University of Southern California Dissertations and Theses

Pernicious racism and the impacts of intentional racist in a color-blind society

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Pernicious racism and the impacts of intentional racist in a color-blind society

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Content Copyright 2022 Kendrick Bilal Roberson

Pernicious Racism and The Impacts of Intentional Racist in a
Color-Blind Society

by

Kendrick Bilal Roberson

A Dissertation Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(POLITICAL SCIENCE AND INTERNATIONAL RELATIONS)

December 2022

ii
Table of Contents
List of Tables .................................................................................................................................. iv

List of Figures .................................................................................................................................. v

Abstract ......................................................................................................................................... vi

Chapter 1: Introduction to Pernicious Racism ................................................................................ 1
Introduction ............................................................................................................................................ 1
A Key Limitation of Conventional Theories Of Racism ............................................................................ 3
Development of the Theory of Pernicious Racism ................................................................................ 10
Pernicious Racism in the Real World ..................................................................................................... 17
Conclusion ............................................................................................................................................. 24

Chapter 2: Penalty of Party on Black Homeownership: The Impacts of Judicial Institutional
Settings on the Black Political Economy ....................................................................................... 27
Introduction .......................................................................................................................................... 27
Black People, Homeownership, and the Politics of Foreclosures .......................................................... 28
A Theory of Partisanship Penalty .......................................................................................................... 33
Research Design .................................................................................................................................... 35
Results ................................................................................................................................................... 45
Table 1A: Yearly Penalty of Political-Institutional Setting on Black Homeownership in the U. S. ..................... 49
Table 1B: 8-Year Penalty of Political-Institutional Setting on Black Homeownership in the U. S. .................... 50
Table 2: DID Penalty of Institutional Setting on Black Homeownership in the United States .......................... 51
Table 3: Penalty of Political-Institutional Setting on Black Homeownership in the New York ......................... 52
Discussion .............................................................................................................................................. 53
Conclusion ............................................................................................................................................. 58

Chapter 3: From COVID-19 To Increasing Wealth Inequality: The Impact of the Federal Reserve
on the Black Political Economy During the COVID-19 Pandemic ................................................. 61
Introduction .......................................................................................................................................... 61
Quantitative Easing ............................................................................................................................... 63
Quantitative Analysis: Aid From Quantitative Easing Was Not Proportionately Distributed to Black
Communities ......................................................................................................................................... 71
Table 1: HMDA Penalty on Black Denial Rates 2007 – 2017 - Home Purchases ............................................... 76
Table 2: HMDA Penalty on Black Denial Rates 2007- 2017- Home Purchases, Home Improvements, Refinances
.......................................................................................................................................................................... 77

iii
Federal Regulation Helps, But Is Inadequate ........................................................................................ 79
Quantitative Easing During COVID-19 Will Increase Racial Wealth Inequality ...................................... 81
Table 3: HMDA Penalty of Black Denial Rates 2019 - 2021 ............................................................................... 83
Developments of Quantitative Easing During COVID ............................................................................ 85
Discussion and Alternatives: Quantitative Easing For The People ........................................................ 91

Bibliography .................................................................................................................................. 98

iv
List of Tables
Table 1A: Yearly Penalty of Political-Institutional Setting on Black Homeownership in the U. S. 49

Table 1B: 8-Year Penalty of Political-Institutional Setting on Black Homeownership in the U. S. 50

Table 2: DID Penalty of Institutional Setting on Black Homeownership in the United States ...... 51

Table 3: Penalty of Political-Institutional Setting on Black Homeownership in the New York ..... 52

Table 1: HMDA Penalty on Black Denial Rates 2007 – 2017 - Home Purchases ........................... 76

Table 2: HMDA Penalty on Black Denial Rates 2007- 2017- Home Purchases, Home
Improvements, Refinances ........................................................................................................... 77

Table 3: HMDA Penalty of Black Denial Rates 2019 - 2021 .......................................................... 83

v
List of Figures

Figure 1: 2X2 Matrix of Opportunity Structure for Pernicious Racism ......................................... 14

Figure 1: All coefficients shown at the 95% level. This coefficient plot represents the results
shown in Table 1B ......................................................................................................................... 46

Figure 3: All coefficients shown at the 95% level. This coefficient plot represents an analysis of
Black populations (ONLY) across 39 states, and shows that Black populations in Democratic
States that require judicial foreclosures fared 6.3 percentage points better than Black
populations in other states. .......................................................................................................... 55

Figure 1: This plot shows the 30-year fixed mortgage rates and the federal funds rates between
2006 and 2022. The gray vertical lines represent the dates that the US Federal Reserve BEGAN a
series of large-scale asset purchases, known as quantitative easing (QE). As outlined in the text
below, Quantitative Easing rounds started on these dates and continued for several quarters
each. QE 1 began in November of 2008, QE 2 began in November of 2010, QE 3 began in
September of 2012, and QE COVID began in March of 2020. ...................................................... 65

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Abstract
Since its origin, the United States has created a legacy of oppression through slavery and
racial discrimination. The U.S. has passed many anti-discrimination laws, and as a society, has
condemned discriminatory behavior on the basis of race, color, ethnicity, and a handful of other
reasons. As such, overt racism has declined over the last 6 decades- especially discrimination in
the de jure form. However, this American legacy of oppression remains relevant in individuals
and institutions today. Specifically, scholars have shown that many types of racism continue to
play a prominent role in the lives of Americans, surviving primarily in the forms of aversive
racism, laissez-faire racism, symbolic racism, and color-blind racism. However, all of these forms
of racism deal in the unintentional racism of individual actors. There is a significant gap in the
political literature, such that there has not been a focus on the intentional actions of modern-
day racists who engage in racist actions only when they believe they will not be exposed or held
accountable by society. This dissertation explores this gap in the literature through the
development of a theory of pernicious racism in the first article, and the deployment of this
theory to assess Black Homeownership in the United States in the second two articles.
Black homeownership is declining across the United States at a significantly higher rate
than White, Hispanic, or Asian homeownership. In spite of the lower costs to own a home in
Republican states, Black Americans are much less likely to maintain homeownership in those
areas. The second article attempts to gain leverage on the following question: “what is the
penalty of political parties on Black homeownership in America?” Leveraging OLS and
Difference-In-Difference Regression analysis, the findings in the second article support that there
is a penalty of political parties on black homeownership in America. Moreover, the penalty

vii
varies depending on the opportunity structure for institutional racism, which changes in each
state based on the state’s foreclosure laws and political leanings. To support the nationwide
findings, this second article analyzes the penalty on Black homeownership across the state of
New York’s judicial districts, finding that there is a penalty in Republican judicial districts.
While the second article focuses on the racially disparate impacts of differing legal
structures around foreclosures, the third article analyzes pernicious racism within the process
of achieving homeownership through the mortgage market. Throughout the years following
the Great Recession, the Black communities across America were also exposed to a more
pernicious deprivation of credit made possible by a Federal Reserve program that will likely lead
to the exacerbation of racial wealth inequality in America: quantitative easing (QE). Further, the
116th Congress and President Trump put forth $75 billion in equity to aid the Federal Reserve
in creating a new quantitative easing program that was capable of purchasing up to $750 billion
in corporate bonds. This was an unprecedented institutional shift, as this allowed the Federal
Reserve to circumvent its usual policy of dealing exclusively with assets that are issued or
backed by the US government. This third article leverages data on over 100 million mortgage
applications following the Great Recession and following the onset of the COVID-19 pandemic
to provide evidence of the racially disparate wealth effects maintained by quantitative easing.
The results presented here imply that the COVID-19 round of quantitative easing will have
impacts similar to the past quantitative easing programs following the Great Recession: Black
people will be disproportionately left behind, and wealth inequality will be exacerbated.

1

Chapter 1: Introduction to Pernicious Racism

Introduction

Since its origin, the United States has created a legacy of oppression through slavery and
racial discrimination. The U.S. has passed many anti-discrimination laws, and as a society, has
condemned discriminatory behavior on the basis of race, color, ethnicity, and a handful of other
reasons. As such, overt racism has declined over the last 6 decades- especially discrimination in
the de jure form (Johnson et al. 1995; Dovidio and Gaertner 2000). However, this American
legacy of oppression remains relevant in individuals and institutions today. Specifically, scholars
have shown that many types of racism continue to play a prominent role in the lives of
Americans. Such forms of racism include aversive racism (Gaertner and Dovidio 2005), laissez-
faire racism (L. Bobo, Kluegel, and Smith 1996), symbolic racism (Sears and Henry 2003), and
color-blind racism (Bonilla - Silva and Forman 2000).
These types of contemporary racism have been showcased through manifold experimental
and survey analyses across decades. These analyses have revealed that many White Americans
hold implicit prejudices that are showcased subtly and differently across various situations
(Saucier, Miller, and Doucet 2005). Further, these internally held prejudices in these White
Americans allows for them to justify not providing aid to Black Americans while still maintaining
a non-racist self-image (Henkel, Dovidio, and Gaertner 2006; Johnson et al. 1995; L. D. Bobo
2017). While the prevalence of these forms of racism are well defended, they all focus on
unintentional racism, to the extent that people don’t actually want to be racist. Concomitantly,

2
these types of unintentional racists have historically been contrasted with the overt racists that
are openly bigoted (Kovel 1970). Thus, racists are typically categorized into two buckets:
unintentional racists and bigoted racists.
In this article, I posit that there is a third categorization required to capture the full breadth
of racism in America. I put forth a theory of pernicious racism. The Oxford dictionary defines the
word pernicious as, “having a harmful effect, especially in a gradual or subtle way.” Thus,
pernicious racism is a type of intentional racism that that is engaged subtly, such that it is not as
easily seen, yet is very harmful. The intentionality of this form of racism differentiates
pernicious racism from other prominent types, such as Symbolic, Color-Blind, and Aversive
Racism. Further still, pernicious racism goes beyond the capitalist exploitation of races due to
the disproportionate relegation of people of color into lower classes (L. Bobo, Kluegel, and
Smith 1996). Instead, pernicious racism draws on the negative construction of people of color
(Gilens 1999), and that negative construction’s continued political and economic consequences
in an America that frowns upon overt racism.
This article proceeds as follows. The first section provides a thorough analysis of previous
forms of racism and outlines how they differ from pernicious racism (as well as how they differ
from each other). The second section develops the theory of pernicious racism. This section
discusses the expectations for the theory of pernicious racism, highlights the anticipated causal
mechanisms, and provides the relevant assumptions. The third section provides real-world
examples of pernicious racism through analyses of cases filed against Wells Fargo. Finally, the
article concludes with a summary and possible ways forward for future researchers.

3
A Key Limitation of Conventional Theories Of Racism

Throughout US history, the conceptualization of race and the engagement of racism
have evolved to create a spectrum of racially discriminatory behaviors and beliefs (López 2006;
Allen 1994). In this section, I argue that conventional theories of racism do not fully explain the
spectrum of racist behaviors in the modern-day United States. These conventional theories
include aversive racism, laissez-faire racism, color-blind racism, and symbolic racism. I label
these as conventional theories because they all attempt to explain racist behaviors, beliefs, and
policy outcomes in a time period when overt racism has been legally banned and socially
frowned upon. My goal is to use the deployment of these conventional theories of racism in
past scholarship to showcase how they can answer questions of modern-day racist behaviors,
and also reveal the types of racist behaviors which they are ill-equipped to expose (Williams
2019).
Aversive racism theory was first elucidated in 1970 with reference to White racists, and
differentiated itself from more popular theories of “dominative racism” (Kovel 1970).
Dominative racism is the expression of bigoted, racialized acts performed by bigoted racists.
Aversive racism stems from the notion that racist actions are not necessarily limited to bigoted
racists. Instead, White people who are well-meaning and don’t want to be prejudiced might
actually act in prejudiced ways due to implicit biases they acquired from living in their society
(Gaertner and Dovidio 2005). These individuals harbor egalitarian beliefs, and as such, they are
intentional about limiting any unjustifiable displays of prejudice toward other races.
Unfortunately, however strong their egalitarian beliefs may be, they may still hold implicit
negative feelings toward racial outgroups (Dovidio et al. 2016). Put another way, White

4
egalitarians, for example, may find Black people (members of a racial outgroup) “aversive.”
Further, these White egalitarians may also find the idea that they might actually be prejudiced
“aversive” as well. As such, these individuals will not express blatant acts of racism, but might
engage in a more subtle form of racism that allows for their self-image as progressive
egalitarians to remain intact. These subtle forms of racism can impact aid to racial outgroups,
employment decisions of candidates within a racial outgroup, and criminal convictions of
members of racial outgroups.
Laissez-Faire, Color-Blind, and Symbolic Racism are theories that generally refer to
racism grounded in the denial of the present-day ramifications of centuries of racial oppression.
The differences between these theories are so subtle that Bobo, a leading scholar of laissez-
Fare racism, claimed that the primary reason he continues to use the term “laissez-faire racism”
over “color-blind racism” is because he believes using “color-blind” is a “dubious analytical
strategy” that obfuscates the concept (L. D. Bobo 2017, pg. 91). Other authors suggest that the
three types are interchangeable (Burke 2016). Laissez-faire racism revolves around the idea
that Black people were put into a terrible socioeconomic position by the legacy of slavery and
Jim Crow. As such, when America experiences negative economic shocks, Black people have
been (and continue to be) situated in such a way as to have worsened impacts across all
socioeconomic classes (L. Bobo, Kluegel, and Smith 1996; Thompson and Suarez 2019). Further,
there is now "a tendency to blame blacks themselves for the black-white gap in socioeconomic
standing, and resistance to meaningful policy efforts to ameliorate America's racist social
conditions and institutions."(L. Bobo, Kluegel, and Smith 1996, pg 15)

5
Differing slightly from laissez-faire racism, the theory of symbolic racism was proposed
over 4 decades ago in an effort to explain another reason for whites’ continuing resistance to
racial equality in the post-civil-rights era. The general idea is that the demands of Black people
and providing them with advantages are unwarranted because Black people are continuously
disadvantaged because they don’t work hard enough (Tarman and Sears 2005). Symbolic racism
operates as the politicization of the conservative belief in low levels of Black individualism
(Sears and Henry 2003). In essence, symbolic racism reflects the notion that racial
discrimination is no longer a road block for Black people to have a good life, and therefore,
racialized policies to address racial inequities would be unfair to hard-working White people.
Even policy proposals that are not explicitly racialized, but are racially framed can be impacted
politically by symbolic racism (Tesler 2013; 2012).
First proposed by Eduardo Bonilla Silva, color-blind racism examines individuals and
institutions that ignore the impacts of historical and overt racism, and instead charge racial
inequities as the fault of inferior cultures (Bonilla-Silva and Dietrich 2011). The logic of color-
blind racism argues that white people use color-blind racism to express their racial dominance
as the result of hard work and not centuries of racial oppression. While the logic is similar to
symbolic racism, color-blind racism differs in its level of analysis; it looks more at collective
group positioning as opposed to the individual-level prejudice. Similar to Bobo’s reasoning for
continuing the use of laissez-faire capitalism, the authors admit to keeping up the use of “color-
blind racism” as a preference. In differentiating themselves from laissez-faire racism, the
authors consider "color-blind racism" to just be a better name: "We argue that post-civil rights
racial ideology should be called color-blind racism since the notion of color blindness is the

6
global justification Whites use to defend the racial status quo" (Bonilla - Silva and Forman
2000).
These conventional theories of racism come together to explain the various ways that
legacies of overt racism has maintained its influence in American society. However, their
primary focus has been on the behaviors of those individuals (mostly Whites) whose racism is
not subject to a monitored demand for equitable behavior. A prominent meta-analysis was
performed on 31 peer-reviewed experiments to determine the prevalence of overt and aversive
racism from White people in America (Saucier, Miller, and Doucet 2005). The experiments all
required White people to help a person in need, and the race of the person who needed help
was either Black or White. The idea was that, as the rationale for not helping the person in need
increased, the Black people in need of help would be less likely to receive that help relative to
their White counterparts. Aligned with Kovel’s seminal work, the analysis revealed that overt
forms of prejudice were not found throughout the experiments. However, the results showed
that, “as the time it took to help increased, as the risk the helper would face increased, as the
difficulty of helping increased, as the effort of helping increased, and as the distance between
the target and helper increased, the help that Blacks received decreased relative to Whites in
the same situations” (Saucier, Miller, and Doucet 2005). The analyses show that, given the
opportunity, many White individuals will unintentionally utilize societally-accepted excuses to
engage in racial discrimination. Specifically, the White individuals did not appear to be aware
that they are filtering their decisions in these one-off scenarios through internalized racist
beliefs. On the contrary, they believed they were operating indiscriminately (Saucier, Miller,
and Doucet 2005). This scholarship has been extended to the discriminatory decisions of jurors

