The Color of Law

The Color of Law

by

Richard Rothstein

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The Color of Law: Chapter 7 Summary & Analysis

Summary
Analysis
Rothstein notes that the IRS contributed to the segregation of American cities by selectively “grant[ing] tax-exempt status to churches, hospitals, universities, neighborhood associations, and other groups” and supporting discriminatory banks and insurers. While it would be wrong to say that the government is responsible for all actions of the business it regulates, especially in the context of racial segregation, it is nonetheless unconstitutional when regulators mandate “systematic racial exclusion”—this clearly counts as de jure segregation. Similarly, it is wrong for regulators to support racist and pro-segregation nonprofits, even if those organizations “cannot be considered state actors.”
Although discretion about awarding tax-exempt status by the IRS may not intuitively sound like a form of de jure residential discrimination, Rothstein carefully explains how it is at least unconstitutional. In essence, his argument is that government support for de facto segregation makes that segregation de jure, and discriminatory organizations should not be able to disguise themselves as charity. IRS decisions about tax-exemption do not only confer financial benefits on organizations that claim to be charitable and religious: it also gives them a symbolic seal of approval as agents of the common public good.
Themes
De Jure vs. De Facto Segregation Theme Icon
In Part I, Rothstein explains that the IRS has almost always failed to meet its “obligation to withhold tax favoritism from discriminatory organizations.” While its rules stipulate tax advantages for human rights organizations that seek to “eliminate prejudice and discrimination,” for many years it gave the same advantages to “private whites-only academies” in the South, even after Brown v. Board of Education. In an important 1983 case, the Supreme Court examined whether giving “tax-exempt status to racially discriminatory schools” violated the Fifth Amendment. The Court ultimately decided the case on other grounds, but Rothstein argues that government support for racist organizations is clearly unconstitutional.
Rothstein recognizes that the legal argument for his position on this issue is not as well-established as in other cases (like government-mandated redlining and restrictive covenants), but this actually makes his own thinking on the topic even more consequential, because it implies that his research and conclusions might be relevant to future court cases. Concretely, the effect of the IRS’s decisions is to subsidize and give an air of legitimacy to segregationist groups, which helps promote white supremacy and shows that the government does not always uphold its mandate to pursue equal protection for all.
Themes
De Jure vs. De Facto Segregation Theme Icon
Racism, Profit, and Political Gain Theme Icon
Separation of Powers, Legal Activism, and Minority Rights Theme Icon
Churches were particularly grievous offenders. They often sponsored neighborhood associations that wrote restrictive covenants into housing deeds, as in the Shelley v. Kraemer case first mentioned in Chapter Five, or openly pushed for segregation in their neighborhoods. Rothstein gives numerous examples from places like Philadelphia, Buffalo, Los Angeles, Detroit, and Chicago, in which pastors, priests, and even a rabbi sued black families for moving into the neighborhood or lobbied local governments to mandate segregation. Even universities like the University of Chicago actively promoted restrictive covenants and funded the eviction of black families from their neighborhoods. And all these organizations remained tax-exempt.
There is no clear answer to the question of exactly how much a hypocritical religious organization’s open racism and support for discriminatory policies detracts from its status as a benevolent pillar of community—it clearly does, and it clearly does enough to compromise these institutions’ status as representatives of the common good. Universities, too, style themselves as public benefactors while pursuing discriminatory policies, ostensibly because of self-interest, behind closed doors. Such instances of nonprofit-sponsored discrimination are no less common today, and these examples are a stark reminder that such institutions are seldom purely good or bad.
Themes
Racism, Profit, and Political Gain Theme Icon
In Part II, Rothstein explains how insurance companies have contributed to de jure segregation. They often work closely with state governments, especially when they propose building housing, and have frequently promoted segregation in the process. For instance, the Metropolitan Life Insurance Company built the enormous Parkchester and Stuyvesant Town complexes in New York City, which were originally whites-only, even though the vast majority of the projects’ funding and support were public. Later that same decade, the city finally mandated that such publicly-supported projects be integrated—but it was too late. Stuyvesant Town was already full and rent controlled, for instance, meaning apartment “turnover would be slow.” As of 2010, it remains almost completely segregated, even though it was built on top of what used to be an “integrated and stable” neighborhood whose African American and Latinx residents have long since moved to other, more segregated areas.
Beyond clearly showing how government has supported intentionally discriminatory housing policies by private companies, the example of Metropolitan Life illustrates the way that the government subsidizes corporate profits by giving tax breaks and diverting public money to wealthy companies. This makes the public neglect of African American neighborhoods and public housing look even more egregiously unjust by comparison. Stuyvesant Town’s continued segregation roughly 75 years after its construction also demonstrates how residential segregation is exceptionally hard to change over time, and often becomes locked in as soon as housing is filled. This example illustrates the need for active pro-integration policies, rather than isolated court decisions that point out how existing segregation is unconstitutional.
Themes
De Jure vs. De Facto Segregation Theme Icon
Segregation and the Preservation of Racial Caste Theme Icon
Separation of Powers, Legal Activism, and Minority Rights Theme Icon
