The Color of Law A Forgotten History of How Our Government Segregated America by Richard Rothstein (z-lib.org).epub

require the nondiscriminatory approval of sound loans. If a black family was
denied a loan because of race, Martin asserted, “the forces of competition”
would ensure that another bank would come forward to make the loan. With
his regulatory authority over all banks that were members of the Federal
Reserve System, and with all such banks engaging in similar discriminatory
practices, Martin surely knew (or should have known) that his claim was
false.
When regulated businesses engage in systematic racial discrimination,
when government regulation is intense, and when regulators openly endorse
the racial discrimination carried out by the sector they are supervising, then
in those cases the regulators ignore the civil rights they are sworn to uphold
and contribute to de jure discrimination. As the Supreme Court once said,
referring to banks chartered by the federal government: “National banks are
instrumentalities of the federal government, created for a public purpose.”
IV
RACIALLY DISCRIMINATORY government activities did not end fifty years ago.
On the contrary, some have continued into the twenty-first century. One of
the more troubling has been the regulatory tolerance of banks’ “reverse
redlining”—excessive marketing of exploitative loans in African American
communities. This was an important cause of the 2008 financial collapse
because these loans, called subprime mortgages, were bound to go into
default. When they did, lower-middle-class African American
neighborhoods were devastated, and their residents, with their homes
foreclosed, were forced back into lower-income areas. In the early 2000s,
reverse redlining was tolerated, sometimes winked at, by bank regulators.
Banks, thrift institutions, and mortgage companies designed subprime
loans for borrowers who had a higher risk of default, and they charged
higher interest payments to subprime borrowers to compensate for that risk.
In itself, this was a legitimate practice. But federally regulated banks and
other lenders created many subprime loans with onerous conditions that
were designed to make repayment difficult. These mortgages had high