7
(Johnson et al. 1995) who justify their discriminatory behavior on the grounds that, “they were
not letting a guilty person go free,” as well as hiring officials who amplify the positive
qualifications of White applicants and amplify the negative qualifications of the outgroup
members (Son Hing et al. 2008; Dovidio and Gaertner 2000). Taken together, these
deployments of aversive racism help explain expressions of unintentional racism, but do not
explain the obfuscations of true racists who do not want to incur the social costs of
intentionally racists acts.
Laissez-Faire racism also meets the same limitation. Laissez-Faire racism theories can
explain prejudiced attitudes toward Black people, and can explain how these attitudes are
rooted in the legacy of racial oppression in the United States. However, laissez-faire racism
again is deployed on subject areas where individuals exhibit behaviors that are not intentionally
racist, but are void of considerations of the modern-day ramifications of America’s racist
history. A prime example of this is found in the ubiquitous discussion around the Black-White
wealth gap, which has worsened since the Civil Rights era (Wolff 2021). One of the primary
explanations of laissez-faire racists is that Black people do not work hard enough to close the
wealth gap, and racial prejudice is not a primary barrier to wealth accumulation. Instead, as
color-blind theorists explain, these racists imagine Black people with poor work ethic as a result
of inferior cultures (Bonilla-Silva and Dietrich 2011). However, this belief system begs the
question, “how much ‘hard work’ would Black folks need to do to bridge the White-Black
wealth gap on their own?” According to the US Federal reserve, the median White family had
ten times as much wealth as the median Black family in 2016 (Dettling et al. 2017). However,
during the Civil Rights era, the median White Family had six times as much wealth as the

8
median Black family. For only a moment, imagine that there were no race-based barriers to
wealth accumulation for Black people after the end of the Civil Rights era (which is a recurring
argument of laissez-faire racists). In order for Black people to have bridged that Black-White
wealth gap, Black people would have needed to economically outperform White people as a
group. One way Black people could grow their wealth faster than the growth of White wealth is
by beating the market. The S&P 500 is a stock market index that risk-averse investors can park
and grow their wealth over time. In order to “beat the market,” one would need to outperform
the S&P 500, which over the last 100 years, has returned approximately 10% growth per year.
For the sake of this example, assume White wealth grew at the safe 10% per year. In order for
Black people to have bridged the wealth gap at the end of the Civil Rights era, then Black
people, as a group, would have needed to beat the market by 100% for over 20 years in a row.
Not even Warren Buffet, investing legend, has achieved this feat, and yet laissez-faire racist
would argue that Black people as a group can do better by “working harder.” Furthermore,
even though the wealth gap at the end of the Civil Rights era was very obviously the result of
centuries of oppression, such a claim from laissez-faire racists ignores America’s history of
oppression. The unfortunate reality is that the legacy of slavery and Jim Crow discrimination
prevents the wealth gap from closing due to hard work. In fact, studies have shown that there is
no difference between White and Black wealth appreciation for those families that have
positive assets (Hamilton and Darity 2010). As such, the work-harder narrative of laissez-faire
racist is an all-around unfounded claim that persists due to internally held prejudices. Still, the
belief system of laissez-faire racists does not necessitate racist behaviors, but is sufficient for
racist behaviors to occur. In other words, an assessment of intentionality is still a limitation.

9
Finally, the intentionality limitation also persists with the additions to conventional
racism theory brought by the tenets of symbolic racism. Like the other conventional theories,
symbolic racism allows for implicit racist beliefs to determine individual behaviors. Individuals
react to symbols of race, even if they are unaware that their reactions are race-based, such as
when White people showcased less support to welfare policies when pushed by President
Obama (a Black symbol), than when pushed by President Clinton (Tesler 2012). Thus, symbolic
racism theory can be combined with other conventional theories to explain situations where
uneducated White people bring beliefs of losing racial dominance to the voting booth (Mutz
2018), or support voter-identification laws that primarily harm communities of color (Fraga and
Miller 2022). However, aligned with the intentionality limitation, it does not explain the actions
of a President who knowingly and subtly stokes fears of racial replacement, or the legislators
who draft voter-identification bills with the knowledge of the racialized primary impact
constituency. These actors are not accidentally promoting racism, but are instead intentionally
and strategically engaging in racism under the cover of the prevailing color-blind system
(Bonilla-Silva and Dietrich 2011).
The theory of pernicious racism provides for the existence of many individuals and
institutions that are currently intentional in their discrimination, unfavorably, against people of
color. This theory fills the gap in the literature highlighted above, and provides more
explanatory power to the suite of conventional theories of racism. Conventional theories of
racism rely on unintentional, nonstrategic models of racism at mostly the individual level. They
explain how these unintentional racists hold attitudes of a subpar Black work ethic, and employ
those attitudes when justifying not providing race-specific support to people of color. This

10
unintentional justification process is why researchers of color-blind racism have been able to
provide experimental evidence supporting the positive impact of diversity in courses, events,
and student bodies on diminishing levels of color-blind racism in college students (Neville et al.
2014). However, the inclusion of intentionally subtle racism to the suite of conventional racism
theories allows pernicious racism to exist alongside of, and separate from aversive, laissez-faire,
symbolic, and color-blind racism. Pernicious racists hold overt beliefs of racial inferiority, and
act on those beliefs. However, the pernicious racist’s actions are dependent on the allowances
of the person’s relevant institutional settings. While other forms of racism also depend on the
structures of political and economic institutions (Feagin 2013), pernicious racism relies on the
intentional and strategic behavior of individuals that seek out and racially exploit these
institutional structures. The intentional exploitation of institutional structures is outlined in
greater detail in the next section.

Development of the Theory of Pernicious Racism

Expectations. My theory of pernicious racism hypothesizes that the level of racism
experienced through institutions will be dependent on two factors: the institutional setting and
the ideologies of an institution’s gatekeepers. Particular mixes of institutional settings and
gatekeeper ideologies create environments where racial exploitation can occur. Pernicious
racists will recognize these environments and exploit them. Specific to political institutions in
the United States, I first expect that institutions with low levels of government oversight will
experience higher occurrences of intentional and strategic racism. That is, political institutions
developed from the ideological framework of low government intervention will axiomatically

11
deliver less oversight against racism because they a priori and generally minimize accountability
and oversight of actors and actions taken. Second, I expect that an institution’s administrators
will influence the levels of pernicious racism, dependent on the administrators’ ideologies
around governmental or institutional interventionism. Through an analysis of cases filed against
Wells Fargo Bank following the Great Recession, a later section of this article showcases how
variances in institutional oversight determine the presence of intentional racism.

Causal Mechanisms. The level of governmental oversight provided to fight against
racism within an institution (whether congressional, bureaucratic, or judicial) varies by
institution. This variation is based on institutional design and on political-institutional setting.
Institutional design, as it pertains to oversight, can provide for an active monitoring of an
institution’s practices to prevent bad actions. Alternatively, institutional design can provide for
internal mechanisms within an institution that alert the institution’s administrators of
discrimination issues. These two types of oversight, dependent on institutional design, are
called “police oversight” and “fire-alarm oversight” respectively (McCubbins and Schwartz
1984). Further, when designs for institutional oversight are enacted, the enacting coalitions
toggle design features to strategically increase the political cost for amendments by future
coalitions (Pierson 2000; Wood and Bohte 2004). As such, oversight designs that are insufficient
to monitor and prevent inequity are subject to lasting exploitation, not quickly addressed or
altered (Orren and Skowronek 2014).
The theory of pernicious racism posits that the level of oversight employed by political
institutions determines the opportunity structure for intentional racism. The designs and

12
operations of institutions are often influenced by the political settings in which they are
developed, which is why political-institutional setting helps explain variations in similar
institutions located across the United States (Ghent 2012). In either a police patrol or fire alarm
environment, a high level of institutional oversight works as a road block against racism,
whereas a low level of institutional oversight provides a path for racism to occur. Further still,
the racial status quo is more than just aggregated attitudes and behaviors of individuals – it is
also the structure and organization of institutions. As such, the effectiveness of institutional
oversight at inhibiting discrimination is subject to the design of the institution with respect to
equal opportunity and fairness. In other words, a policy that is inherently discriminatory with
high police oversight would create an environment where racism flourishes because of the
institutional design, not in spite of it. As such, a high level of institutional oversight is important,
so long as the underlying design of the institution is not discriminatory.
The other determinant of the opportunity structure for pernicious racism is the
interventionist belief system of the institutional administrators. Party ideologies inform
individual beliefs on the triggers, scope, and frequency of government intervention in the
dealings between Americans and American institutions (Gerring 1998). These ideologies, and
their concomitant interventionist belief systems, can have substantive impacts on the actions
(or inaction) of governments: the ideologies of political appointees can sway the outcomes of
federal bureaucracies (Clinton et al. 2012), judiciaries can determine outcomes based on
ideology in cases where the law is unclear (Sunstein et al. 2006), and U.S. presidents can
strongly influence the extent to which government agencies engage with the U.S. population
(Clinton, Lewis, and Selin 2014). When the government is called upon to provide oversight on

13
issues of race, these interventionist beliefs become very important in determining political and
economic outcomes of racialized groups.
In this theory of pernicious racism, the administrators are the human actors charged
with monitoring an institution and the institution’s executions of its function. The
interventionist belief system of the institutional administrators references the degree to which
an administrator believes government intervention into social affairs is appropriate. For
example, U.S. Congressional Committees may be the administrators of many bureaucracies,
and thus, the interventionists beliefs held by these administrators could frequently and
dramatically shift due to bi-annual elections. The exposure of the American public to dramatic
shifts in administrator oversight are the result of decades of ideological partisan-sorting,
through which the American electorate and Congress has become more polarized (Mason 2015;
Thomsen 2014; Druckman, Peterson, and Slothuus 2013). Comparatively, district judges may
be the administrators of institutions wishing to engage in home foreclosure, offering increased
stability in administrator beliefs due to the infrequency of judge replacement. If an
administrator believes in little to no government intervention into the private lives of citizens
and businesses, there will be a greater opportunity for pernicious racism to occur in the
administrator’s institution. Alternatively, if an administrator believes that government
intervention is appropriate to coerce private citizens and businesses into socially accepted
operations, then there will be a lower opportunity for pernicious racism to occur in dealings
with that institution. Figure 1 shows the relationship between institutional oversight,
administrators, and pernicious racism.

14

Figure 1: 2X2 Matrix of Opportunity Structure for Pernicious Racism

Assumptions. My theory of pernicious racism has 4 key assumptions:
1. For-profit business entities that engage with political institutions operate under a
paradigm of profit maximization, and these paradigms factor in the costs associated
with actions specific to their varying political-institutional settings. This assumption
highlights how the goals of business entities determine their relationship with
institutions that they are required to interact with. As such, I assume that business
entities are going to operate in ways that minimize cost and maximize profits. It is
important to emphasize here that the paradigm of profit maximization is reliant on
High Institutional Oversight Low Institutional Oversight
High Administrator Interventionist Beliefs
Lowest opportunity for pernicious racism
Opportunity for pernicious racism is
dependent on institutional administrator's
freedom to engage in supernumerary
institutional action.
If low freedom, then high opportunity for
pernicious racism.
If high freedom, then low opportunity for
pernicious racism
Low Administrator Interventionist Beliefs
Opportunity for pernicious racism is
dependent on institutional administrator's
capability to prevent institutional action.
If low capability, then low opportunity for
pernicious racism.
If high capability, then high opportunity for
pernicious racism
Greatest opportunity for pernicious racism

15
an entity’s institutional setting. In other words, actions that might maximize utility in
a laissez-faire environment could be very costly under different interventionists
conditions. As such, the additional utility to be gained from the exploitation of
particular groups might not outweigh the costs levied by interventionist government
institutions.
2. Individuals operate in the utility maximization framework. As it is employed in this
dissertation, I assume that individuals will interact with business and political
institutions to the extent that they believe their actions will maximize the returns of
their time and effort. While individuals do not always have the best or most up-to-
date information, their decisions will be guided by the information that they do
have, as well as their unique risk tolerance.
3. Racialized group interests are important in explaining behaviors (Awad, Cokley, and
Ravitch 2005). However, studies have shown that the growing pervasiveness of
color-blind ideology- that people of color have lower positions because they don’t
work as hard- better explains behaviors than racialized group interests (Oh et al.
2010; Awad, Cokley, and Ravitch 2005). I assume that the continuation of color-blind
attitudes provides shelter, under which pernicious racists can cover their intentional
actions. In other words, because color-blind racists believe that racial discrimination
does not play a large factor in people’s lives, they will be more likely to turn a blind
eye to acts of pernicious racism. This color-blind eye also interacts with elite
opinions on government intervention and institutional oversight (Gilens 1999). For
example, the development of White racial resentment toward Black people has led

16
to the election and support of political elites who are expected to protect White
Americans from demographic shifts toward a non-White majority (Kam and Burge
2018; Wong 2018). This protection includes the lessening of government
intervention that supports Black people, including large-scale efforts to prevent
discrimination (see next assumption).
4. Political institutions controlled by Democrats are more resistant to racial inequity
than similarly situated Republican institutions. I adopt this assumption because of
the key differences in the role of government in liberal and conservative ideologies.
While Democrats and Republicans both have anti-discrimination agendas, the liberal
ideology of Democrats provides for a more hands-on role for government
institutions in fighting discrimination (Gerring 1998). Further, over the past several
decades, partisan-ideological sorting has increased the concentration of liberals and
conservatives in the Democratic and Republican parties respectively (Mason 2015).
This sorting has attributed to increased elite polarization as the public continues to
solidify their beliefs of how Democrats and Republicans are expected to behave
(Thomsen 2014). It is through this combination of expected behavior salience, as
well as the increased role of government attributed to liberals, that this theory
assumes that institutions controlled by Democrats will be more resistant to racial
inequity. In other words, Democratic heads of institutions will act in accordance with
the expectation that they use government power to ensure that institutions are
equitable.

17
Pernicious Racism in the Real World

When America catches a cold, Black America gets pneumonia,” is a ubiquitous adage within
the Black community (Baradaran 2017). This Black proverb was particularly on point in the
aftermath of The Great Recession, which disproportionately devastated Black and Brown
communities (Bhutta et al. 2020; Dettling et al. 2017). As many families lost their homes, many
families from communities of color wondered if it had to be this way. The short answer is an
emphatic “NO!” Previous studies have shown that race played a primary role in this foreclosure
crisis, where Black people were 80% more likely than White people to receive subprime loans
after accounting for credit scores, incomes, loan-to-value ratios, and neighborhood
characteristics (Jayasundera et al. 2010; Bocian, Li, and Ernst 2010). These subprime loans,
contrasted with prime loans, were dangerous financial instruments that led many down an
expedited path to foreclosures. To show the prevalence of pernicious racism, I review cases
related to Wells Fargo’s discriminatory treatment of people of color. First, I review the methods
of case selection that led to an analysis of cases involving Wells Fargo Bank leading up to the
Great Recession. Next, I explain the two types of mortgages and how they differ. I then explain
how Wells Fargo Loan Officers were able to engage in pernicious racism by providing subprime
mortgage products to Black and Brown families.
The Case of Wells Fargo and the Great Recession. In the previous section, this article
developed a theory of pernicious racism that is meant to explain how explicitly racists attitudes
can have far-reaching impacts modern-day behavior. Specifically, I have outlined that there are
cases of racism that cannot be explained well by the previous models associated with the
various forms of contemporary racism. Previous models show that individuals that do not

18
express overtly racist attitudes would not perform overtly racist acts (at least not intentionally).
Further, as outlined above, those individuals who do not express overtly racist attitudes, but
still hold implicit prejudices will be more likely to engage in racist actions when there is
increased ambiguity in the determination of the non-racist course of action (Saucier, Miller, and
Doucet 2005). These previous models do not adequately explain situations where individuals
holding overtly racist attitudes engage in societal deception- that is, they pretend to be race-
neutral when they are not.
I use the deviant case selection strategy as outlined by Seawright and Gerring ( 2008) to find
a case that has an outcome that is different from what other theories of contemporary racism
would suggest. I leverage the theory development above to identify the primary units of
analysis to aid in case selection (Yin 2003). In this case study, the primary units of analysis are
organizations that, for one reason or another, lack de jure institutional oversight over
operations where race has the potential to be used to alter the flow of resources. The deviant
Wells Fargo cases illustrate the use of two variables under the theory of pernicious racism
(institutional oversight and administrator interventionist beliefs) that can be applied to similarly
situated cases in the population of contemporary racism. Specifically, the Wells Fargo cases
present situations where individuals operate under legal frameworks that demand race-neutral
policies, but lack oversight or avenues for enforcement intervention. Current forms of
contemporary racism would suggest that the racially discriminatory outcomes revealed in the
Wells Fargo cases were due to implicit biases of the organization’s loan officers. However, the
current deployment of the Wells Fargo cases help explain, in context, how the design of lax
oversight within policies meant to prevent racial discrimination can lead to instances where

