Black/White Inequality and the Home Foreclosure Crisis

To commemorate the 79th birthday of Dr. Martin Luther King Jr. the Institute for Policy Studies and United For A Fair Economy co-sponsored a forum on the new report The State of the Dream: 2008. This report focuses on the historic racial wealth divide, what progress has been made in bridging this divide since the death of Dr. King, and the impact of our contemporary subprime housing crisis on this divide.

The primary form of wealth for most Americans is homeownership. Today we are seeing that the dream of homeownership is increasingly being shattered due to unregulated subprime markets and lack of government investment into the wealth development of its own citizens. Leaving homeownership to the dictates and uncertainty of the private market has never been adequate in for most Americans. Whether it was the homestead act of the 1800’s, the GI bill of the 1940’s, or the ongoing mortgage insurance programs from Washington, government subsidies have been a necessary component of growing homeownership.

Between the Depression in the 1930’s, and the beginning of the Civil Rights movement in the 1950’s, billions of dollars were invested in American homeownership. The post-War housing boom was fueled by subsidized assistance to over 35 million Americans between 1948 and 1972. During these years, 11 million families bought homes and another 22 million improved their properties. The biggest beneficiary was defacto white suburbia, where half of all housing could claim FHA or VA financing in the 1950’s and 1960’s. For example, at the end of World War II the percentage of U.S. citizens that owned their own home was about 44 percent. In comparison, 2004 showed 76 percent of whites owned their own home, compared to 49.1% of Blacks and 48.1% of Latinos.

The progressive economic measures of the Post-War era had a positive impact in strengthening the economic situations of most middle class and lower income Americans. However, due to the racist nature of the country during this time it also reinforced the economic supremacy of whites in relation to people of color. There has been no such mass investment into homeownership that people of color could equally access since the end of legal segregation in the late 1960’s. This has left African Americans and Latinos particularly susceptible to subprime targeting by dubious mortgage lenders. In their struggle to develop economic security through homeownership, too many people of color were misled into financial arrangements that would not be wealth developing. Conversely, these arrangements would strip away the little wealth that they had accumulated.

Increases in the cost of housing, education, and health care, paired with an increase in payroll taxes of 25%, and massively decreased government investment in affordable housing, employment, and job training, have left most of America cash poor. Americans found the liquidity needed to pay daily bills through debt: credit cards, refinancing, subprime loans. The American middle and working classes are maintaining their lifestyle on a foundation of quicksand (debt they cannot afford). If current indicators are correct it is quite possible that the entire US economy will sink into the debt that the middle and working class have developed over the last twenty years.

Last year marked the anniversary of many historical moments of great significance including the 40th anniversary of the deaths of Dr. Martin Luther King and Robert Kennedy Jr, and the anniversary of the famed Kerner Commission Report. The State of the Dream: 2008 highlights the racial wealth divide that still marks America and the growing divide between the wealthiest and the rest of us. A rededication to the socio-political vision of Dr. Martin Luther King Jr., coupled with the wealth building policies discussed in the The State of the Dream: 2008, can redirect the United States back on to the path of greater racial equality. Forty years after the murder of Dr. Martin Luther King there are those of us in the United States who believe it is not too late to implement the economic reforms that he knew were needed to make his Dream a reality. Hopefully, 40 years from now we can stop talking about King’s Dream and instead live a Kingian American reality.

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