Michael Bloomberg once cited the end of ‘redlining’ as the cause of the 2008 recession
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Current presidential candidate and former New York City Mayor Michael Bloomberg is under fire for comments he made blaming the end of a racist lending policy for the global financial crisis of 2008.
The remarks were made at a forum hosted by Georgetown University in 2008. “It all started back when there was a lot of pressure on banks to make loans to everyone,” he said. “‘Redlining’, if you remember, was the term where banks took whole neighborhoods and said, ‘People in these neighborhoods are poor, they’re not going to be able to pay off their mortgages, tell your salesmen don’t go into those areas.’”
Then, he said this: “And then Congress got involved—local elected officials, as well—and said, ‘Oh that’s not fair, these people should be able to get credit.’ And once you started pushing in that direction, banks started making more and more loans where the credit of the person buying the house wasn’t as good as you would like.”
Bloomberg made his billions in media, financial services, and software; his eponymous Bloomberg terminal is a fixture in the lives of institutional investors, financial reporters, and monied market watchers. While it’s natural for him to view the world through a Wall Street lens, it’s difficult to reconcile his remarks with what actually happened in the crisis—or further back in history.
He appears to be sort of alluding to the contemporary understanding that mortgage defaults triggered by aggressive and often predatory lending practices sparked the economic meltdown of 2008. And while some lenders targeted high-risk or inexperienced borrowers with shoddy products, there were plenty of credit-worthy people who ended up in foreclosure after being swept up in a real estate investment mania that seemed to have no end.
Bottom line, it is inaccurate to put any of this on the shoulders of the poor.
It’s also worth noting that the predatory behavior disproportionately impacted families of people of color who were already financially fragile.
“As a whole, African-American and Hispanic families were less affluent leading up to the 2008 Financial Crisis. They earned less annually and had a higher percentage of their mortgages fall underwater during the recession compared to their white counterparts,” reports my colleague Lucinda Shen in a 2018 piece looking back on the lasting damage wrought by lenders. “As a result, the gap between their wealth and the wealth of white families had continued to widen since the recession.” The recession also derailed the plans of young adults trying to enter the housing market, and hastened the economic decline of rural zip codes, she notes. (But not the wealthier ones.)
But to imply banks just threw up their hands and gave money to the irresponsible poor because Congress said they had to is simply… no. Just, no.
Redlining was (and continues to be) one of the most egregious examples of encoded racism that has existed in the U.S.
The practice began in the 1930s during the Great Depression.
The Roosevelt administration charged two New Deal agencies, the Federal Housing Administration (FHA) and the Home Owners’ Loan Corporation (HOLC), with a vital job: Stabilize the housing market which had largely collapsed.
They got right to work—by infusing the ugly racial hierarchies of Jim Crow into the bedrock of U.S. mortgage lending and real estate practices.
It was the HOLC who gave us the image behind the term “redlining.” Their agents created “Residential Security” maps of major American cities and color-coded them according to lending risk: Green for the “Best,” blue for “Still Desirable,” yellow for “Definitely Declining,” and red for “Hazardous.” Green areas got the best mortgage rates, red was stuck with no or inferior credit options.
The assessments were not subtle.
HOLC’s agents described the residents of Carver Heights, a neighborhood in Savannah, Ga., as “a fair class of negroes and low type of white.” In a redlined section of Milwaukee, called “Polish Flats,” the agents warned of “Mexicans encroaching in the Northeast.” While neighborhoods with Jewish immigrants from Europe and Catholics were labeled “hazardous” at the time, it was typically the predominantly Black and Latinx communities who would never recover.
A recent study by the National Community Reinvestment Coalition (NCRC), an advocacy group dedicated to ending discrimination in lending, found that three out of four formerly redlined communities are still struggling, some 80 years later. “It’s as if some of these places have been trapped in the past, locking neighborhoods into concentrated poverty,” Jason Richardson, director of research at the NCRC, told the Washington Post.
The practice was banned by the Fair Housing Act of 1968, but bedrock is hard to break.
A 1998 Pulitzer Prize-winning series by investigative reporter Bill Dedman published in The Atlanta Journal-Constitution found that Atlanta area banks routinely lent to poor white families, but not in middle-class or more affluent Black neighborhoods.
In a follow-up piece, Dedman found that nobody else did, either.
The last decade saw a spate of lawsuits and investigations, alleging both redlining and reverse redlining—the practice of steering risky, high interest loans to otherwise creditworthy Black and Hispanic borrowers. Major lenders like Citigroup, Bank of America, and Wells Fargo have all been implicated.
In 2015, Associated Bank, a lender operating in parts of Illinois, Wisconsin, and Minnesota, agreed to provide $200 million in lower interest rate mortgage loans to credit-worthy borrowers of color who had been previously denied loans, as part of a settlement with the U.S. Department of Housing and Urban Development. It is the biggest such settlement of discrimination charges in history.