19
individuals exhibit behaviors grounded in explicitly racist beliefs (pernicious racism). Finally, the
Wells Fargo cases provide insight into the discriminatory outcomes of similarly situated
organizations such as Bank of America during the lead up to the Great Recession and Hudson
City Savings Bank in the years following the Great Recession. The deployment of pernicious
racism theory on the Wells Fargo cases in this paper can be used in future research to
determine if company policies and actions of workers at other institutions can be classified as
pernicious racism as well.
Providing mortgages. The typical avenue to homeownership in America today is the fixed-
rate mortgage (FRM) (R. K. Green and Wachter 2005). The idea is basically that consumers can
engage in reliable financial planning when their future mortgage payments are deprived of
volatility. These FRMs are contrasted with other types of mortgage plans, most notably, the
adjusted-rate mortgage (ARM). ARMs differ from FRMs because, as the name suggests, the
interest rate on these mortgages fluctuate over time based on economic market conditions,
which makes budgeting for mortgage payments much more difficult for the typical homeowner.
FRMs are considered safer for the consumer due to the stability of their interest rate over time,
and the federal government has successfully promoted FRMs through the existence of
government-sponsored enterprises such as Fannie Mae (the Federal National Mortgage
Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation)(Kaufman 2014).
On the other hand, ARMs have historically comprised about 11% of the share of mortgages,
spiking only as high as 35% before the Great Recession of 2008 (Kan 2022). ARMs are more
beneficial to mortgage providers because the providers have the opportunity to take advantage

20
of changing market conditions over time- a feature that is wholly unavailable to them if they
are locked into a fixed-rate contract with a borrower (R. K. Green and Wachter 2005).
Who gets which mortgage? As highlighted above, FRMs are the mortgage structure of
choice of the typical home buyer in the United States. Leading up to the great recession, to
determine whether a potential borrower was offered an FRM or an ARM, creditors would
assess the potential borrower’s risk of default. If a borrower’s risk-profile suggested that they
had a low risk of default, then the borrower would be offered a prime mortgage- that is, a
mortgage with a lower interest rate and/or required down payment. These prime mortgages
were often FRMs with low-interest rates or ARMs with intentionally low volatility in interest
rate fluctuations over time. In the event that a borrower had a risk profile that was impaired or
classified them as high-risk borrowers, creditors might have offered them subprime mortgages.
Subprime mortgages were most often ARMs that would provide borrowers with low initial
monthly payment by employing a low “teaser-rate.” However, once the teaser-rate period
ended, the monthly payments would increase dramatically, often times far exceeding the
budget of the borrower (Dickerson 2014). Further, leading up to the Great Recession, many of
these subprime mortgages were equipped with other problematic attributes, such as payoff
penalties designed to lock borrowers into perennial refinancing relationships with their initial
mortgage providers in order to maintain affordability (Lacy 2012).
Wells Fargo loan officers Target Black and Brown Families. In the lead up to the Great
Recession, racism played a role in determining which potential borrowers were offered
subprime mortgages or prime mortgages. As was mentioned prior, Black people were 80%
more likely than White people to receive subprime loans after accounting for credit scores,

21
incomes, loan-to-value ratios, and neighborhood characteristics (Jayasundera et al. 2010;
Bocian, Li, and Ernst 2010). Court cases brought against Wells Fargo provide insight into how
loan officers altered their loan offerings on the basis of race in a discriminatory manner. In a
suit brought against Wells Fargo in Baltimore, Maryland, affidavits from Wells Fargo loan
officers revealed a pattern of discriminatory practices in the company, including references to
Black people as “mud people,” and subprime loans as “ghetto loans” (Mayor and City Council of
Baltimore v. Wells Fargo Bank 2011). In an interview with the New York Times, the nation’s top-
earning Wells Fargo mortgage loan officer, Beth Jacobson, became a whistle blower regarding
Wells Fargo’s discriminatory behavior (Powell 2009). She claimed that leaders at Wells Fargo
viewed the Black community as primed for exploitation, as “working-class blacks were hungry
to be a part of the nation’s home-owning mania.” Further, a case filed against Wells Fargo in
Memphis alleges that Wells Fargo engaged in predatory lending practices known as “reverse
redlining,” resulting in disproportionate foreclosures on homes in Black communities (City of
Memphis and Shelby County, Plaintiffs, V. Wells Fargo Bank 2011).
There were several other cases brought against Wells Fargo as well, including from, and not
limited to, the National Association for the Advancement of Colored People (NAACP), The City
of Oakland, Los Angeles, Chicago, and Philadelphia. These cases have either been settled
without payment or admission of caused harm (Reckard 2010), dismissed on the grounds of
being too far removed from any potential harms (McKeown 2021), resolved in summary
judgement due to a lack of discrimination by Wells Fargo within the 2-year limitations period
(Wright 2015), or are still undergoing litigation in federal courts (Feinerman 2018; Brody 2018).
While these cases have had varied procedural paths, all of the cases echoed the Memphis and

22
Baltimore cases in their claims that the mortgage lender allowed for policies of racial
discrimination in mortgage steering. Further, all of the Wells Fargo cases highlight ways in
which intentional racism was at least the result of subpar oversight to ensure equity, even
though disparate impact cases such as these are not designed to impose new policies on private
actors (Wright 2015). The most public of these cases resulted in the Department of Justice filing
“the second largest fair lending settlement in the department’s history to resolve allegations
that Wells Fargo Bank, the largest residential home mortgage originator in the United States,
engaged in a pattern or practice of discrimination against qualified African-American and
Hispanic borrowers in its mortgage lending from 2004 through 2009” (Office of the Deputy
Attorney General 2014).
What kind of racism is this? The Wells Fargo cases outline a pattern of alleged racism that
can only be described as pernicious racism. Aversive, symbolic, color-blind, and laissez-faire
racism all rely on a level of unintentional racism that drives the actions of individuals. However,
the Wells Fargo loan officers leading up to the Great Recession were very intentional about
their racism. Their actions were not guided by implicit biases, and the overarching mortgage
system was not designed in a way that would result in the level of subprime mortgages
experienced by Black communities. Instead, the loan officers engaged in intentional racism that
was not easily seen. Due to the financial commission structure that incentivized loan officers to
increase their volumes of loan originations, the loan officers preyed on Black communities
(Dickerson 2014). The loan officers would even target Black churches because of their influence
in the Black community, and would not reveal to Black borrowers that subprime loans, while
available to them, were not in their best interest. Further still, many of the Black and Brown

23
borrowers that were eligible for prime mortgages were discriminatorily supplied subprime
mortgages. Because subprime loans could be provided with little to no paperwork, loan officers
could increase their loan volume and take advantage of greater commissions by exploiting Black
communities.
Institutional Oversight and Administrators. As outlined in Figure 1, pernicious racism is
dependent simultaneously on the level of institutional oversight, the opportunity for
administrator intervention, and the interventionist beliefs of the administrator. In these Wells
Fargo cases, the level of institutional oversight leading up to the Great Recession was provided
by the Equal Credit Opportunity Act (ECOA). The ECOA was signed into law in 1974 and
provided enforcement authority for state chartered member banks (such as Wells Fargo) via
the Federal Reserve Board (CFPB 2013; Matheson 1984) before the Dodd-Frank Act of 2010..
The ECOA, as amended in 1976, bans discrimination in the credit market on the basis of race,
color, national origin, sex, religion, marital status, age, or the receipt of public assistance.
To align with the goals of ECOA, The Federal Reserve Board implemented Regulation B,
which required creditors to provide a report that details reasons for adverse actions on loan
applicants (such as loan denials) (Gilkeson, Winters, and Dwyer 2003). The regulation was
meant to provide awareness to consumers of potential discrimination, and thus pressure
creditors to give everyone a fair shake. The consumers, if they believed there were
discrimination, could enforce ECOA through private litigation.
However, there were situations where a potential borrower would apply for a loan, and
instead of denying the loan, the creditor would provide a counter offer with significantly worse
conditions (such as an applicant applying for a prime FRM, but then counter offered a subprime

24
mortgage instead). If that counter offer was accepted by the applicant, Regulation B did not
consider the deal as an adverse action (Matheson 1984). Because these types of deals were not
considered adverse actions, creditors were not required to provide borrowers who accepted
the counteroffer with a report that explains the reasons as to why a counter offer was
proposed. In other words, this loophole in Regulation B severely undermined the regulation’s
intention for consumers to provide oversight and enforce ECOA when they suspected possible
discrimination. Referring back to the 2x2 in figure 1, ECOA and Regulation B created an
environment as outlined in the top right box. As it pertains to the Wells Fargo cases, the
Regulation B loophole provided for very low institutional oversight. Consumers in the counter
offer scenario were completely stripped of their discriminatory oversight function. Without this
oversight function, there could be no private litigation, and thus no options for administrative
entities (such as judges) to intervene or even become aware of the discriminatory behavior.
Together, the low institutional oversight and absent administrator engagement created an
environment with a high opportunity for pernicious racism. The loan officers that were
pernicious racists were able to flourish by intentionally exploiting Black and Brown
communities, and the eventual foreclosure crisis was what finally revealed their actions.

Conclusion

In this article I have put forth a new theory of racism that is distinct from the aversive,
laissez-faire, color-blind, and symbolic forms of racism. These well-established forms of racism
rely primarily on individual behaviors that are influenced by unconscious attitudes toward
people of color. These individual behaviors are not intentionally racist, but are effectively racist.

25
Contrarily, the theory of pernicious racism relies on intentionally racists behaviors. Pernicious
racists will engage in negative and discriminatory behaviors when their racist actions are not
easily attributable to them. Thus, this extant form of overt racism is not only dependent on the
conscious and racist attitudes of individuals, but it is also dependent on the opportunity
structure for overt racism to occur.
Pernicious racists understand that bigoted people are personae non gratae in today’s
America, and they do not want to assume such a label. As such, their racist behaviors are only
showcased in environments where institutional and administrative oversight - and therefore
the probability of societal blowback from being outed as a racist - are low. At all levels of
government, the magnitude of Institutional oversight and the responsible parties for
administrative oversight are designed by legislators. Thus, in writing and enacting new policies,
legislators must incorporate sufficiently high levels of institutional and administrative oversight
that create environments where pernicious racism cannot flourish. Further, the interventionist
beliefs of administrators matter in creating environments where pernicious racism does not
thrive. More acutely, even if legislators have designed high institutional oversight, if the
designated administrator responsible for oversight (for example, a judge) believes the
government should be very limited in the dealings of private citizens, pernicious racism can still
occur. As revealed in the case study of Wells Fargo leading up to the Great Recession,
environments with insufficient levels of institutional and administrative oversight can result in
the hyper exploitation and maltreatment of people of color. Through the employment of this
theory of pernicious racism, researchers can identify policy areas that are resulting in racist
outcomes due to insufficient institutional and administrative oversight. Researchers might

26
reveal that there are not enough checks in the institutional design, or that administrators are
not empowered enough to prevent pernicious racism. Through this identification, researchers
can further inform legislators of potential changes to institutional designs that can correct the
environment to prevent future occurrences of pernicious racism.

27
Chapter 2: Penalty of Party on Black Homeownership:
The Impacts of Judicial Institutional Settings on the Black Political Economy

Introduction

A large component of family wealth in America is homeownership. Recent reports from the
United States Census and United States Federal Reserve show that “Americans hold more
wealth in their homes than in any other asset, making housing the most important economic
tool for millions of citizens. The average homeowner reports more than twenty times the
wealth of the average renter” (McCabe 2016). According to the U.S. Census Bureau, in July of
2019, the Black homeownership rate was reported at 40.6%. In 1970, the Black homeownership
rate was 42%. Over this same period, the white homeownership rate in America has remained
above the 70th percentile. Very little research has been done to explain the relationship
between Black homeownership and partisan politics. The literature that does address this
political area, does so with an eye on the response of federal representatives in the immediate
aftermath of the 2007 housing crisis, which may or may not be generalizable (Mian, Sufi, and
Trebbi 2010). This article fills this gap by answering the question, what is the impact of
American political parties on Black homeownership in America? I use a national dataset of
homeownership to make the argument that there is a penalty of party on Black
homeownership, and that penalty is imposed, in part, through the institutional structures of
state judiciaries. To support this national analysis, I also perform an analysis of changing
homeownership across the State of New York’s judicial districts. Taken together, I find that

28
there is a penalty of party on Black homeownership in regions where Democrat judiciaries are
not actors in the prevention of discriminatory foreclosure practices.
This paper proceeds as follows. Section 2 will provide the contribution and relevance of this
research question. Section 2 will also provide a review of the relevant literature, and explain
how this research fits in with current scholarship. Section 3 presents a theory of partisanship
penalty. Section 4 explains the research design for this project. In this section you will find the
two hypotheses I plan to test, as well as an analysis of the relevant variables to this research.
Section 5 highlights the results of this research. Section 6 provides discussion on the
implications of the results. Section 7 will conclude by providing an overview of the importance
of this research. Furthermore, there is also an online appendix that provides further analysis as
highlighted below.

Black People, Homeownership, and the Politics of Foreclosures

Americans want homes.
The “Happy Homeownership Narrative,” is attributed to the longstanding homeownership
preference of Americans, and this narrative references America’s push for higher rates of
homeownership due to the benefits that homeownership grants the American economy
(Dickerson 2014; “The State Of The Nation’s Housing 2016” 2016). As a result of this nationwide
push, given the opportunity to own a home, most Americans will choose to do so, even in the
face of rising affordability challenges (“The State Of The Nation’s Housing 2019” 2019).
Corroborating with this theory is the steep change in homeownership within the Black
community leading up to the housing crisis. Across the 24 years spanning 1970 and 1994, the

29
national Black homeownership only increased from 42.0%, only to 42.3%. Over the following
ten years leading up to the housing crisis, the national Black homeownership rate increased
over 22 times faster, rising to 49.1% in 2004 as mortgage companies made access to
homeownership dubiously more accessible to Black Americans (this change was the result of
many unfair, subprime mortgages provided to the Black community, ultimately resulting in a
foreclosure crisis. The Black homeownership rate dropped down to about 42% in 2019). This
real-world example is one of many that showcase how Americans will increase their levels of
homeownership if homeownership is more accessible to them (Lacy 2012). However, after
individuals purchase homes with varying debt structures, their ability to keep and thrive in their
homes is subjected to the political structure of their state. Specifically, the politics of
foreclosures (as outlined below) provides a crossroads for analysis between elections,
politicians, and homeownership.

Homeowner Participation
The literature on the intersection of homeownership and politics is thin and consistently
approaches homeownership from the bottom up. In America, there is a perennial ideology that
creating homeowners creates good citizens because homeowners care more about their
communities and are more likely to care for their neighborhoods. (Kingston, Thompson, and
Eichar 1984; Ansell 2014). Aligned with the Happy Homeownership Narrative, American
organizations, media, and political leadership have consistently pushed the idea that
homeownership creates better communities. This was showcased recently, as the National
Association of Realtors went on a countrywide bus tour specifically to deliver this messaging

30
(“National Association of Realtors 2011 Annual Report” 2012). In response to the 1968 riots,
and in promotion of the infamous Housing and Urban Development Act of 1968, President
Nixon, for example, stated that “people who own their own homes don’t burn their
neighborhoods.” (Dickerson 2014; Taylor 2019) Apparently, President Nixon had also bought
into the idea of creating better citizens by turning them into homeowners.
However, there is an ongoing debate about if and how homeowners’ engagement in politics
differs from renters. The conventional wisdom is that homeownership has a conservatizing
effect on the owner’s political actions (U.S. National Commission on Urban Problems 1968, 401;
Kingston, Thompson, and Eichar 1984). This wisdom comes from the idea that homeowners
have an incentive to engage in political actions that protect their home values, whereas renters
generally are less concerned about maintaining or increasing property values. Several empirical
analyses have been performed to show that homeowners are more likely to participate
politically in their communities, but there is only minimal support that they engage in a more
conservative fashion (Kingston, Thompson, and Eichar 1984). These studies have also controlled
for the individual characteristics of households, and have still come to the same conclusions
about homeownership’s conservatizing effects. However, more recent scholarship suggests that
when economies are booming and houses are appreciating in value, homeowners become
more conservative and want less spending on social programs (Ansell 2014). This is particularly
true with folks who are already conservatives. The adverse is true when an economy goes into a
recession, and housing values begin to depreciate. Ultimately, when homeowners are involved
in politics, there is a general trend to support candidates and policies that are believed to

31
protect local property values. This creates a political orientation of exclusion, also known as
“Not In My Back Yard” politics (Fischel 2001; Dehring, Depken, and Ward 2008).
Contradictory to these studies, there is also literature spanning from the mid 1980s to
the present that conclude there is limited to no support that homeownership creates
conservative political orientations. This literature suggests that voters who own their homes
make political decisions based on the expected benefits they can expect to receive (Yinger
2002). Tax breaks and social services may fuel homeowners’ political choices without regard for
their property value. This becomes increasingly accurate when housing mobility is low
(Kingston, Thompson, and Eichar 1984). However, this body of literature does not speak to
homeownership as a result of party platforms.

