the new new deal brochure (october 2009)
DESCRIPTION
Recovery spending will restructure many of our key public institutions in ways that will shape the well-being of generations to come. What are the lessons learned from Roosevelt’s New Deal, and how can we ensure that today’s “New New Deal” doesn’t leave citizens behind?TRANSCRIPT
1. OliverandShapiro,17.2. OliverandShapiro,17.3. OliverandShapiro,17.4. OliverandShapiro,17-18.5. OliverandShapiro,18.6. Collins,WilliamJ.andRobertA.Margo,“RaceandHomeOwnership,1900to1990,”NationalBureauofEconomicResearch(August1999):37.7. CollinsandMargo,37.8. OliverandShapiro,64-65.9. Rogers,Christy,“SubprimeLoans,Foreclosure,andtheCreditCrisis–APrimer.”KirwanInstitutepublication.December2008.http://4909e9
9d35cada63e7f757471b7243be73e53e14.gripelements.com/publications/foreclosure_and_race_primer_dec_2008.pdf10. “StateofOpportunity2009.”TheOpportunityAgenda.April2,2009.<http://opportunityagenda.org/stateofopportunity/indicators/equality>11. “StateofOpportunity2009.”TheOpportunityAgenda.April2,2009.<http://opportunityagenda.org/stateofopportunity/indicators/equality>12. “CensusBureauReportsonResidentialVacanciesandHomeownership”U.S.CensusBureau,February3,2009:8.
NEWReferences
With the support from our partners, the Kirwan Institute created FairRecovery.org, a “one-stop-resource” for those working on issues related to social justice and the economic recovery, especially civil rights and social justice advocates, policymakers, minority businesses, and community organizations.
NEW
DEALTHE
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433 Mendenhall Laboratory125 S. Oval MallColumbus, OH 43210(614) 688-5429
john a. powell, Executive DirectorAndrew Grant-Thomas, Deputy Director
It’sastaggeringandunprecedenteddollaramount.Butthere’smuchmoreatstakethanjustdollars.Recoveryspendingwillrestructuremanyofourkeypublicinstitutionsinwaysthatwillshapethewell-beingofgenerationstocome.Theveryinstitutionalstructureofournationhangsinthebalance.Sodoesthefinancialwell-beingofourchildrenandtheirs.
Withsomuchatrisk,it’svitaltoassurethatthesefederalstimulusdollarsarespentwheretheywillbenefiteveryone–particularlythosemostinneed.
Toooftenatcriticalmomentsinourhistory,includingpost-CivilWarReconstructionandthe1960s-eraGreatSociety,wehavefailedtomoveasboldlyaswemighthavetowardsfullinstitutionalinclusionforallourpeople,especiallyacrosslinesofraceandgender.We’renowatanotherpivotalmoment,onethatinseveralwaysemergesfrominstitutionalchangesmadeunderFranklinDelanoRoosevelt’sNewDeal.Then,asnow,crisisledtogovernmentmeasureswhichrestructuredoureconomyandoursociety.
The New Deal
BythetimeoftheGreatDepressionin1929,homeloansrequiredlargedownpaymentsofaround40percent,andrepaymentinthreetosixyears–withhighmonthlypaymentsfewfamiliescouldafford.
InresponsetotheGreatDepression,PresidentFranklin
RooseveltlaunchedtheNewDeal,andwithitnewopportunitiesforowninghomes–andaccruingwealth–emerged.