Still, the people in today’s forever-redlined zip codes live with an 80-year-old stamp of bigotry over their heads. Think East St. Louis: “Foreign and negro population rising, smoke nuisance from proximity to industrial plants.” Baltimore: “Infiltration of Negro, Relief families—Yes, many.” Detroit: “Unreliable tenants. Slums and fire hazards. Vandalism. Negro
They can’t bootstrap their way out four generations of lack of access to credit markets. And yet, we expect them to.
“I think most people believe the problem is not with the rules but with the people. Most middle-class whites in America don’t have empirical observations of what happens in underserved neighborhoods or understand the historical treatment of poor and minority communities,” John Taylor, chief executive of the NCRC told the Washington Post.
To his credit, Bloomberg promised in a speech last January to prompt lenders to update their credit-scoring models, an apparent turnaround from his 2008 sentiments. “[B]ecause millions of black households don’t have a credit score which is needed to get a mortgage.”
Let’s add on from there. What if borrowers of color could trust banks to properly finance their homes? Their dreams? What if government assessors observed the things imperiling fragile neighborhoods— fire hazards, smoke nuisance, poverty, and yes, gun violence—and actually helped them?
There are no COVID-19 cases in New York’s many Chinatowns. And yet… There’s been such a lull in dining and shopping in these famous districts, that shop owners and restauranteurs are begging folks to come back. “There’s a lot of cancellations. We know the foot traffic is down,” said Wellington Chen, the executive director of the Chinatown Partnership, during a Wednesday press conference. “There’s no one who says I haven’t suffered.” Senior producer Richard Yeh discussed his visit to Chinatown on All Things Considered on WNYC. “I’m an immigrant from Taiwan, and Flushing (Queens) is both my kitchen and my pantry,” he says. He confirms the lull. The food court in Flushing is one reason why it’s the mecca for regional Chinese cuisine. One purveyor, who specializes in the cuisine of Wuhan, has lost about half his income.
Everyone is very stressed right now The latest Korn Ferry survey on executive stress shows that levels are at an alarming high. Some 88% of 1,400 professionals working around the globe say they’re experiencing more workplace stress now than five years ago. In 2018, that number was 65%. The biggest causes were bad bosses and unreasonable workloads, though a change in top leadership was also a factor. (According to one study, 1,600 CEOs left their jobs at U.S. organizations, the most since 2002.) Nearly everyone reported that workplace stress was negatively impacting their personal relationships. Please forward this to your boss or new CEO.
Aubrey Blanche heads to Culture Amp Blanche is deservedly beloved in the D&I space, particularly in tech. She was most recently the Global Head of Diversity & Belonging at Atlassian, which makes team support tech like Trello. Now, she’s heading to Culture Amp to be Global Head of Equitable Design & Impact. "It’s been more than five years since I started working professionally to help the tech industry become the meritocracy it’s long believed itself to be,” Blanche says in her announcement. “I’ve been itching to work on tech products that align with my philosophies on building structurally equitable companies while continuing to do “R&D” within a People org.” Click through for her plan, follow her here, and check out her data-driven, “mathpath” approach to equitable team and system design here.
An amazing resource to learn more about redlining I used the "Mapping Inequality: Redlining in New Deal America" interactive digital project for research in today’s essay, and it’s absolutely incredible. The tool is University of Richmond's Digital Scholarship Lab, the University of Maryland, Virginia Tech, and Johns Hopkins University—you can zoom into any tract in a digital version of the original HOLC maps and read how loan officers evaluated them. Prepare to have your heart broken.
What it means to be evicted Since we’re on the subject of redlining, I wanted to flag the book Evicted: Poverty and Profit in the American City. It was written by Harvard social scientist and ethnographer Matthew Desmond, a prolific researcher on the intersection of poverty, race, and gender. It’s a wrenching look into the lives of the financially vulnerable, and how losing their homes triggers a cascade of negative events—while others are enriched. His research focused on Milwaukee, a racially segregated city with a high poverty rate. While his team drew from state-level data and court records, he also chose to live in a trailer park and city apartments for months, to better understand the lives of families living in poverty and how evictions impacted their lives. Desmond’s family lost their home when he was a kid; he brings a unique empathy to his inquiries about poverty, dignity, and progress.
The racial politics of time and history “If time had a race, it would be white,” begins Brittney Cooper, author, professor, cultural theorist, and commentator. “White people own time.” In this fascinating 2016 TEDWomen talk, Cooper addresses the way we dismiss time as a factor in our inability to understand our history of white dominance. The re-emergence of race-based violence continues to surprise many people, but it shouldn’t, she says. Turns out, a philosophical decision to remove Africa from the very notion of time and history, contributed to a justification of race-based violence that exists today. “Time has a history, and so do black people,” she said. “As though it doesn’t have a political history of being bound up with the plunder of Indigenous lands, the genocide of Indigenous people, the stealing of Africans from their homeland.”
Tamara El-Waylly produces raceAhead and manages the op-ed program.