The Politics of Foreclosures
One issue that is pertinent to homeownership is that of foreclosure. Every American
state has different laws that govern the methods available to lenders who would like to
foreclose on a home (Ghent and Kudlyak 2011; Ghent 2012). Foreclosure laws matter because
they determine whether or not lenders who wish to foreclose on a borrower’s home are
allowed to handle the foreclosure in an out-of-court process, or are required to appear in court.
Going through the courts is a much more costly endeavor for lenders (Pence 2006). As a result
of the higher cost of going through the courts, during economic downturns, foreclosure rates
are doubled in states that do not require lenders to go through the courts (Mian, Sufi, and
Trebbi 2015). Furthermore, in anticipation of new federal regulations during economic
downturns, big banks delay foreclosures in the districts of members of Congress who serve on

32
the Financial Services Committee (Agarwal, Amromin, et al. 2018). Finally, in making the
decision to foreclose on a home, lenders also consider whether or not the state allows for
recourse, which entitles lenders to pursue additional action against the borrower to retain the
full value of a loan if the market value of the home is not enough (Ghent and Kudlyak 2011).
This scholarship is evidence that lenders actually practice discretion when choosing which
houses to foreclose on, and discretion opens the door to discrimination.

Homeownership As An Outcome Of Party Control
I believe a top-down view of homeownership has not been readily explored. There has been
scholarship on the voting behavior of federal representatives during financial crises (Mian, Sufi,
and Trebbi 2010). This literature finds that Republican and Democratic members of Congress
are both likely to put away partisan ideologies when their own-party constituents are facing
high levels of defaults on their homes. These findings tie neatly with the reigning underlying
assumption, which is that each political party equally wants to avoid a decrease in
homeownership. This assumption stems from the Happy Homeownership Narrative, and
typically extends to the belief that each party operates in a manner to boost all homeownership
rates (Dickerson 2014; McCabe 2016). This assumption extends rather carelessly to Black
Americans. Because the obstacles associated with race vary across environments, it is
important to analyze the impediments Black Americans face in varying political environments
(Sen and Wasow 2016). Furthermore, researching and disseminating information about the
impacts of party on Black homeownership will assist Black voters in determining their current
party deferential, ultimately aiding them in their decisions on which party they should lend

33
their support to. Scholarship is needed to address this economic implication of party, which
could, at the very least, support the rationality aspect of Black voter decision-making (Downs
1957; D. P. Green and Shapiro 1994). To address this gap in the literature, I intend to determine
if and how party control impacts Black homeownership. This research is captured at the state
level, and tests three hypotheses.

A Theory of Partisanship Penalty

“What used to be a mountain is now a molehill.” This saying is a popular mantra of
those who believe America has entered into a post-racism era. However, a more realistic
mantra would be to say that, “the lion of racism has crouched low in tall grass,” the implication
being that racism has taken a more pernicious form. Evidence of pernicious racism at an
institutional level is typically only unearthed after years of implementation. A recent example is
when the Department of Justice sued Wells Fargo in 2010 for targeting minorities, referring to
Black people as “mud people,” and discriminatorily pushing subprime mortgages on them
(Baradaran 2017). Wells Fargo settled the case. A more recent example is from 2015, when the
Consumer Financial Protection Bureau found that Hudson City Savings bank was redlining
(Ficklin 2019). As a result, Hudson City consented to pay the largest redlining settlement in
history (Cecchi 2015).
Pernicious racism continues to lurk within financial institutions. The intentionality of this
form of racism differentiates pernicious racism from other prominent types, such as symbolic,
Color-Blind, and Aversive Racism. My theoretical argument is that resistance to pernicious
racism against Black Americans is greatest in states controlled by the Democratic party. I

34
theorize that pernicious racism does not as easily flourish in Democrat controlled states
because the ideology of the Democratic party has a much more hands-on approach to their
anti-discrimination agenda than that of the Republican party.
The mass majority of state judges are elected or appointed with respect to their party
affiliation. As alluded to above, studies have shown that lenders that provide mortgages across
multiple states do not simply decide on some criteria and say, “we are going to foreclose on
anyone that meets this criteria.” Instead, lenders are strategic about who they foreclose on,
with utility maximization in mind (Mian, Sufi, and Trebbi 2015). Part of the decision-making
process on who to foreclose on, is “what is the process for foreclosure in this state, and if I have
to go before a judge, who is the judge and how might they decide?” These lenders operate
within the institutional opportunity structure they’re provided.
There are three key assumptions to my theoretical argument. The first assumption is
that business entities operate under a paradigm of utility maximization. This is an important
assumption because lenders have the onus to initiate the foreclosure process by suing
borrowers. As such, I assume that business entities are going to operate in ways that minimize
cost and maximize profits.
The second assumption is geared toward US Citizens, and basically states that individuals
operate in the utility maximization framework as well. As it is employed in this work, I assume
that individuals prefer homeownership over non homeownership because of all of the major
economic and social benefits that come with it. I do not expect homeowners to voluntarily
leave their homes and start renting on a significant scale. The last assumption is that
Institutions controlled by Democrats are more resistant to racial inequity than similarly situated

35
Republican institutions. I adopt this assumption because of the key differences in the role of
government in liberal and conservative ideologies. While both Democrats and Republicans have
anti-discrimination agendas, the liberal ideology of Democrats provides for a more hands-on
role for government institutions in fighting discrimination. It is through this increased role of
government that this theoretical argument assumes that institutions controlled by Democrats
are more resistant to racial inequity (which is an assumption this results of this research
supports).
The final segment of my theoretical argument is the scope condition. This theory of
pernicious racism applies in forums in which actors have a high level of discretion with little
equity oversight. As alluded to above, Wells Fargo provides a great example of pernicious
racism. Based on employee testimonies uncovered by the U.S. Department of Justice, Wells
Fargo loan officers were targeting Black people for what they called “ghetto loans” and
referring to Black people as “mud people.” Further, they were using outreach programs with
Black churches to influence Black people into accepting subprime mortgages. These mortgages
led to financial devastation for many Black families during the great recession. The
intentionality of these loan officers and their acutely designed targeting scheme is an example
of pernicious racism. As this scope condition states, Wells Fargo loan officers were operating in
a forum where they had a high level of discretion, and very little equity oversight.

Research Design

To understand how partisan politics impacts Black homeownership, I employ a multi-
method research design to evince and test the factors that contribute to the penalty on

36
changing Black homeownership levels. Specifically, I perform a nested analysis (Lieberman
2005), where I use a statistical design to test the strength of the association between party
control and changing levels of Black homeownership across states. I use the results from this
analysis to identify and analyze a state for a case study. Specifically, I employ a case study of the
state of New York to gain leverage on the causal mechanisms through which party control
impacts Black homeownership.

Hypotheses
From section 1, it is common knowledge that the Black homeownership level in America
(41.9%) is significantly lower than both the White homeownership level (71.6%) and the overall
homeownership level (69.2%). I intend to discover whether this homeownership disparity is
converging, diverging, or remaining the same over time. If the disparity is converging (becoming
less severe), America could expect to see inequalities in homeownership reduce in the future. If
the disparity is diverging (becoming more severe), then the inequality can be expected to not
only persist, but exacerbate over time and across states. To analyze how the homeownership
disparity is changing, I posit the following hypothesis:
H1: Across the United States, homeownership levels will decline at a greater rate for Black
Americans than White Americans, Hispanic Americans, and Asian Americans.

Black in America à Penalty on the change in homeownership levels over time

37
I expect the rate of change in the homeownership of Black Americans to be worse off
because wealth inequality between Black Americans and other Americans has been
exacerbating as time goes on (Chiteji 2019).
While on average I expect that there is a penalty on black homeownership across states,
there is significant variation of the penalty at the state level. To elucidate some nuance in the
penalty on Black homeownership, I look at whether there is an effect of political party on Black
homeownership. Thus, my second hypothesis:
H2: The penalty on Black homeownership over time will be greater in states controlled by
the Republican party than in states controlled by the Democratic party.

State controlled by Republican party à Greater penalty on Black homeownership

Banking legislation across the U.S. does not have a significant degree of variation. However,
in the U.S., foreclosure laws do vary significantly by state. A state’s foreclosure laws directly
determine the difficulty faced by a lender that wants to foreclose on a person’s home. For
example, some states require that the foreclosing party must file a lawsuit and go through the
courts, while other states have out-of-court processes in place for foreclosures. Furthermore,
some states allow for lenders to sue borrowers for the full value of a loan if the market value of
the home is not enough to cover it. Because of this varying difficulty, Black Americans in states
with more lax foreclosure laws might be at greater risk of losing their home. Furthermore,
depending on how foreclosure laws are set up, Black Americans in states with more lax
foreclosure laws might be worse off after a foreclosure, thus limiting their chances of owning a

38
home in the future. I test a hypothesis that provides an analysis of the varying impact of
foreclosure laws.
H2a: The foreclosure laws in Republican states are less beneficial to Black homeowners than
the foreclosure laws in Democratic states.

For my final hypothesis, I look to judicial districts within a state that has judicial foreclosure
laws. The expectation from my theoretical argument relies on courtrooms to be the stage
where pernicious racism would occur for this analysis. If the theoretical argument holds, judicial
districts that are governed by a Republican judiciary should experience a greater penalty on
Black homeownership than judicial districts in the same state that are governed by Democrat
judiciary. Here is my third hypothesis:
H3: The penalty on Black homeownership over time will be greater in judicial districts
controlled by the Republican party than in states controlled by the Democratic party.

Democrat judiciary in judicial foreclosure state à Greater protection of Black homeownership

Data
The national analysis of this research relies on survey data to measure Black, White,
Hispanic, and Asian homeownership across individual states. The data originate from the
American Community Survey, provided by the United States Census Bureau, which collects
responses from individuals throughout every year. To increase fidelity in their data, the United
States Census Bureau randomly samples addresses in every state, the District of Columbia, and

39
Puerto Rico to provide up-to-date information outside of the decennial census. Furthermore,
the data will be collected over the time period between 2010 and 2017. By using data over
these 8 years, this research can show a modern impact of party on Black homeownership. In
particular, this time period begins the year after the Great Recession ends, and is far removed
from the dubious housing policies that plagued the Black community over the decades prior.
Furthermore, during this time period, there is stability in the associations of liberal and
conservative with Democrat and Republican respectively (Fiorina 2017). This stability will allow
me to compare apples-to-apples, as opposed to comparing the Democrats of 2010 with the
Democrats of 1990, which would more so result in the comparison of apples-to-oranges. As
such, using this time period will allow for useful inferences to be found.
As it pertains to this research, a political party is deemed to have control over an American
state if the party has been in control of either the gubernatorial seat or any state legislative
chamber for a decade or longer. I define party control in this way because veto power is a
crucial obstacle for institutional change (Pierson 2004). As such, when a party has control over a
state’s legislative branch for a decade or more, any legislation or policy to address
homeownership must be aggregable with the agenda of the reigning party. A decade is
indirectly defined by state legislatures as 2.5 times the typical gubernatorial term, 5 times the
term of a typical state assembly person, and between 2.5 and 5 times the term of a state
senator (depending on the state). Using a decade of party control to determine party control
drastically increases the probability that the changes in a state population’s economic standing
are caused by the policies implemented by the reigning party over the state. Data on state
party government is pulled from Ballotpedia, a nonpartisan website funded by the Lucy Burns

40
Institute. To match party control with the American Community Survey data mentioned above,
a party will be deemed in control if it holds dominance between the years of 2008 and 2017. By
analyzing Party control, racial identification, and homeownership levels, this research will be
able to evince the existence of a causal relationship between party and Black homeownership.
The final element to the national data set used for the national analysis is found in
“Recourse and Residential Mortgage Default: Evidence from US States” (Ghent and Kudlyak
2011). Ghent and Kudlyak worked with lawyers and assessed state law to classify each
American state as either a judicial or non-judicial state, and either a recourse or non-recourse
state. I use their classifications to gain leverage on how a state’s judicial proceedings impact the
penalty on Black homeownership.
The New York analysis employs a lower-level data set, where I assessed homeownership
across judicial districts in the state of New York. For each of New York’s 13 judicial districts, I
have data on the changes in homeownership of all races and ethnicities between 2010 and
2017, utilizing the American Community Survey data outlined above. Further, I analyzed 221
trial court judges across New York’s judicial districts that were elected in partisan elections and
served between 2010 and 2017. This allows for an analysis on how Black homeownership
changes across judicial districts where there are Republican Judges and Democratic judges. New
York was an ideal location for this analysis because it is a Democrat-controlled state that has
judicial foreclosure laws, and at the statewide-level, changes in Black homeownership in New
York were more aligned with other races. Further, New York’s land is about 87% rural, and is
home to around one-in-five of New York’s population. This geographic breakdown as it pertains
to housing is strikingly similar to that of the entire United States, where the U.S. Census Bureau

41
has determined that one in five Americans lives in rural areas (Ratcliffe et al. 2016). Finally, as a
Democratic state, the finding of penalty on Black homeownership is subject to a downward
bias. In New York, many judicial vacancies are filled by gubernatorial appointment- including in
Republican judicial districts. Due to the stronghold Democrats have had on the New York
gubernatorial seat over the examined time period, many of New York’s judges in the Republican
districts are actually more liberal than the elected judges. Their existence and operation in
Republican judicial districts can be assumed to lower the perceived penalty of having a more
republican judiciary.

Quantitative Analysis
I use a statistical research design (a series of OLS regressions) to evince the penalty on
homeownership for Black people in America, relative to White, Asian, and Hispanic people.
Furthermore, I use this research design to analyze how the magnitude of the penalty on
homeownership for Black Americans differs across states controlled by the Republican and
Democratic parties. I limit this analysis to states that have more than 10,000 Black households
(there are 39 States that have more than 10,000 Black households, and those 39 states harbor
99.61% of the Black households in America). This restriction helps avoid data skew by excluding
outlier states such as Alaska, where the Black population is so small that the Black
homeownership level fluctuates severely over time. The data are from 2011 and 2017, and
results in a total of 1,064 observations. Here is the OLS specification.

𝑌
!"
= 𝐵𝑙𝑎𝑐𝑘𝑆𝑒𝑡𝑡𝑖𝑛𝑔
!"
𝛽+𝑐𝑜𝑣𝑎𝑟𝑖𝑎𝑡𝑒𝑠+𝑇𝑖𝑚𝑒 𝐹𝐸

42

Dependent Variable. Y it represents the percentage change in (Black/Asian/Hispanic/White)
homeownership in state i between year t and t-1. For example, if the Black homeownership
level in Texas changed by -9.0% between 2010 and 2017, -9.0% would be the Y. As a further
example, if the Asian homeownership level in California changed by +1.0% between 2010 and
2017, +1.0% would be the Y. To reiterate, this research uses Black, White, Hispanic, and Asian
homeownership levels across the U.S. to determine four dependent variables per state.

Independent Variable of Interest. The primary independent variable is the state setting for
Black families (BlackSetting it). The variable represents a vector of binaries, of which only one is
triggered at a time. The vector includes the following: Black in Democrat-Judicial State, Black in
Democrat-non-Judicial State, Black in Republican-Judicial State, Black in Republican-non-Judicial
State, Black in Mixed-Judicial State, Black in Mixed-non-Judicial State. For example, if the
observation is the change in homeownership of Black families in California, then ”Black in
Democrat Non-Judicial State” would be operationalized, and the others would not. Similarly, if
the observation were the change in homeownership of Asian families in California, then none of
these IV’s would be operationalized. This allows for an assessment how the Black penalty
changes across these different settings, relative to all other races. All of the following
independent variables I use are binary.

Control Variables. There are several control variables used in this analysis, including state
recourse laws, median home values, change in median home values, median rent price, change

43
in median rent price, and year. State recourse laws are important because some states allow for
lenders to seek more assets than just the home if a foreclosure is granted. There is a possibility
that residents of the states that have adopted this legal framework experience a greater
deterrence from foreclosure, since they stand to lose more than just their house. Median home
values are also important controls for this analysis because, states with lower cost to
homeownership may present more opportunities for families to come together to avert
foreclosures on their homes. Further, high median home values may prevent recovery of
homeownership levels post the Great Recession. Median rent values are similarly important
because, if a state has relatively low rents, residents may be encouraged to sell their homes and
seek rental agreements instead. Time is also controlled for in this analysis due to the proximity
of this analysis to the Great Recession and the concomitant world-wide recovery.

Difference-in-Difference. To understand if Black people are really better off in Democratic
states with judicial foreclosure laws, I perform a Difference-in-Difference (DID) regression
analysis. Typically, DID’s are used to analyze policy interventions between treatment and
control groups when randomization at the individual level is unavailable. I use a DID analysis
here to analyze the changes in Black homeownership across states, given their varying
institutional settings. In other words, if we start with the assumption that Black homeownership
levels will change, on average, at the same rates across all states, without regard to judicial
institutional settings, then we can use a DID regression analysis to assess whether or not there
is an impact of judicial foreclosure laws in Democrat-controlled states. If the assumption is true
(which I defend further in the results section below), the interaction term in the DID regression

44
analysis should not be significant or meaningful. Further, I use homeownership rates from the
first year after the Great Recession was officially declared as over (2010) as time zero. World
Bank Analysis of annual American Gross Domestic Product (GDP) shows that 2010 is the first
year that American GDP experienced an increase in growth since 2004 (The World Bank 2021).
By using 2010 as time zero, I am able to capture the changes in Black homeownership across
America, right as the American economic business cycle switches from a nationwide downward
trajectory, to an upward trajectory. The result of this analysis will be to showcase that
institutional setting matters in assessing the varying penalty on Black homeownership in
America. This particular analysis looks solely at the Black population.