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In Part III of the chapter, Rothstein looks at how banks and thrift institutions with government insurance and oversight also “contributed to de jure segregation” through redlining. These institutions “refuse[d] service to African Americans only because […] regulators chose to allow it.” For instance, the Federal Home Loan Bank Board supported discrimination until 1961, when it officially adopted a “race-blind policy” that it then chose not to enforce—it reasoned that refusing credit to African American people “was not a racial judgment but an economic one.” When this and other similar agencies like the Federal Deposit Insurance Corporation and Federal Reserve Board were reviewed by the U.S. Commission on Civil Rights in 1961, all defended their support for bank discrimination. Rothstein concludes that regulators in all these agencies are directly responsible for “contribut[ing] to de jure discrimination.”
While these banks’ policies are not surprising, as they essentially reflected the redlining standards set by the Federal Housing Administration and Veterans Administration, Rothstein emphasizes that the government’s more egregious behavior elsewhere does not excuse its unconstitutional actions in this case. The Federal Home Loan Bank Board’s decision to reclassify discrimination as “an economic [judgment]” reflects the ideas that the FHA used to justify redlining decades before—which, as Rothstein has now shown several times, are actually contrary to the facts. These examples are stark reminders that racists understand that their views cannot be aired publicly—and so find ways to disguise them, however thinly, and slip them into acceptable public discourse.
Themes
De Jure vs. De Facto Segregation Theme Icon
Racism, Profit, and Political Gain Theme Icon
In this chapter’s Part IV, Rothstein notes that the government continues to discriminate against African American people “into the twenty-first century.” Now, regulators support the “reverse redlining” that helped cause the 2008 economic collapse. Banks pressured African American people into predatory subprime loans, making them “victims of a market that was not transparent.” Brokers paid on a now-illegal form of commission told borrowers that their homes would increase in value over time, leading these borrowers to believe that they would make money and be able to refinance their loans to avoid the sudden increases in interest rates that were built into them. But this was a lie: borrowers saw their homes’ value stagnate, and were foreclosed upon instead.
21st-century reverse redlining is not only an egregious violation of civil rights, but it is also an unconscionable form of exploitation, knowingly pursued by some of the most powerful financial institutions in the world, with the blessings of regulatory agencies that are supposed to protect consumers. Not only do the effects of de jure housing discrimination persist, this example shows, but de jure housing discrimination itself is still going strong in the 21st century. Because regulators are largely disinterested in the common good and the courts cannot act until it is too late, Rothstein’s examination of reverse redlining is a reason for citizens and legislators to mobilize in favor of integration and stronger consumer protections.
Themes
De Jure vs. De Facto Segregation Theme Icon
Segregation and the Preservation of Racial Caste Theme Icon
Racism, Profit, and Political Gain Theme Icon
Separation of Powers, Legal Activism, and Minority Rights Theme Icon
Federal regulators knew that banks were doing this for a decade, and the federal government’s own data are clear: “discrimination was based on race, not on economic status,” as African American people nearly always took out several times more subprime loans than white people of the same income level. Many ended up living on the street or in overcrowded conditions after losing their homes. A government investigation has proven “that top bank officials must have been aware of the racial motivation,” and lower-level employees specifically marketed subprime loans to African American people whom they decided were not “‘savvy enough’ to know they were being exploited.” Cities’ lawsuits against banks have mostly failed. For instance, one federal court determined that subprime loans must have been legal, because the government would have stopped “heavily regulated” banks if they had broken the law.
Unequal access to financial services like home financing remains one of the primary tools industry and government use to perpetuate segregation, and specifically to ensure that African American people remain blocked out of the middle class. Whereas homeownership is a realistic goal for white people who are given mortgages on honest terms, banks use it as bait to lure prospective African American people into bankruptcy. Just like Rothstein pointed out that the FHA’s supposedly economic explanation for redlining did not at all line up with the data, the government’s sources show that banks used economics as an excuse for racism, because economic discrimination is considered legitimate and sound policy in the United States. The court’s roundabout decision—the banks’ actions were legal because the government would have stopped them otherwise—shows both how government must be held responsible for its failure to properly regulate banks, and how the courts are often impotent when it comes to identifying and stopping discrimination.
Themes
De Jure vs. De Facto Segregation Theme Icon
Segregation and the Preservation of Racial Caste Theme Icon
Racism, Profit, and Political Gain Theme Icon
Separation of Powers, Legal Activism, and Minority Rights Theme Icon
The housing market’s collapse has hurt African American people much more than white people. Anyone with a previous foreclosure, even on a subprime mortgage, cannot get a mortgage ever again. Instead, they are forced back into “the contract buying system of the 1960s.” And these contract buyers often get their new homes from the same lenders that foreclosed on them. Now, their “eviction [is] possible after a single missed payment.” Rothstein concludes that “regulators shared responsibility [with banks] for [the] reverse redlining of African American communities” in the 1990s and 2000s, and thereby shirked their constitutional responsibilities.
Because predatory mortgages were issued based on race and those who suffered from them were unable to access further credit, it is clear that the government’s support for subprime lenders has systematically discriminated against African American people and deprived many of the equal protection they are guaranteed by the Fifth and Fourteenth Amendments. The resurgence of the contract buying system shows how little the United States has learned in the last half-century, and provides incontrovertible proof that systematic de jure housing discrimination continues in the 21st century. What’s more, the government has done virtually nothing to compensate the victims of predatory loans, while none of the bank executives who coordinated the scam mortgages has been seriously punished.
Themes
De Jure vs. De Facto Segregation Theme Icon
Segregation and the Preservation of Racial Caste Theme Icon
Quotes