is not exactly news.
And..yes, corruption is present in government; they just don't have a monopoly on corruption.
The difference: The public can (at least theoretically) change the leadership in government, whereas stockholders have systematically been stripped of the right to change private sector companies' leadership.
Hmmm....Could that be a feature, not a bug?...Gosh! I wonder!
July 1, 2015, 7:33 pmAnn_In_Illinois:
"you can verify in the 153,000 hits, the private sector *led* the way, not government regs"
There may well be 153,000 hits claiming that the 2000s came before the 1990s, and that the Clinton administration came after rather than before the George W. Bush administration, but I will still stick to academic research such as this NBER working paper by Agarwal, Benmelech, Bergman and Seru that I'm sure you're familiar with, since you've done so much Googling and all: http://www.nber.org/digest/may13/w18609.html.
Clinton substantially changed the CRA, from a process based (consistent lending standards) to a performance based (quota) system. Beginning in 1993, the Clinton administration used the CRA (and ECOA, HMDA and FHA) to force low-income-lending quotas. Basically, every institution in what was considered a relevant market had to lend roughly the same portion to lower-income borrowers as all other institutions in that relevant market. If they didn’t hit their quota, they were refused permission to merge or open new branches.
Clinton was in part responding to pressure that began before he took office, with community groups such as ACORN using the CRA to extort changes by delaying mergers. ACORN knew that delay was very costly in mergers, and thus most banks couldn’t afford to focus on the merits of their cases but would simply be forced to give in to demands, however unreasonable. And ACORN or other community groups usually negotiated fees for themselves, to ‘organize’ the loan efforts, so they profited directly from the extortion.
Around 1998, Fannie and Freddie aggressively moved into the subprime market. Here’s a NYT article from Sept., 1999:
http://query.nytimes.com/gst/fullpage.html?res=9c0de7db153ef933a0575ac0a96f958260&sec=&spon=&pagewanted=1
A few select quotes from the NYT article:
“Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people.”
“''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ”
“By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings. Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.”
The source of the lower lending standards wasn’t the CRA – that was simply one of the main tools used to force lower standards. The government, along with community groups, enticed (through Fannie and Freddie) and often forced (through the CRA and other tools) banks to lower their lending standards.
Yes, once the new, lower standards were established, banks got carried away and became used to those lower standards. If banks had been careful to apply the lower standards only to minorities, and only when forced, the number of bad loans wouldn’t have been nearly as large. But I’m not sure how long such a double standard would have been sustainable (either legally or practically), particularly with Fannie and Freddie using their automated underwriting systems to encourage lower standards for all.
July 5, 2015, 1:12 amdemockracy:
Ann, the Koch brothers currently fund an operation three times the size of the Republican Party, and that's just for elections, and doesn't mention the think tanks and other right-wing baloney machines (Pete Peterson's squadron of economists and propagandists is one more) which run 24/7.
Finding baloney in such "academic" research is like shooting fish in a barrel. The volume of propaganda is simply stunning (and not decreasing). And congratulations! You have found some!
To believe the narrative they're peddling that CRA (legislation from 1997!) and Fannie/Freddie cause the sub-prime / derivative (2007!) crash, however, one would have to ignore several things: First, the European housing bubble. They had no CRA or FNMA. How did they do exactly the same thing? (Hint: fraudulent private sector loans.)
Then there are all the debunks of the narrative that Fannie and Freddie bought lots of sub-prime loans and led the sector there. In fact, they never had more than 14% of the market, and followed the real leaders like (private) Countrywide. I'll leave you to Google that one for yourself.
Then there's this: http://krugman.blogs.nytimes.com/2011/07/14/fannie-freddie-phooey/?_r=0
that demonstrates, unlike the private sector, foreclosures on sub-prime loans were far lower because these government operations followed their policies and underwrote them (took a look at the facts before approving the loan). The private sector regularly committed fraud in the application, underwriting and even servicing of loans. All those multi-billion-dollar settlements from Goldman Sachs, Wells Fargo, HSBC, etc. were not because they were straight. They were crooked.
Google "debunk Fannie Freddie" and you will get lots more, like this: http://economistsview.typepad.com/economistsview/2010/06/it-wasnt-fannie-freddie-or-the-cra.html
Meanwhile, an audit of Countrywide's securitized loans disclosed 80% were frauds.
April 21, 2016, 1:47 pmI do think the government was crooked...but only because they didn't prosecute the banksters, not because their irresponsible meddling made banks lend money they didn't want to lend.
demockracy:
What do you mean? The guy at the drugstore gave me the wrong change? My boss is an idiot who regularly lies to his boss?
April 21, 2016, 2:02 pmCorporations are a creation of government. Finding some corporate behavior outside government regulation is therefore impossible.
As for the distortions of public policy you cite: They're kind of the point of all the propaganda, lobbying, and influencing that corporate America does to distort the game so its head you lose, tails I win. It's pretty cheap to do, too.
Gar Alperowitz' "Next Project" is to hand all that corporate power to workers with coops and employee-owned businesses. He's thinking he'll avoid "regulatory capture." Maybe, I say.