New York Analysis. I provide a lower-level analysis of changing homeownership by placing a
magnifying glass on the state of New York. The New York specification is very similar to the
nationwide specification. The primary difference is the variable, “BlackSetting.” For the New
York analysis, the BlackSetting variable again represents a vector of binaries, of which only one
is triggered at a time. However, the vector for the New York analysis includes the following:
Black in Democrat-Judicial District, Black in a Republican-Judicial District, Black in a Mixed
Judicial District. With a total of 364 observations, this OLS specification allows for an
assessment how the Black penalty changes across these different party settings within the
same state, relative to Whites, Asians, and Hispanics.

45

Results

Tables 1A and 1B show national models that attempt to reveal how state foreclosure
laws interact with party control to create a penalty on Black homeownership. Table 1A looks at
changes in state homeownership rates each year, and table 1B looks at changes in state
homeownership rates over the entire period (2010 – 2017). Each of the models in these tables
are using OLS regression to determine if there is a penalty on Black homeownership across the
United States in these various political and institutional settings. Of the 18 states in this sample
that require lenders to go through the courts to foreclose on a home, 8 are Democratic, 7 are
Republican, and 3 are Mixed Party. Of the 21 states in this sample that don’t require lenders to
go through the courts to foreclose on a home, 5 are Democratic, 9 are Republican, and 7 are
Mixed Party. The big takeaway from these models is the insignificance of the coefficient for
Democratic states that require lenders to go through courts to foreclose on a home. Not only
are the coefficients almost a third of any other coefficients of interest, but they are also not
statistically significant, with a p-values much greater than 0.05. This result suggests that,
between 2010 and 2017, Black households experienced little to no penalty on homeownership
in Democratic states that require lenders to go through courts to foreclose on a home. The
models also reveal that Black households received a harsh penalty in any other type of state,
including Democratic states that do not require lenders to go through the courts to foreclose on
a home.

46

Figure 2: All coefficients shown at the 95% level. This coefficient plot represents the results
shown in Table 1B

Table 2 shows the result of the difference-in-difference analysis performed on the Black
population across the United States (for states with Black populations greater than 10,000). The
variable of interest is the interaction between the “Black in Democrat Judicial State,” and the
“2017 Period Binary.” The “Black in Democrat Judicial State” variable is binary, and takes a
value of 1 if the Black population analyzed is in a state that is Democratic and has judicial
foreclosure laws, and 0 otherwise. The “2017 Period Binary” variable takes on a value of 1 if the
analyzed population is from 2010, or if the analyzed population is from 2017. From column 1,
the DID interaction term and the 2017 Binary term are statistically significant at the one
percent level. The variable for Democratic Judicial State is insignificant. The 2017 binary term
shows that, between 2010 and 2017, Black homeownership declined across American states at
approximately 8.7%. The interaction term shows that Black people in Democratic states with
judicial foreclosure laws saw decreases in homeownership rates that were over 50% less severe

47
than in other states. Column 2 provides the same DID analysis, but also provides for controls
that might bias the results if unaccounted for. Still, a significant difference remains where Black
people in Democratic states with judicial foreclosure laws saw decreases in homeownership
that were over 50% less severe than in other states without such an institutional setting. This
provides strong evidence that Black people have a higher resistance to losing homeownership
in states where foreclosures are decided by a Democrat-leaning judiciary. In the online
Appendix, Table A-1 provides this same Difference-in-Difference analysis, except the interaction
term is instead focused on Republican states that have judicial foreclosure laws. The results in
Table A-1 emphasize that having judicial foreclosure laws is insufficient for boosting Black
resilience against declining homeownership, as the coefficients on the interaction terms are
negative and extremely insignificant with p-values greater than 0.90.
The common trend assumption. One of the primary tenets of a difference-in-difference
analysis is the common trend assumption. In this case, that would mean adopting the
assumption that changes in Black homeownership rates would have shared the same trends as
other homeownership rates if they were operating in a race-neutral environment following the
end of the great recession, without regard for institutional setting. The underlying logic is, if not
for the Black identifier, institutional setting would not have the large and distinct impact shown
in Table 2. One way to test for this is to run the DID analysis for the non-Black observations
only. By removing Black people from the equation, I can assess if being in a Democratic state
with Judicial foreclosure laws has a significant impact on the rest of the population. An
insignificant impact would provide support for the common trend assumption. These results
can be found in appendix Table A-2. In the model without control variables, there is no

48
significant impact shown for institutional setting on the changes in homeownership rates for
the non-Black observations (with a p-value of 0.93). This result supports the common trend
assumption. Specifically, the results in Table A-2 supports that non-Black people, on average, do
not reap benefits from judicial-institutional settings. When adding the control variables, the DID
indicator again does not reach statistical significance (p-value of 0.38), further providing
support for the common trend assumption.
Table 3 shows the results of models that attempt to reveal how the party control of
judicial districts in the state of New York can create a penalty on Black homeownership. Table 3
looks at changes in homeownership rates each year, over the entire period between 2010 and
2017. Each of the models in this table use OLS regression to determine if there is a penalty on
Black homeownership across the state of New York in the various political settings. New York is
a state that requires judicial foreclosures in all thirteen of its judicial districts. Of its thirteen
judicial districts, eight of the are Democrat, 4 are republican, and one is mixed. The big
takeaway from the results shown in table 5 is the significance of the variable titled “Black in
Republican Judicial District.” This result suggests that, between 2010 and 2017, Black
households experienced a yearly homeownership penalty on homeownership between 1.3%
and 1.8%. This result equates to Black groups having experienced declines, in Republican
judicial districts, between 70% to 140% greater than Whites, Hispanics, and Asians over the
same time period.

49
Table 1A: Yearly Penalty of Political-Institutional Setting on Black Homeownership in the U. S.

Black Penalty by Environment

%∆ in Black Homeownership Level

(1) (2)
Black in Democrat Judicial State -0.293 -0.302

(0.444) (0.426)
Black in Democrat Non-Judicial State -1.122
*
-1.284
*

(0.553) (0.525)
Black in Republican Judicial State -1.187
*
-1.129
*

(0.461) (0.454)
Black in Republican Non-Judicial State -1.395
***
-1.405
***

(0.410) (0.401)
Black in Mixed Judicial State -1.680
*
-1.624
*

(0.704) (0.682)
Black in Mixed Non-Judicial State -1.028
*
-0.951
*

(0.461) (0.454)
Recourse Allowed in State 0.082

(0.282)

State Median Housing Value in 2017 -0.00000

(0.00000)

%∆ in State Median Housing Value (2010-2017) 2.198

(1.897)

State Median Rent Price in 2017 0.001

(0.002)

%∆ in State Median Rent Price (2010-2017) -1.141

(5.877)

2012 -0.118 -0.156

(0.387) (0.357)
2013 0.318 0.241

(0.449) (0.356)
2014 0.123 0.041

(0.512) (0.357)
2015 0.835 0.778
*

(0.524) (0.351)
2016 0.585 0.583

(0.583) (0.355)
2017 1.769
**
1.845
***

(0.675) (0.355)
Constant -1.514 -0.856
***

(0.904) (0.259)
Observations 1,064 1,064
R
2
0.070 0.066
Note:
*
p <. 05
**
p <. 01
***
p < 0.001

50
Table 1B: 8-Year Penalty of Political-Institutional Setting on Black Homeownership in the U. S.

Black Penalty by Environment

%∆ in Homeownership Level

(1) (2)
Black in Democrat Judicial State -2.399 -2.108

(1.798) (1.730)
Black in Democrat Non-Judicial State -8.596
***
-8.585
***

(2.269) (2.162)
Black in Republican Judicial State -7.600
***
-7.517
***

(1.854) (1.842)
Black in Republican Non-Judicial State -9.476
***
-9.634
***

(1.661) (1.638)
Black in Mixed Judicial State -10.252
***
-10.912
***

(2.836) (2.768)
Black in Mixed Non-Judicial State -6.666
**
-6.445
***

(2.009) (1.842)
Recourse Allowed in State 1.926

(1.130)

State Median Housing Value in 2017 0.00001

(0.00002)

%∆ in State Median Housing Value (2010-2017) 10.128

(7.676)

State Median Rent Price in 2017 0.001

(0.007)

%∆ in State Median Rent Price (2010-2017) -2.698

(17.460)

%∆ in Group Unemployment 0.163

(0.875)

Constant -6.619 -2.755
***

(3.643) (0.438)
Observations 156 156
R
2
0.386 0.349
Note:
*
p < 0.05
**
p < 0.01
***
p < 0.001

51

Table 2: DID Penalty of Institutional Setting on Black Homeownership in the United States

Black Penalty by Environment

%∆ in Black Homeownership Level

(1) (2)
Democrat Judicial State 1.377 0.671

(1.184) (1.333)
2017 Period Binary -8.652
***
-11.233
***

(0.758) (1.871)
DID Interaction Term 4.906
**
5.819
**

(1.674) (1.735)
Recourse Allowed in State

1.046

(1.014)
State Median Housing Value in 2017

-0.00001

(0.00001)
%∆ in State Median Housing Value (2010-2017)

12.886

(8.418)
State Median Rent Price in 2017

0.009

(0.006)
%∆ in State Median Rent Price (2010-2017)

9.815

(19.101)
Constant -2.490
***
-8.260
**

(0.536) (2.881)
Observations 78 78
R
2
0.680 0.730
Note:
*
p < 0.05,
**
p < 0.01,
***
p < 0.001

52
Table 3: Penalty of Political-Institutional Setting on Black Homeownership in the New York

Black Penalty by Environment

%∆ in Homeownership Level Per
Year

(1) (2)
Black in Republican Judicial District -1.340
*
-1.716
**

(0.595) (0.578)
Black in Democrat Judicial District -0.387 -0.149

(0.436) (0.427)
Black in Mixed Judicial District -0.485 -0.883

(1.120) (1.115)
District Median Housing Value in 2017 (000s) 0.002
*

(0.001)

2012 0.751 0.751

(0.568) (0.571)
2013 0.701 0.701

(0.568) (0.571)
2014 0.837 0.837

(0.568) (0.571)
2015 1.614
**
1.614
**

(0.568) (0.571)
2016 2.023
***
2.023
***

(0.568) (0.571)
2017 2.929
***
2.929
***

(0.568) (0.571)
Constant -1.857
***
-1.240
**

(0.483) (0.414)
Observations 364 364
R
2
0.127 0.113
Note:
*
p < .05,
**
p < .01,
***
p < 0.001

53

Discussion

The results above make clear that Black households have experienced a penalty on Black
homeownership between 2010 and 2017. If the level of homeownership on White households
went down by 3%, an equal America would also see Black homeownership decline by 3%.
However, and aligned with the above results, Appendix Table A-3 reveals that America has an
extremely significant penalty on Black homeownership, such that if the combination of White,
Hispanic, and Asian homeownership decreased by 3%, Black homeownership would decrease by
10%. This is deeply problematic, as it showcases a clear path to the burgeoning wealth
inequality between Black families and the rest of America. Of further concern is how the
penalty on Black homeownership changes across states based on the political party in power
and the laws on foreclosures. The statistics suggest that Black families fare worse in states
under Republican control than in states under Democrat control. Mixing this result with a
qualitative textual analysis of foreclosure laws, this research reveals that a penalty on Black
homeownership is least likely to occur in Democratic states that require lenders to go through
the courts to foreclose on a home. The implication is that Black families will fare better in such
states over time. Thus, all of the afore mention hypothesis are supported by these results.
Many of America’s anti-discrimination laws are designed to combat intentional
discrimination. The theoretical argument of pernicious racism argues that many institutions
have adjusted to these laws, and now employ racially discriminatory practices under the radar.
Why is it that Black families fared so much better in Democrat states that have judicial
foreclosure laws? As I stated earlier in the theory section of this paper, the mass majority of

54
state judges are elected or appointed with respect to their party affiliation. As such, if lenders
are foreclosing on homes in a given state that requires an in-court process, the political
ideology of the judge matters. Scholars have confirmed that “when the law is very clear on how
judges should decide, judges do in fact follow the law and not their political ideologies.”
However, when the law provides room for judicial discretion (such as in state foreclosure laws),
judges vote in accordance with their political ideology (Oliver 2009; Sunstein et al. 2006). As
such, where there is room for discretion, liberal judges decide on their cases with a sharper eye
out for pernicious racism than conservative judges.
The use of political ideology in judicial decision making explains, to some degree, why
both California and New York are very Liberal states, yet experienced significantly different
penalties on Black Homeownership between 2010 and 2017. While they have similar Black
populations, similar levels of diversity, and similar Democratic control of their states, they differ
on judicial foreclosure laws. In California, the lenders have an out-of-court process for
foreclosing on homes, while New York requires lenders to go through the courts. Black
households in California thus saw a penalty on Black homeownership of 8% (Asian, White, and
Hispanic homeownership levels declined by 5%, while Black homeownership levels declined by
13%). In New York, there was no state-wide penalty on Black homeownership (Asian, White,
and Hispanic homeownership levels declined by 1.9%, while Black homeownership levels
declined by 1.7%). Furthermore, this also explains why there is still a stark penalty on Black
homeownership in conservative states that require judicial laws. For example, Indiana, which is
a Republican state, requires a court process for foreclosures. However, the penalty on Black
homeownership persists in such an environment (Asian, White, and Hispanic homeownership

55
levels declined by 3%, while Black homeownership levels declined by 12%). Thus, this research
supports arguments that suggest that the election or appointment of liberal-leaning judges acts
as a barrier to the attacks of pernicious racism on the Black political economy. Figure 1 below
showcases this result by revealing that Black families fare 6.3 percentage points better in
Democratic states that require judicial foreclosures, versus how Black families fare in all other
states (the accompanying regression table can be found in Appendix Table A-5). These results
shine a spotlight on the ways discrimination can persist in the civil courts. Discrimination in the
civil courts tend to be overshadowed by the well-known and abusive discrimination within the
criminal courts (Alexander 2012). However, it is the opportunity structure for institutional
racism in civil courts that help sustain the penalty on Black homeownership.

Figure 3: This coefficient plot represents an analysis of Black populations (ONLY) across 39
states, and shows that Black populations in Democratic States that require judicial foreclosures
fared 6.3 percentage points better than Black populations in other states. All coefficients shown
at the 95% level.

56

Addressing Alternative Explanations
A significant degree of Black migration from Democratic states to Republican states
could potentially explain changing levels of homeownership. However, over the time period
between 2010 and 2017, the share of the Black population in Republican-controlled, Democrat-
controlled states, and mixed-party states remained stagnant. Republican states continue to
hold about 50% of the Black population, while Democratic states hold 30% and Mixed states
hold 20%. Thus, Black migration cannot explain the changing Black homeownership levels
across partisan states.

Intuitively, one might expect an easier path to homeownership in states where the
median housing values are the lowest in the country. States controlled by the Republican party
have historically had lower median housing costs than states controlled by the Democratic
party. With lower barriers to homeownership, one would expect declines in homeownership to
be less severe in Republican states. However, a comparison between Republican-controlled
states and Democrat-controlled states does not reveal a significant difference in changing
homeownership levels. Also, as it pertains specifically to the Black populations in each state,
the disenfranchisement of the Black American population has historically been more prevalent
in states controlled by the Republican Party than in states controlled by the Democratic party. I
postulate that the disenfranchisement of Black Americans persists (Kendi 2016), and will be
showcased in an analysis of changing homeownership levels. Nevertheless, I include median
housing values as a control. Neither a significant correlation or causal relationship was

57
determined in any model. I also controlled for the percentage change in median housing values
between 2010 and 2017. Again, there was no significant correlation or causal relationship.
There is significant scholarship that discusses the continuing preference for homeownership
by American citizens. When compared with other forms of investment (stocks, bonds,
retirement), most Americans, with the exception of top earners, choose to invest in buying a
home. Furthermore, the preference for homeownership has not faltered since the housing
crisis that lead to the Great Recession in 2007 to 2009. Americans’ sustained belief in the high
value of owning a home show that declines in American homeownership rates are not caused
by changing ideologies of American citizens (“The State Of The Nation’s Housing 2016” 2016;
Dickerson 2014).

Future Research
Further research can be executed to gain leverage on the link between partisanship and
changing levels of homeownership. An alternative research design could be that of a natural
experiment that analyzes cities that happen to be situated on both sides of a state borders.
However, history has not been kind to Black people, and the only way for an experiment like
this to work is if the dispersion of Black people across the state border is actually randomly
assigned. Recent historical analysis show that such a research design may be impossible, due to
the fact that, often times, racist environments and discriminatory laws have pushed Black folks
to concentrate in communities together (Rothstein 2017). Further, de facto segregation has
also been a coercive force as to where people moved to raise families and live their lives based
on race. As such, if this method of further research is engaged, there must be a strong

58
qualitative aspect that explains that the dispersion of peoples on either side of the state border
is random and not a result of coercion.
As an example, I raise Camden-Philadelphia, a border city that would not meet the
qualifications for a natural experiment. Camden’s high Black population is not due to natural
dispersion, but due to a history of slavery and racial steering. Further, Camden’s large Black
population and history of slavery are directly related to its proximity to Philadelphia. According
to the Camden County Historical Society, lower tariffs in Camden encouraged slave ships to
stop in Camden instead of Philadelphia, and New Jersey was the last northern state to free all
of their slaves. Afterword, the historical legacy of slavery turned Camden into a Black County
where Black people were able to gather to escape higher levels of oppression elsewhere.
Qualitative analysis of this border city presents strong evidence that the concentration of Blacks
on either side of this border is not random. If this future research design is pursued, qualitative
analysis must be performed for each of these city-duos to determine if the populations across
borders meet the criteria of a natural experiment.

