*“Blacks should be quarantined in isolated slums in order to reduce the incidence of civil disturbance, to prevent the spread of communicable disease into the nearby White neighborhoods, and to protect property values among the White majority” *
*— *J. Barry Mahool, 1910 Mayor of Baltimore, while explaining a municipal segregation law.
Since the Baltimore riots, calls for policing reforms have dominated the national and campus conversation. Congress held hearings, the Obama Administration curtailed the sale of military equipment to police departments, and multiple events at Stanford have discussed the need for reform. Conversations about Baltimore have captured the need for police reform yet, too often, people fail to mention the effects of discriminatory credit policy that led to socioeconomic stagnation within black communities. The economic fallout from these credit policies continues to influence police practices and entrench urban black populations in poverty.
The Federal Housing Administration (FHA) and the Home Owners Loan Corporation (HOLC) were both government sponsored organizations created during the New Deal. The FHA insured mortgage loans made by private banks whereas the HOLC focused on refinancing mortgages to prevent foreclosures. These institutions were designed to bolster America’s housing market after the downturn from the Great Depression and to usher America into prosperity. However, both had a central role in systematizing housing segregation in Baltimore and around the country.
The FHA’s initial guidelines explicitly excluded blacks from obtaining bank mortgages for homes in white neighborhoods. Suburban developers were not given federally subsidized loans unless they committed to building neighborhoods that would reject blacks. Passages like “…prohibition of the occupancy of properties except by the race for which they are intended” in the 1936 *FHA Underwriting Manual *illustrate the agency’s historical racial agenda. Houses were to not be sold to “…inharmonious racial and nationality groups.”
An FHA practice known as redlining entrenched the legacy of racial discrimination in cities like Baltimore. The FHA based its lending standards on residential security maps, many of which were made by the HOLC. These maps rated the creditworthiness of different municipal sections. Areas with high concentrations of black citizens received the lowest ratings and were marked in red — hence the term redlining. Shown below is a published map of Baltimore in 1937. The colors on the map illustrate the various credit ratings; yellow areas were the second lowest often simply because of their proximity to black communities.While the FHA refused to insure mortgages toward redlined areas because of their race-based high risk, the FHA insurance support significantly reduced the risk of lending to white homeowners in burgeoning suburbs. Thus, private lenders were not incentivized to add ‘high risk’ loans to their portfolios when profits could be made elsewhere.
Some may argue that blacks could have been actuarially higher credit risks than whites, noting that blacks were likely to be poorer than whites — thus it made sense to grade their areas in the city as low grade. This assertion, however, does not withstand scrutiny since there was no actual statistical study showing that blacks at the time were less likely to be creditworthy. Additionally, it’s unlikely that a loan officer would deny black people loans to uphold the results of a regression analysis. The FHA had policies that stated: “If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes”. Race became one of — if not *the *— most important factor the FHA used in assessing loans.
As a result of these policies, blacks ghettos formed. While most whites could move out the cities and into the suburbs, blacks often had no choice but to stay in overpopulated poor urban areas and endure exploitative practices. Prices for basic utilities, such as a dryer, were higher in black communities than in affluent white communities ($370 compared to $238). Goods sold to blacks were often of subpar quality, which led to more distrust within the black community and deeper poverty. Various financial schemes such as predatory lending were designed to exploit black communities.
By the early 1950s, after pressure from various political groups, the FHA officially barred racially-motivated mortgage discrimination. However, even after the ban, society still largely maintained its old habits of denying blacks access to credit and hindering their ability to move outside of urban areas. Racism had already been embedded into the America’s urban topography and the lingering effects would create more problems.
Discriminatory impediments to credit led to poor quality of life in urban environments. A lack of access to credit substantially reduced the property values of homes within black communities because credit was necessary for the development of higher-quality neighborhoods. Without credit, people had to spend larger shares of their budgets on poor-quality homes, decreasing the income available to support local businesses and economic growth. Combined with natural housing decay and perceptions that blacks caused property values to drop, these circumstances significantly depressed property values in black neighborhoods.
Furthermore, many city services — including policing — are funded largely through property taxes. Thus, lower property values meant lower taxes and less revenue available for public services and community maintenance. As white flight accelerated, tax revenues declined even further. Cities were forced to turn to other measures such as increased ticketing and arrests to plug revenue shortfalls. Unfortunately, this more rigorous policing exacerbated relations between law enforcement and poor minority communities.
Released a month before the 1968 Baltimore riots, the Kerner Report investigated why there was a proliferation of urban unrest within the black community. The findings were oddly familiar when considering today’s current climate. The report begins with strong words of indictment:
“Segregation and poverty have created in the racial ghetto a destructive environment totally unknown to most white Americans. What white Americans have never fully understood but what the Negro can never forget — is that white society is deeply implicated in the ghetto. White institutions created it, white institutions maintain it, and white society condones it. “
In a ranking of grievances faced by the black community, police practices was the very first item on the list:
“Referring to the reports of earlier riot commissions, [Dr. Kenneth B. Clark] said: I read that report. . . of the 1919 riot in Chicago, and it is as if I were reading the report of the investigating committee on the Harlem riot of ’35, the report of the investigating committee on the Harlem riot of ’43, the report of the McCone Commission on the Watts riot. I must again in candor say to you members of this Commission — it is a kind of Alice in Wonderland — with the same moving picture re-shown over and over again, the same analysis, the same recommendations, and the same inaction.”
I condemn the violence of incompetent police officers against Freddie Gray and many others; I also condemn the violence of ruffians against dutiful police officers, local people, and businesses. Although progress has been made over the last decades, the legacy of racial discrimination still exists. Today, however, the conversation on Baltimore has been diverted from the causes of the violence, unnecessarily politicized, and overly focused on the word ‘thug’. More work needs to be done for more progress to be made. This progress, however, will come only when society starts acknowledging the history of discrimination, having critical conversations about these issues, and working together to remedy the problems for the long term.