• TheNewDealmadehomemortgagesmoreaffordablewithsmalldownpayments,reasonableinterestratesand30-yearloanswhichcouldbepaidoffoveraworkinglifetime.Homeownershipbecamemoreavailabletomiddle-classAmericans,andinmanycaseshomeownershipwasactuallymoreaffordablethanrenting.1
• TheHomeOwnersLoanCorporation(HOLC)refinancedtensofthousandsofmortgagesindangerofdefaultorforeclosure.2
HowevertheseopportunitieswerenotequallyaccessibletoeveryoneandthepoliciesputinplacecreatedwhiteflighttothesuburbsandfurtherdisadvantagedblackAmericans:
• “Redlining” meant black communities and individuals could not get loans. Standardizedhomeappraisals,createdbytheHOLCandusedbytheFederalHousingAuthority(FHA),werecolorcodedbasedontheethnicmakeupofneighborhoods.New,all-whiteneighborhoods,designatedgreen,werethemostdesirableareasfororiginatingnewmortgages.Incontrast,raciallymixedorall-black,old,andundesirableareaswerecodedred;andareaswithinthe“redline”wereextremelyunlikelytogetloans.3
• FHA policies favored movement to the suburbs. FHAloansfavorednewpurchasesoverrepairofexistinghomes.Therewasalsoabiastowardsingle-familyhomes,whichrequiredtheuseofopenspaceoutsidethecrowdedcity.Coupledwithredlining,theseFHApoliciesmeanttheonlyloansbeinggivenwereforpropertiesawayfromtheinner-cityconcentrationofAfricanAmericans.4
• FHA encouraged racially restrictive covenants until 1949. TheofficialUnderwritingManualoftheFHAstated“ifaneighborhoodistoretainstability,itisnecessarythatpropertiesshallcontinuetobeoccupiedbythesamesocialandracialclasses.”Tofurtherthisgoal,theFHArecommendedinsertingintoeachdeedanagreementthatthenewownerwouldnotselltoAfricanAmericanfamilies.ThispracticecontinueduntilsuchagreementswereruledunenforceablebytheU.S.SupremeCourtinShelley v. Kraemer(1948).5
WhilehomeownershipforwhitesandAfricanAmericanshadremainedfairlysteadyuntil1920,by1940,inthewakeoftheGreatDepression,bothrateshadplungedbyasmuchas5%,andintheaftermathoftheNewDeal,agreatdividehaddevelopedalongraciallines.In1940whitehomeownershipwasapproximately42%,andAfricanAmericanownershipwasonly20%.6
Later,evenasbothratesincreaseddramaticallyinthepost-WorldWarIIhousingboom,thisgapinopportunitypersisted.Whiteandblackhomeownershipratesmaintainedovera25%spread.In1960AfricanAmericanhomeownershiphadrisento40%,butwhiteownershipwasatapproximately67%.7Overthenextfewdecadeshousingvaluesrosedramaticallyandthewealthandhomeownershipgappersisted.
Otherpoliciesexacerbatedtheseinequities.Forinstance,theworkingclasswasexemptedfromthefinancialbenefitsofSocialSecuritycoverageandpost-NewDealfederalhighwaypoliceseffectivelydestroyedmanyblackurbancommunities.
Today’s Wealth Gap
Flashforwardtothe21stcentury,andwhiteAmericanshavebuilthomeequity,withmanypayingofftheirhomes,whichhadalsogreatlyappreciatedinvalue.Housingequitymakesupthelargestpartofwealthheldbythemiddleclass.Nowinadditiontoculturalcapital(upbringing,educationandcontacts),middleclasschildrenofbabyboomersarebeginningtoreceiveinheritancesbasedonthewealthamassedbetweenthelate1940’sandlate1960’swhensavingrateswerehigherandhousingcostsweremuchlower.8
ButmostAfricanAmericanshavebeenexcludedfromthatpictureoffinancialgrowth.Mostneverqualifiedforlow-costhomeloansandwereexcludedfromhomeownership,whilethosewhodidqualifyforhomeloansoftenreceivedonlytheless-desirablehigh-interestadjustable-ratesubprimeloans.
• Peopleofcoloraremorethanthreetimesaslikelyaswhitestohavesubprimemortgages.
• Theyarealsomorethan30percentmorelikelytohaveahigher-rateloanthanwhites,evenwhendemographicsarecomparable.9
Inessence,post-warAfricanAmericanswereexcludedfromsociety’sbestsourceofaccruedwealth;andthosegapsareapparenttoday.
• In2004,medianhouseholdwealth(householdassetsminusdebt)forwhiteswas$118,300,andforblacksitwasonly$11,800.10
• In2007,themedianincomeofwhitefamilieswas$69,937.Forblackfamiliesitwas$40,143andforLatinofamiliesitwas$40,566.11
• In2008,thehomeownershiprateforwhiteswas74.8%.Forblacksitwas46.8%andforLatinositwas48.6%.12
Ten trillion dollars. That’s the amount of government funding in play as the U.S. rolls out its economic stimulus spending program.
President Franklin Roosevelt’s extensive package of New Deal economic programs did a great deal to buoy a nation badly buffeted by the winds of the Great Depression. Unfortunately, New Deal Policies largely left African Americans, already the most vulnerable of Americans, far behind. If we can avoid similar inequities in today’s recovery spending, we can stop history from repeating itself and avoid creating another round of historic inequities.
Today, the “universal” approach to spending may put already-disadvantaged Americans at an even deeper disadvantage. That is a real risk, unless their needs are kept prominently in mind as we develop a recovery spending plan with an unprecedented price tag.
LESSONS LEARNED