Conclusion

Across the nation, Republicans are attempting to shift the perennial Black support away
from the Democratic party, while the Democrats are vying for the status quo. The Republican
message to the Black community is, “what do you have to lose?” implying that Democrats have
not done enough to keep the support of the Black community. Furthermore, Republican
politicians continue to push the narrative that Black families will become wealthier if the Black
community gives its support over to the Republicans (Ellis and Subramanian 2019). This

59
research provides a political and institutional analysis to reveal economic implications of the
Black community voting for one party over the other. Through an analysis of Black
homeownership between 2010 and 2017, this research shows that there is a penalty on Black
homeownership across the United States. Digging deeper, this research also shows that the
magnitude of that penalty varies across states with respect to party control. Partisan Judiciaries
are important as institutions for improving or making worse wealth among Black Americans.
Finally, the New York state analysis of judicial districts adds credence to the notion that state
judiciaries are institutions capable of blocking discriminatory practices, although their
engagement of anti-equity agendas is dependent on the judges themselves.
Pernicious racism continues to be a defining feature of institutions in the United States.
From Wells Fargo calling Black people “mud people,” to Hudson Savings Bank executing
redlining strategies against minorities, intentional racism continues to be prevalent, although
more and more difficult to perceive. Legislators and judges are elected or appointed to protect
American citizens from such discrimination. However, this research shows that partisan
ideology is a factor in how well Black Americans are protected from institutional racism. While
there is a penalty on Black homeownership across America, the penalty in Republican states is
almost double the penalty in Democrat states. For example, if a state experienced an overall
decline in homeownership of 2.5%, this paper shows that level of Black homeownership would
decline by around 7% if the state was a Democratic state and 11% if the state was a Republican
state. While there is a substantial penalty on Black homeownership in both Democratic and
Republican states, why is the penalty so much worse in Republican states?

60
To gain insight into the varying degree of the penalty on Black homeownership across
partisan states, this paper leveraged the work of foreclosure scholars and analyzed state
foreclosure laws. States vary on whether or not a lender must go through the courts to
foreclose on a home. In states that do not require lenders to go through the courts to foreclose
a on a home, there is an out-of-court process available. It is easier and more cost-efficient for
lenders to go through an out-of-court process than a judicial process. This paper finds that
changes in the level of Black homeownership are least likely to be penalized in Democratic
states that require lenders to go through the courts to foreclose on a home. However, in
Democrat states where lenders do not have to go through the courts to foreclose on a home,
the penalty on Black homeownership is severe and in-line with Republican states. The
observational evidence presented in this paper is consistent with my theoretical argument that
Black homeownership levels are more resistant to pernicious racism in Democratic states
where the theatre of foreclosure battles is the state judiciary.

61
Chapter 3: From COVID-19 To Increasing Wealth Inequality: The Impact of the Federal Reserve
on the Black Political Economy During the COVID-19 Pandemic

Introduction

The wealth impacts of COVID-19 on Black political economy will be severe as the loss of
employment income is coupled with the severe overburdening of state programs designed to
help those in need. However, the national response to COVID-19 will also exacerbate the levels
of racial wealth inequality in America. While Congressional gridlock carried on throughout much
of 2020, the Black community suffered as access to employment opportunities dwindled, and
Black people were disproportionately exposed to COVID-19. However, the Black communities
across America were also exposed to a more pernicious program that will likely lead to lasting
exacerbation of racial wealth inequality in America, not only during the COVID financial crisis,
but in future crises as well. In response to the pandemic’s economically depressive effects, the
U.S. Federal Reserve engaged in quantitative easing (QE), a Great Recession era monetary
policy program that the Federal Reserve has revamped to help stabilize America’s shaky
economy. Specifically, this crises-level monetary policy strategy is intended to aid households
by lowering the cost for commercial banks to lend money, and thus promote household-level
extensions of credit.
Beyond the revival of the Great Recession era QE policy, the 116
th
Congress and
President Trump put forth $75 billion in equity to aid the Federal Reserve in creating a new
quantitative easing program that was capable of purchasing up to $750 billion in corporate
bonds. This is unprecedented, as the Federal Reserve usually deals exclusively with assets that

62
are issued or backed by the US government. The bonds purchased through this nuanced QE
program are almost exclusively purchased from relatively large and well-established companies,
and the Federal Reserve’s purchases would increase asset prices across America, boosting the
wealth and opportunities for America’s asset-holding class. Although the execution authority
for this new program was provided to the Federal Reserve, the program itself falls under the
umbrella of fiscal policy because an Act of Congress and a federal budget were required to
provide the Federal Reserve with the authority to purchase these assets (Tcherneva 2011).
While QE programs significantly helped the national economy weather the Great Recession
through the promotion of credit lending, if the aid to households was not equitably received,
wealth inequality could be exacerbated. Put another way, if one or several groups receive
disproportionately less aid in an economic crisis, significant wealth disparities could be created
between groups. The results of this article suggest that, if the Federal Reserve’s unprecedented
quantitative easing programs have lasting impacts similar to the past quantitative easing
programs following the Great Recession, Black people will be disproportionately left behind, as
inadequate federal oversight inadvertently promotes racially disparate extensions of credit.
This article proceeds as follows. The first section provides an overview of how quantitative
easing was implemented in the past, as well as a theoretical framework that outlines the
expected impacts of quantitative easing. The second section leverages two empirical analyses
to provide evidence that the Federal Reserve’s bond buying program after the Great Recession
disproportionately failed to deliver economic aid to Black communities. The third section
provides an examination of the Community Reinvestment Act and its systemically inadequate
oversight provisions. The fourth section reviews how the Federal Reserve and the US Congress

63
have coordinated to create a new version of quantitative easing to address the economic issues
resulting from COVID-19. The fifth section ties the lessons learned from past implementation of
quantitative easing with the expectations of the current version, highlighting how racial wealth
inequality will be exacerbated. The sixth section concludes the paper and provides alternative
ways forward that would better serve Black communities instead of leaving them behind.

Quantitative Easing

The United States Federal Reserve is the central bank of the United States and is
charged with a dual mandate of maximum employment and price stability.
1
One of the tools
the Federal Reserve uses to achieve this dual mandate is called, open market operations
(OMOs). With OMOs the Federal Reserve attempts to control the federal funds rate, which is
the rate at which commercial banks in the United States loan their excess reserves to each
other overnight.
2
The higher the demand for money, the higher the federal funds rate will be.
Other interest rates throughout the economy are influenced by the federal funds rate, such
that a declining federal funds rate will encourage easier access to credit for individuals and
business entities across the country, spurring economic growth (C. D. Romer and Romer 2013).
When the United States economy enters into a contractionary period, the Federal Reserve
might, for example, engage in OMOs that lower the federal funds rate in order to stimulate

1
The dual mandate was established by the Federal Reserve Reform Act of 1977
2
The Federal Reserve Board of Governors sets reserve requirements for depository institutions (banks
and credit unions) in the United States. A depository institution must hold a certain percentage of its
customers' deposits in reserve and may not lend out all of the remaining funds. These institutions will
borrow from each other at the federal funds rate to ensure they meet the reserve requirements.

64
economic growth (Joyce et al. 2012). In OMOs that intend to lower the federal funds rate, the
Federal Reserve purchases short-term treasury bills from commercial banks and increases the
commercial bank’s reserve accounts. The increase of money in commercial reserves increases
the supply of money in the economy and decreases the demand for overnight lending between
commercial banks, which puts downward pressure on the federal funds rate. As the Federal
Reserve engages in more open market operations, the federal funds rate is pushed toward zero
percent. In the United States, the federal funds rate is targeted and determined by the Federal
Open Market Committee (FOMC), which is comprise of twelve leaders of the US Federal
Reserve, including the six members of the Board of Governors and the five of the twelve
presidents of the US Federal Reserve banks.
The primary purpose of quantitative easing is to further stimulate the national economy
after ordinary open market operations has run against the zero bound. That is, once the federal
funds rate has descended to zero percent, OMOs will cease to be effective, and the Federal
Reserve will engage in alternative strategies to stimulate the economy (Bernanke 2018). Under
a quantitative easing program, the federal reserve does not purchase short-term treasuries.
Instead, the Federal Reserve purchases assets with longer maturities (“Unwinding Quantitative
Easing: How the Fed Should Promote Stable Prices, Economic Growth, and Job Creation” 2014;
Gagnon and Holscher 2008). According to section 14 of the Federal Reserve Act, to promote
financial stability, the Federal Reserve is able to purchase and sell “any obligation which is a
direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United
States.” This grant of purchasing power is how the Federal Reserve was able to engage in
quantitative easing during and post the Great Recession by purchasing long-term US Treasuries

65
and mortgage backed securities guaranteed by government-sponsored enterprises such as
Freddie Mac, Ginnie Mae, and Fannie Mae (Ronkainen and Sorsa 2018; Bernanke 2012; Glass
1913). From guidance issued by the Federal Reserve in 2008, the use of quantitative easing is
described as one of its “Nonstandard Central Bank Policy Tools” (Gagnon and Holscher 2008).
Similarly, Benjamin Bernanke, the Chairman of the Federal Reserve during the adoption of the
Federal Reserve’s first quantitative easing programs, stated the following in an interview about
quantitative easing: “I want to be clear. This is not a routine tool and not one that's going to be
used routinely every time the economy slows down. But if we did have a serious recession
which drove short-term interest rates to zero, then the Fed would certainly look at that”
(Bernanke 2018).

Figure 4: This plot shows the 30-year fixed mortgage rates and the federal funds rates between
2006 and 2022. The gray vertical lines represent the dates that the US Federal Reserve BEGAN a

66
series of large-scale asset purchases, known as quantitative easing (QE). As outlined in the text
below, Quantitative Easing rounds started on these dates and continued for several quarters
each. QE 1 began in November of 2008, QE 2 began in November of 2010, QE 3 began in
September of 2012, and QE COVID began in March of 2020.
The first rounds of quantitative easing instituted by the Federal Reserve were meant to
address the failing economy in the immediate aftermath of the housing market crash that set
the stage for the Great Recession. Specifically, the Federal Reserve had already reached the
zero bound for the federal funds rate, and the economy was still on very shaky ground. With no
power to be gained from additional OMO actions, new and unconventional monetary policy
was needed to prevent the economy from sinking into a depression (Bernanke 2018). The first
round (QE1) took place between 2008 and 2010. The second round (QE2) lasted between 2010
and 2012. Finally, the third round (QE3) lasted from 2012 to 2014, at which point the Federal
Reserve had amassed about $4.5 trillion in assets
3
, and its quantitative easing program ended.
Previous analyses suggests that this first round of quantitative easing did little to address the
sluggish and weak recovery, even though it may have limited the depth of the recession (Joyce
et al. 2012). The later rounds of Quantitative Easing had a largely positive and lasting impact on
stock prices. This is, at least in part, due to the fact that corporations leveraged low interest
rates to perform stock buybacks, thus boosting their stock prices and increasing the wealth of
America’s asset-holding classes (Al-Jassar and Moosa 2019). This paper has a sharper focus on
the impacts of quantitative easing on the housing market.

3
The assets specific to Quantitative Easing programs included U.S. Treasury securities, mortgage-backed securities
backed by Fannie Mae, Freddie Mac, and Ginnie Mae, and direct obligations of housing-related government
sponsored enterprises (GSEs) Fannie Mae, Freddie Mac, and the Federal Home Loan Banks ((Federal Reserve Bank
of New York 2022).

67
The United States housing market was a particular target for the Federal Reserve’s
quantitative easing programs. The US housing market is very integral to the rest of the US
economy, and the uptake of risky lending in the housing market, which was supported by the
secondary mortgage market, was the primary catalyst for the Great Recession (Reisenbichler
2020; Schwartz 2020). Because of the positioning of housing within the United States economy,
the Federal Reserve decided that its quantitative easing program would purchase assets in the
housing market to further stimulate economic growth (Gagnon and Holscher 2008;
Reisenbichler 2020). Engaging in large scale asset purchases in the United States housing
market was not a monetary policy requirement, but was a monetary policy strategy
(Reisenbichler 2020). Several officials of the Federal Reserve acknowledged that quantitative
easing programs were targeting the housing sector in particular, they acknowledged that there
would be disparate impacts in favor of the United States housing sector, and they claimed that
the benefits to the overall economy would be worth the cost of propping up a particular sector
(Bernanke 2010; Gagnon and Holscher 2008). As a result, the Federal Reserve would purchase
approximately $1.7 trillion worth of mortgage-backed securities as a part of its quantitative
easing programs between 2008 and 2014. As further evidence that targeting the Housing
market was a monetary policy strategy instead of a monetary policy requirement, we can look
to Europe, where the housing sector is not similarly situated in the broader economy. In
response to the Great Recession, the European Central Bank expanded its balance sheet ($4.7
trillion) to similar levels as the US Federal Reserve ($4.1 trillion), but the amount of mortgage
assets held by the European Central Bank was only 6% of its total balance sheet compared to
41% of the Federal Reserve’s (Reisenbichler 2020).

68
In addressing the Board of Governors at the Federal Reserve, then Chairman, Ben
Bernanke, highlighted his belief that quantitative easing would lower mortgage rates on homes
and increase the wealth of consumers. Bernanke further explained that lowering mortgage
rates and increasing wealth would spur economic activity and allow for homeownership to be
maintained and even boosted (Ronkainen and Sorsa 2018; Bernanke 2012; 2010). While
quantitative easing did increase lending and in mortgage markets at the aggregate level, the
quantitative easing programs are also correlated with exacerbated wealth inequality between
Black and White families (Wolff 2021; Smith 2017). Between 2010 and 2016 wealth inequality
grew more severe. The median Black family in America went from owning $17,575 in wealth, to
owning $17,409 in wealth, while the median White family in America went from owning
$143,416 in wealth, to owning $171,000 in wealth (Smith 2017). In comparison the median
Black family went from owning 12% of the wealth that the median White family owned, to
owning only 10% over the span of 7 years.

How should Quantitative Easing Impact the Black Wealth Accumulation?
Throughout America’s history, and especially before the 1970s, financial institutions
have been major contributors to the burgeoning of racial wealth inequality. This inequality has
historically been the result of systemic racism, and the promulgation of the untrue notion that
Black people are inherently less credit worthy. This belief system led directly to a legacy of
denying credit to Black communities and to Black people who would otherwise be extended
credit, if not for the higher concentrations of melanin in their skin (Rothstein 2017). This racist
disinvestment in Black neighborhoods and Black people created depressive wealth effects,

69
including limiting the development of businesses in Black neighborhoods that would employ a
Black labor force, limiting the growth of Black-owned businesses, and limiting the growth of
Black homeownership. These discriminatory lending practices directly contributed to the
growth of the racial wealth divide in America, and they were raised to the national spotlight by
various advocacy groups. Because of this national awareness, American legislators drafted and
adopted laws that were designed to combat lending discrimination, such as the Equal Credit
Opportunity Act (ECOA) of 1974, the Home Mortgage Disclosure Act (HMDA) of 1975, and the
Community Reinvestment Act (CRA) of 1977. These laws were passed by legislators under the
impression that, if provided the required enforcement mechanisms, new institutions could be
created to rectify past systemic grievances. These institutions, combined with the plethora of
anti-discrimination laws that were passed during and post the Civil Rights Era, contribute to the
belief held by many Americans that America is in a post-racial era. However, if America had
actually achieved a post-racial era, whereby racial disparities in extensions of credit were
minimized or nonexistent, then one would be able to assume that the impacts of a central bank
generating greater liquidity in national markets through quantitative easing programs would
benefit all races proportionately.
Unfortunately, America has not achieved a post-racial era, and racial disparities in the
credit markets contribute to the maintenance of wealth inequality. As of the time of writing,
racial disparities in lending have become less severe, but the penalties of being Black are still
prevalent and significant in magnitude. Studies have shown that, Black families have a higher
savings rate than White families after controlling for income, and Black families with positive
net worth experience no significant difference in the appreciation rates for their assets than

70
White families (Hamilton and Darity Jr. 2009). Still, wealth inequality has been exacerbated year
after year, and the primary suspects (and often times, verified culprits) are financial institutions
that engage in racially disparate extensions of credit. For example, studies of the impacts of the
Great Recession have revealed that high-income Black families were more likely to receive sub-
prime mortgages than moderate-to-low-income White families (Faber 2019). Moreover, the
largest redlining settlement in American history was resolved within the last decade by the
Consumer Financial Protection Bureau (CFPB), providing further evidence of continued racial
disparities in the extensions of credit by financial institutions (Ficklin 2019; Cecchi 2015). The
CFPB was created in the aftermath of the Great Recession to protect consumers from the
financial marketplace.
Although America has yet to achieve post-racial credit markets, America does have the
CRA, the ECOA, the CFPB, and other Federal regulators. As such, one could arguably assume
that racial disparities in lending, at least when they occur, would be exposed, eliminated, and
rectified. Thus, when an entity such as the Federal Reserve Board, which is also a national
regulator of lending practices, decides to combat negative financial shocks to the American
Economy by engaging in large-scale asset purchasing programs, one could, again, arguably
presume that the concomitant spur in lending activity would not be racially disparate.
Theoretically the liquidity provided through quantitative easing programs should help
businesses retain the labor force through extensions of credit for employee retention without
regard to race. Further, quantitative easing should help homeowners by lowering interest rates
on refinancing and encouraging new purchases. Therefore, an outside observer might be
surprised to find that liquidity increasing programs, such as quantitative easing, would

71
ultimately result in differential aid provided to communities on the basis of race. The underlying
concern, therefore, is that the oversight provided by federal regulators does not adequately
serve the wealth interests of Black people. Strengthening this oversight of financial institutions
by federal regulators may be beneficial, so that the effects of quantitative easing will be
equitably distributed by race as mandated by federal regulations. Because the Federal Reserve
engaged a $1.7 trillion program to enter into the United States housing market, there is an
elevated importance of ensuring that mortgage lending is void of racial inequity.

Quantitative Analysis: Aid From Quantitative Easing Was Not Proportionately Distributed to
Black Communities

Bernanke’s prediction related to the impact of quantitative easing was that “lower
mortgage rates will make housing more affordable and allow more homeowners to refinance.”
However, aligned with the unequal wealth effects, homeownership amongst Black Americans
did not recover across the US, but in fact, declined (Dickerson 2014). Furthermore, the decline
in Black homeownership in spite of Quantitative Easing was significantly worse than declines for
White, Hispanic, and Asian Americans (Bhutta et al. 2020).

Empirical Test of Disparate Lending
Data. This first analysis leverages data on loan applications between 2007 and 2017 that
were provided in compliance with the Home Mortgage Disclosure Act (HMDA). The data include
over 187 million observations of loan applications during this time span and are provided by the
Consumer Financial Protection Bureau. All 187 million observations are not analyzed because

72
this paper is primarily focused on the extensions of credit for families, as well as an analysis of
the differential impact of being a Black loan applicant. As such, the data used here are filtered
in several ways. First, the data is filtered to only include applications that were not withdrawn
by the applicant or applications that had the file closed for incompleteness. This allowed the
analysis to only review applicants that actually completed loan applications. Further, the data is
also filtered to only first lien applications on 1-4 family homes, which allowed the analysis to
focus on homebuyers applying for initial mortgages to purchase single-family homes (as
opposed to multi-family homes). The data was further filtered to bring focus to the disparate
impact of loan applications on varying demographics. The data is filtered to the 39 states that
have at least 10,000 Black families (as outlined by the American Community Survey). Finally, the
data is filtered to analyze Black, White, Asian, and Hispanic loan applicants. Together, these
filters result in an analysis of approximately 89 million loan applications between 2007 and
2017. Table 2 shows the results of an analysis on all 89 million applications, to include loans
that have the primary purpose of “Home Purchase,” “Refinance,” or “Home Improvement.”
Table 1 provides the results of an analysis on approximately 35 million applications that are
comprised of only loan applications for home purchases.
Methodology. This analysis leveraged the filtered HMDA data (as outline above) to create a
binary variable that took on a value of 1 if the loan application was denied, and 0 if otherwise.
Tables 1 and 2 show the results of a linear regression analysis that produced a linear probability
model of application denial, determinant on being a Black Hispanic, or Asian applicant. The
model controls for relevant information that helps lenders determine individual credit
worthiness, including applicant income, the loan amount requested in the application. For

73
these first analyses, I do not use other elements of individual credit history, specifically because
the Consumer Financial Protection Bureau was yet to require lower-level credit history from
lending institutions. This changed in 2018, and allowed for a great deal of lower-level credit
information about individual applicants. These lower-level credit characteristics are included in
the 2019-2021 analysis that is provided in section 4. Further, because there has been a history
of discrimination in the mortgage markets that has restricted many people of color to
underinvested neighborhoods, many current neighborhoods with high minority populations
have less wealth and equity in their homes (Anderson 2020). Because these minority
neighborhoods were made economically vulnerable due to underinvestment, lenders before
the Great Recession often provided applicants in these areas with higher concentrations of
high-cost mortgage products (Phillips 2010; Reuben 2010). With the clamp down on
discriminatory lending following the Great Recession, minority neighborhoods may have
become undesirable places to lend for lack of the profit incentives associated with high-cost
mortgage products. As such, one of the controls used in this analysis is the minority population
of the loan applicant’s census tract. Finally, recognizing that various state cultures and
economic infrastructures might have resulted in varying economic trends, the analysis
controlled for state fixed effects for each of the 39 states in the population.
Results. The immediate, and most obvious result from Table 1 is that there is a very large
penalty on Black extensions of credit that has persisted between 2007 and 2017. Being a Black
loan applicant increases one’s probability of being denied a mortgage loan. This persistent
penalty on Black extensions of credit exists even after controlling for income, the requested
loan amount, the minority population of the census tract, and state-level fixed effects. A less

74
obvious, but very important result is the impact of minority populations on the denial of loan
applications. Through the minority population variable, Table 1 is able to show both an
individual and a contextual effect. The coefficients on the minority population variable imply
that 10% increases in the minority population of a census tract result in significant increases in
denial rates for those census tracts. From 2007- 2011, every 10% increase in the minority
population of a census tract increased loan denials by approximately 1 percentage point. From
2015-2017, the impact of increases in minority populations declined, such that a 50% increase
in the minority population of a census tract increased loan denials by 1 percentage point. This
finding exacerbates the penalty of being a Black applicant because segregation is still a defining
feature in American neighborhoods (Faber 2019). Essentially, there is a penalty of being Black
that is combined with a penalty for living amongst Black people.
To provide context to the results in Table 1, the table also includes the actual denial rate for
White applicants seeking home mortgages in each year. By including the denial rates of White
applicants across the US for each year, the magnitude of the penalty on Black applicants
becomes clearer. For example, in 2017 the denial penalty on Black applicants was 7.2%, while
the denial rate for White applicants was 8.5%. This shows the penalty on Black applicants to be
about 85% of the White denial rate. When including the impacts of being from a minority
neighborhood, this finding is aligned with a similar study published by the Consumer Finance
Protection Bureau in 2020, where they found the 2017 Black denial rate for loans for home
purchases to be 110% greater than the White denial rate, which was an increase from 92% in
2010 after the Great Recession. In 2017, the White denial rate was 8.8% while the Black denial
rate was 18.4% (Jo et al. 2020). Table 2 shows very similar results to Table 1, where there is a

75
stark penalty on Black applicants seeking loans. Because the analysis in Table 2 includes
refinance and home improvement loans, along with the home purchase loans analyzed in Table
1, there is an increase in the magnitude of the penalty on Black applicants. The results of Table
2 provide more evidence of racially disparate relief from quantitative easing.

76
Table 1: HMDA Penalty on Black Denial Rates 2007 – 2017 - Home Purchases

Black Penalty on Loan Denials

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Black 0.152
***
0.112
***
0.085
***
0.075
***
0.082
***
0.092
***
0.093
***
0.083
***
0.079
***
0.077
***
0.072
***

(0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
Hispanic 0.103
***
0.083
***
0.049
***
0.044
***
0.038
***
0.039
***
0.041
***
0.035
***
0.030
***
0.028
***
0.024
***

(0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
Asian 0.008
***
0.030
***
0.033
***
0.030
***
0.037
***
0.035
***
0.031
***
0.033
***
0.032
***
0.027
***
0.022
***

(0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
ln Income -0.021
***
-0.038
***
-0.036
***
-0.041
***
-0.041
***
-0.042
***
-0.048
***
-0.047
***
-0.044
***
-0.043
***
-0.041
***

(0.0003) (0.0004) (0.0004) (0.0004) (0.0004) (0.0004) (0.0004) (0.0004) (0.0003) (0.0003) (0.0003)
ln Loan
Amount
0.007
***
0.010
***
-0.010
***
-0.015
***
-0.015
***
-0.015
***
-0.011
***
-0.006
***
-0.007
***
-0.006
***
-0.003
***

(0.0004) (0.0004) (0.0004) (0.0005) (0.0004) (0.0004) (0.0004) (0.0004) (0.0004) (0.0003) (0.0003)
Min. Pop.
(%)
0.001
***
0.001
***
0.001
***
0.001
***
0.001
***
0.0005
***
0.0004
***
0.0003
***
0.0002
***
0.0002
***
0.0002
***

(0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001)
Observations 4,368,260 3,206,314 2,789,091 2,545,688 2,411,904 2,702,264 3,076,836 3,115,178 3,466,534 3,797,951
3,906,86
0
R
2
0.054 0.039 0.025 0.026 0.025 0.026 0.027 0.024 0.023 0.021 0.020
State Fixed
Effects
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
White Denial
Rate
0.133 0.138 0.124 0.126 0.123 0.120 0.117 0.105 0.096 0.091 0.085
Note: Standard errors in parenthesis. Estimates are from linear probability models. High significance on all coefficients is due to very
high number of observations in each year. Model controls for state fixed effects. Constant represents Alabama White applicants and
is omitted.
*p < 0.05, **p < 0.01, ***p<0.001

77

Table 2: HMDA Penalty on Black Denial Rates 2007- 2017- Home Purchases, Home Improvements, Refinances

Black Penalty on Loan Denials

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Black 0.163
***
0.175
***
0.144
***
0.117
***
0.114
***
0.112
***
0.109
***
0.125
***
0.127
***
0.125
***
0.105
***

(0.0005) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
Hispanic 0.097
***
0.110
***
0.080
***
0.051
***
0.044
***
0.051
***
0.049
***
0.041
***
0.036
***
0.024
***
0.026
***

(0.0005) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.0005)
Asian -0.013
***
-0.010
***
-0.001
*
-0.005
***
0.001 0.006
***
0.013
***
0.014
***
0.011
***
-0.001 0.009
***

(0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
ln Income -0.074
***
-0.094
***
-0.076
***
-0.078
***
-0.075
***
-0.061
***
-0.064
***
-0.070
***
-0.074
***
-0.097
***
-0.069
***

(0.0002) (0.0003) (0.0002) (0.0003) (0.0003) (0.0002) (0.0002) (0.0003) (0.0003) (0.0002) (0.0003)
ln Loan Amount 0.029
***
0.043
***
0.033
***
0.030
***
0.026
***
0.006
***
0.002
***
-0.005
***
-0.005
***
0.003
***
-0.009
***

(0.0002) (0.0003) (0.0003) (0.0003) (0.0003) (0.0002) (0.0002) (0.0003) (0.0003) (0.0003) (0.0003)
Min. Pop. (%) 0.001
***
0.001
***
0.001
***
0.001
***
0.001
***
0.001
***
0.001
***
0.001
***
0.0005
***
0.0004
***
0.0003
***

(0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001) (0.00001)
Observations 11,059,703 8,155,129 8,933,582 7,913,145 7,088,707 9,525,453 8,584,487 5,928,325 6,976,919 8,017,825 6,763,299
R
2
0.043 0.052 0.038 0.032 0.030 0.027 0.027 0.033 0.035 0.045 0.032
State Fixed
Effects
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
White Denial
Rate
0.257 0.258 0.192 0.187 0.191 0.170 0.175 0.185 0.173 0.191 0.14.9
Note: Standard errors in parenthesis. Estimates are from linear probability models. High significance on all coefficients is due to very high
number of observations in each year. Model controls for state fixed effects. Constant represents Alabama White applicants and is omitted.
*p < 0.05, **p < 0.01, ***p<0.001

As stated earlier, the federal reserve provided quantitative easing rounds from 2008 -2010
(QE1), from 2010-2012 (QE2), and from 2012-2014 (QE3). Arguably, the results of the large-
scale asset purchasing programs resulted in increased extensions of credit to applicants seeking
to purchase homes after the Great Recession. As shown in Table 1, after the drop in U.S. home
mortgage applications in the aftermath of the Great Recession, the quantity of U.S. home

78
mortgages rebounded to about 90% of its pre-Recession levels by 2017. Further, the U.S.
application denial rate of home mortgage applications declined steadily over time, implying a
greater willingness to lend by financial institutions. Unfortunately, that greater willingness to
lend did not extend proportionately to the Black community. Thus, while there is evidence that
adding liquidity to the market by QE did help the national economy, the impacts were
disparate. The penalty on Black applicants meant that, after the Great Recession, and
throughout the Federal Reserve’s QE programs, credit was not as readily extended to Black
communities. Denial rates experienced by Black applicants were often double those
experienced by Whites, and even as overall denial rates went down, Black denial rates
diminished at a much slower pace. This evidence supports the notion that these large-scale
asset purchase programs need more regulatory features to ensure the benefits of greater
liquidity are experienced proportionally across races.
In spite of the disparate wealth effects of quantitative easing, and as recent scholarship has
suggested, it appears that quantitative easing has been legitimized as a monetary policy tool
that the Federal Reserve will deploy from its arsenal (Ronkainen and Sorsa 2018). As we see in
the next sections, the conventional restrictions on the Federal Reserve’s deployment of
quantitative easing have waned as Congress and the President support the expansion of the
Federal Reserve’s quantitative easing powers. This is troubling, as it shows that lawmakers have
accepted the success of quantitative easing without consideration of the realized and unequal
wealth effects.

79
Federal Regulation Helps, But Is Inadequate

Implications of the Community Reinvestment Act
The Community Reinvestment Act (CRA) was passed in 1977, and was meant to ensure
that banks do not operate as systemic funnels that take funds from low-and-moderate income
(LMI) neighborhoods, and invest those funds in other areas. The passage of the CRA was a
direct response to pressure from advocacy groups that were raising issues of redlining, which
created many credit-deprived areas throughout the United States. Redlining was particularly
damaging to Black communities, as areas with relatively large concentrations of Black people
were baselessly deemed the highest credit risk, and those communities were denied extensions
of many forms of credit (Rothstein 2017). Because of the CRA, financial institutions are required
to “serve the convenience and needs of the communities in which they are chartered to do
business” (Reuss 1977). Based on past performance, financial institutions are evaluated for
their CRA compliance about every 3 years. Evaluators include the Federal Reserve Board (FRB)
Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency
(OCC). Financial institutions are evaluated by the federal regulators on lending, investment, and
service, with the mass majority of financial institutions receiving a passing score. Further,
financial institutions are incentivized to score well in these evaluations because when these
institutions seek to perform an activity that requires regulatory approval (such as acquiring
another institution), their evaluated record is factored into the decision of the federal
regulator.
Although providing credit to minorities was a goal of the legislators who crafted the
CRA, as it is currently written, the CRA does not specifically provide credit to financial

80
institutions for lending to minorities specifically. Understanding the political environment of the
time (there was a public opinion backlash to all of the civil rights gains made during the 1960s),
the legislators focused on geographical locations in the CRA as opposed to race, with the
understanding that this act would benefit minority communities that were being denied credit
by their local financial institutions (Immergluck 2004). This intentional omission of race is why
CRA evaluations are made with respect to LMIs. To test the efficacy of the CRA, several studies
have assessed the CRA’s impact on the extensions of credit to LMI and minority neighborhoods
since its adoption.
The primary focus of this paper is the accumulation of wealth, and one important finding in
past CRA research relative to building wealth is that 60% of loans made in LMI census tracts
aren’t actually reaching LMI borrowers (Goodman, Zhu, and Walsh 2020). While investing in
LMI tracts should most definitely provide CRA credit during evaluations, future changes in
regulatory oversight would benefit from providing more weight to investments in the LMI
borrowers, who arguably are most in need of extensions of credit. A second relevant analysis
shows that only 12% of loans that count toward a bank's CRA assessment (in dollar amount)
comes in the form of home lending to single families, even though the dollar amount of single-
family loans is 66% of overall loans provided. Put another way, the primary path in which
wealth is grown in America, homeownership, is a very low contributor to the assessment of a
bank's CRA compliance (Goodman, Zhu, and Walsh 2020). Finally, a third study shows that, for
small business loans specifically, a penalty on minority applicants is not perceived when the
minority is within a geographic area that is comprised of a majority-minority population.
However, when a minority applicant is not in a majority-minority area, their minority status is a

81
strong and negative predictor of loan approval. Together, these two findings provide evidence
that that the CRA has had a positive impact on minorities when it comes to small business
lending, but even in this space, a lot is left to be desired (Bates and Robb 2015). Ultimately, CRA
regulation is likely to have had a positive net effect on extending credit to Black communities.
Unfortunately, because the evaluations of CRA compliance do not specifically target racial
demographics or provide data on racial demographics in their evaluations, the impact of the
CRA on Black families is difficult to assess directly. The analysis in the previous section helps
provide insight into the persistent inequities present in extending credit to Black families by
analyzing data on single-family mortgages. Providing CRA credit for lending directly to Black
people would almost certainly encourage greater investment into Black communities, which
would help change the drastic penalties Black loan applicants face in the status quo.

Quantitative Easing During COVID-19 Will Increase Racial Wealth Inequality

As highlighted above, when the COVID-19 pandemic began to asphyxiate the world’s
economies, the US launched a large-scale quantitative easing program. Specifically, between
March 2020 and May 2022, the Federal Reserve increased its balance sheet by $4.8 Trillion
dollars, which was more than QE1, QE2, and QE 3 combined, and in less than half the time
frame (Labonte 2022). While Table 1 provides analysis on mortgages before and after
quantitative easing programs in response to the Great Recession, Table 3 provides the results of
a similar analysis on home mortgage applications before and during the COVID-19 pandemic.
Specifically, Table 3 reveals the results of a linear probability model run over 12.5 million home
mortgage applications between 2019, and 2021. The methodology leverages the same filters as

82
the previous analysis. However, because of a policy rule implemented in 2015, the CFPB began
to collect new credit-related data on mortgage applications (Cady and Jacobs 2018; Liu et al.
2019). This new public data was first available in 2019, which is the first year in this analysis. It
is important to note that, although the CFPB has collected actual credit scores with loan
applications, policy guidance issued in 2018 highlighted that the CFPB would not present data
on credit scores, specifically because it wanted to minimize the risk that an adversary would use
the data to find and harm individuals (Cady and Jacobs 2018). The CFBP did decide that it would
present many other credit data that lenders would use in deciding to accept or deny an
application. As such, this model leverages the most relevant public information on mortgage
applications across the United States between 2019 and 2021. Debt-to-income ratio, Loan-to-
value ratio, age of applicant, loan term, and the property value of the underlying property are
all added into the analysis shown in Table 3. All of these new data fields are relevant factors in
the decision of lenders to approve or deny home mortgages, (Liu et al. 2019). Further, the
inclusion of these newly available application features alleviates many of the concerns that
previous scholars have raised in using HMDA data from earlier periods to determine racial
discrimination (see (Black 1999) for an early review of these concerns and how they might be
addressed).

83
Table 3: HMDA Penalty of Black Denial Rates 2019 - 2021

Black Penalty on Loan Denials

Denial Penalty

2019 2020 2022
Black 0.054
***
0.050
***
0.044
***

(0.001) (0.001) (0.0005)
Hispanic 0.018
***
0.016
***
0.008
***

(0.0005) (0.0005) (0.0004)
Asian 0.027
***
0.027
***
0.019
***

(0.001) (0.001) (0.001)
ln Income -0.048
***
-0.010
***
-0.013
***

(0.0003) (0.0003) (0.0003)
ln Loan Amount 0.001 -0.032
***
-0.034
***

(0.0004) (0.0004) (0.0004)
Minority Population (%) 0.00003
***
0.00004
***
0.00002
***

(0.00001) (0.00001) (0.00001)
Debt-to-Income Ratio 0.005
***
0.008
***
0.007
***

(0.00002) (0.00003) (0.00003)
Loan-to-Value Ratio 0.001
***
0.001
***
0.001
***

(0.00001) (0.00001) (0.00001)
Age 0.008
***
0.005
***
0.005
***

(0.0001) (0.0001) (0.0001)
Loan Term -0.00003
***
-0.0003
***
-0.0002
***

(0.00000) (0.00000) (0.00000)
Property Value 0.000
***
0.000
***
0.00000
***

(0.000) (0.000) (0.000)
Observations 3,828,683 4,233,922 4,540,548
R
2
0.032 0.044 0.045
State Fixed Effects Yes Yes Yes
White Denial Rate 0.068 0.066 0.063
Note: Standard errors in parenthesis. Estimates are from linear probability models. High
significance on all coefficients is due to very high number of observations. Model controls
for state fixed effects. Constant is omitted. *p < 0.05, **p < 0.01, ***p<0.001

84

Results. Aligned with the pattern following the Great Recession, the massive quantitative
easing program that began in 2020 had positive impacts on the mortgage market. Specifically,
in 2020 and 2021, the number of mortgage applications across the US increased from 2019
levels, and the denial rates for mortgage applications went down for all races and ethnicities.
However, even after accounting for the new credit characteristics provided for the 2019 HMDA
data and beyond, Table 3 reveals that there is still a penalty on Black applicants. Table 3
provides new evidence that being a Black loan applicant increases one’s probability of being
denied a mortgage loan, and the increase is substantive.
Similar to Table 1, Table 3 also includes the actual denial rate for White applicants seeking
home mortgages in each year to provide context. In 2019, before the pandemic really took hold
in the United States, the denial penalty on Black applicants was 5.4%, while the denial rate for
White applicants was 6.8%. This shows the penalty on Black applicants to be about 79% of the
White denial rate. By 2021, the denial penalty on Black applicants had decreased to 4.4%. This
reflects a significant decline in the denial penalty; however, the penalty was still a high 70% of
the White denial rate. A 2022 report from the CFPB highlights that the denial rate for Black
applicants in 2021 was 15.3%, while the denial rate for non-Hispanic White applicants was 6.3%
(Liu, Jo, and Chen 2022). Table 3 reveals that loan-relevant information and state fixed effects
can explain about half of this nation-wide racial denial gap. The implication is that, similar to
the Great Recession, the quantitative easing that resulted from the blight of the COVID-19
pandemic, has aided in national recovery. However, it has also bolstered an inequitable system

85
that provides more opportunities for wealth accumulation to White people relative to similarly
situated Black people.

Developments of Quantitative Easing During COVID

The COVID-19 pandemic brought the US to a standstill. As unemployment increased
exponentially and to the highest rates since the Great Depression, both the United States
Congress and the Federal Reserve scrambled to get ahold of the economy to prevent further
economic fallout from the deadly COVID-19 virus. The Federal Reserve’s response was to
engage in the legitimized monetary policy of quantitative easing by vastly increasing their
balance sheet through asset purchases. Between March and December of 2020 alone, the
Federal Reserve’s balance sheet increased from $4.7 trillion to $7.4 trillion, which was a more
extensive balance sheet increase than years of quantitative easing after the Great Recession
(Labonte 2021). Through a scheme of political and legal acrobatics, the Federal Reserve also
began engaging in the purchase of corporate bonds directly from corporations in the primary
market, as well as from exchange traded funds (ETFs) in the secondary market (“FAQs: Primary
Market Corporate Credit Facility and Secondary Market Corporate Credit Facility - Federal
Reserve Bank of New York” 2020).
As stated earlier, the Federal Reserve is able to purchase and sell “any obligation which
is a direct obligation of, or fully guaranteed as to principal and interest by, any agency of the
United States.” Thus, the purchase of corporate bonds has traditionally been restricted, as they
are not backed by the United States, but by corporations. During the COVID-19 pandemic, there
was an unprecedented shift in the political and economic playing field. The US Congress and the

86
US President signed the CARES Act into law in March 2020 in order to aid the American
Economy during the COVID-19 pandemic. To allow the Federal Reserve to purchase corporate
bonds, a provision of the CARES act provided $75 billion in equity that is used to back the
Federal Reserve’s purchase of corporate bonds. Effectively, this program is a new form of
quantitative easing where the Federal Reserve is able to increase its balance sheet by
purchasing a series of corporate bonds that are now (technically) backed by the $75 billion in
equity from the CARES Act. Congress essentially developed fiscal policy that expanded the
authority of the Federal Reserve by pledging tax payer dollars to back corporate debt.

Purchasing corporate bonds during COVID-19
The Federal Reserve has created two corporate credit facilities (CCFs): the Primary Market
Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility
(SMCCCF). With the backing of the $75 billion in equity from the CARES Act, these facilities
combined have the capacity to purchase up to $750 billion in corporate bonds (“Coronavirus
and CARES Act” 2020). The PMCCF allows the Federal Reserve to purchase bonds directly from
corporations, while the SMCCF allows the Federal Reserve to buy corporate bonds on the
secondary market from eligible issuers and exchange-traded funds (ETFs). Both of these CCFs
have already begun purchasing corporate debt, with the SMCFF starting to purchase bonds with
a maturity of 5 years or less in May of 2020 and the PMCFF starting to purchase bonds with a
maturity of 4 years or less in June of 2020. Not all corporations are eligible to receive funds
from the CCFs. In order to be eligible to reap the benefits from this Federal Reserve quantitative
easing program, a corporation would have to already have bonds outstanding. Specifically, in

87
order for the CCFs to purchase bonds, the issuing corporation must be classified as investment
grade by at least one major nationally recognized statistical rating organization (NRSRO).
Although the overall balance sheet of the Federal Reserve was greatly expanded, in
December 2020, the PMCCF and SMCCF closed with over 1,300 bonds and bond ETFs
purchased, amounting to approximately $14.1 billion of the $750 billion made available. The
relatively small levels of uptake in these CCFs are aligned with the lower-than-expected levels
of uptake amongst the broader suite of the Federal Reserve’s credit facilities in comparison to
the Great Recession (of the $1.95 trillion made available through the CARES Act, only $40.7
billion was outstanding at the end of 2020 (Labonte 2021). Still, the creation of these CCFs can
have lasting effects on the Federal Reserve’s response to future crises. The report from the
Congressional Research Service that analyzed the Federal Reserve’s Response to the pandemic
states that, “Because the Fed’s response to COVID-19 was more extensive than its previous
interventions, it may fuel expectations of similar interventions in the future unless eventually
addressed (Labonte 2021).” When institutions experience critical junctures (such as a
worldwide pandemic), unprecedented changes can occur (such as the Congressional provision
of new authority to the Federal Reserve), and the institutional changes are likely to be resistant
to change in the future (North 1990; Pierson 2004). This is evinced by the increased levels of
quantitative easing programs in response to COVID-19, after quantitative easing was legitimized
in the wake of the Great Recession. Further, and more specifically, 4 of the federal reserve
facilities created in the aftermath of the Great Recession were revived to respond to the COVID
pandemic (Labonte 2021). Similarly, in future financial crises, there is reason to expect a more
extensive use of corporate bond purchase facilities such as the CCFs created in response to the

88
COVID-19 pandemic. If more oversight is not provided with respect to these institutional
changes in response to COVID-19, future financial crises may result in disparate wealth effects
on a much more massive scale.

Paving The Way For Future Responses For Quantitative Easing
One of the major tenets that the Federal reserve has historically upheld was that the
bank would not pick winners and losers. However, the empirical analyses above provide
evidence that Black people have been relegated as consistent losers in terms of receiving the
trickle-down aid from quantitative easing programs in the past. Further, with the $75 billion
provided by the CARES act, as well as the criteria for eligibility mentioned in the previous
section, the Federal Reserve is effectively picking winners and losers. First, because the Federal
Reserve ensured it did not purchase any corporation’s bonds to the extent that it holds more
than 10% of that corporation’s outstanding bonds, the Federal Reserve placed a de facto
limitation on the program, such that the program would only funnel liquidity to corporations
that have already issued bonds before the pandemic. Furthermore, the Federal Reserve
decided that corporations that were deemed investment grade before March of 2020 will be
the only firms eligible to have bonds purchased. In practice, the Federal Reserve is making sure
that whichever corporations were winning before COVID-19 will remain winning during and
after COVID-19. For example, during the pandemic, the Federal Reserve loaded its balance
sheet with billions in corporate bonds from cream-of-the-crop firms such as Apple. Apple, in
turn, used its new Fed Cash to buyback stocks and boost stock prices (Mackintosh 2020; Cox
2020).

89
The Federal Reserve’s purchases of corporate bonds from top companies (such as
Apple) are intended to help ordinary Americans keep their jobs by supporting market liquidity
in the primary and secondary corporate bond markets (“FAQs: Primary Market Corporate Credit
Facility and Secondary Market Corporate Credit Facility - Federal Reserve Bank of New York”
2020). This is a more direct approach than what was used in the earlier days of quantitative
easing (QE1, QE2, QE3). This form of monetary policy is less likely to support Black communities
who are struggling through the Coronavirus pandemic. The federal reserve allowed for an
increase in its balance sheet to the tune of $750 billion by increasing the liquidity of large
corporations, which would largely exclude Black communities from economic recovery. The
Federal Reserve did not point to nuances in this current strategy that would ensure economic
help reached these Black communities. Centuries of systemic oppression have contributed to
the lack of wealth in the Black community (Hamilton and Darity Jr. 2009; L. Bobo, Kluegel, and
Smith 1996), especially considering that such a large contribution to a family’s wealth is through
inheritance (Dickerson 2014). This new program of purchasing corporate bonds has the
potential to have lasting institutional effects on wealth distribution, as the creation of these
programs with Congressional backing has put the Federal Reserve on a path that will be difficult
to deviate from in the future.
Unfortunately, after approving equity for the Federal Reserve to pursue this direct form
of quantitative easing, the US Congress did not come to an agreement about a second relief
package for individuals for approximately 9 months (December 2020). This gridlock persisted as
unemployment hit its highest levels since the Great Depression (Kane 2020). As those most in
need waited for more pandemic-related relief, asset prices rose in part because of the Federal

90
Reserve’s program of asset purchases. The rising prices of assets are effective in building wealth
for those who are asset owners. The financial underclass, which is disproportionately Black due
to centuries of intentional oppression, was left with very little relief from Congress, and scarce
relief from the Federal Reserve’s COVID-19 quantitative easing. Therefore, this coordinated
strategy between politicians and the Federal Reserve will likely have lasting impacts on racial
wealth inequality, as those most able to take advantage of federal programs will experience a
relative increase in wealth.

Other Federal Reserve Strategies to Combat COVID-19
While this paper has been primarily focused on the wealth effects of quantitative easing
related to the extensions of credit directly to Black communities, quantitative easing also
impacts labor markets and labor force retention. The labor market is where most low- and
middle-income households attempt to begin their accumulation of wealth. Thus, an assessment
of wealth effects of the Federal Reserve’s actions through the labor markets is valuable.
As stated earlier, the mass majority of the Federal Reserve’s balance sheet increases
during the COVID-19 pandemic came through the purchase of traditional U.S.-backed assets
such as U.S. Treasuries and mortgage-backed securities. Because firms need to borrow in order
to expand and hire more workers, quantitative easing should prop up or expand the labor
market. However, there is a possibility that quantitative easing also results in disparate effects
on the labor force, which would again showcase a need for greater oversight. Leveraging data
from the Bureau of Labor Statistics, a comparison of labor force retention between 2019 and
2020 provides preliminary evidence that there may be disparate effects based on race. Due to

91
the economically depressive effects of COVID-19, the number of individuals employed in the
American workforce saw a decline of 6.2% between 2019 and 2020. However, the Black
workforce saw declines of 7.7% which is almost 25% worse than the overall labor declines (BLS
2020; 2021).
Almost 50% of the Black labor force are participants in just three industries: wholesale
and retail trade (12%), transportation and utilities (9%), education and health services (28%).
4

The wholesale and retail industry trade experienced an overall labor force decline of 3.7%,
compared with a Black labor force decline of only 3.0%. The transportation and utilities industry
experienced an overall labor force decline of 4.9%, compared with a Black labor force decline of
11.9%. The education and health services industry experienced an overall labor force decline of
5.0%, compared with a Black labor force decline of 6.9%. Future research should be undertaken
to understand why these racial disparities in labor force retention exist. This future research
should focus particularly on the disparities in the labor force retention in transportation
because the CARES Act set aside $29 billion to directly assist air transportation during the
COVID-19-related declines (Labonte 2021).

Discussion and Alternatives: Quantitative Easing For The People

The large loan denial penalty levied on Black people in the US is a substantive barrier for
their access to credit. This barrier has two faces: systemic and psychological. When an

4
The shares of White, Asian, and Hispanic workers in these three industries (wholesale and retail trade,
transportation and utilities, and education and health services) are 40%, 38%, and 36% respectively. In
other words, at 49%, the share of Black workers in these industries is 20% - 30% greater than White,
Asian, ad Hispanic workers.

92
individual is denied a mortgage loan from one financial institution, they have the option to
reapply at another financial institution. In other words, a denial decision from a financial
institution does not necessarily mean that an individual does not eventually receive an
extension of credit. The analyses in previous sections suggest that Black individuals, relative to
their similarly situated White counterparts, would need to apply to a greater number of
financial institutions to achieve the same levels of access to credit. With the additive total costs
of multiple mortgage applications, this denial penalty operates as a systemic barrier to credit
for Black people. Exacerbating this barrier, past research has outlined the psychological impacts
of loan denials on Black Americans at large. Specifically, studies leveraging the US Federal
Reserve’s Survey of Consumer Finances reveal that, relative to similarly situated White people,
Black people are less likely to apply for credit out of fear that the extension of credit would be
denied (Blanchflower, Levine, and Zimmerman 2003; Bates and Robb 2015). They believe that
the cost of the application process is not worth the probability that they'll get accepted for their
loan request. Taken together, the systemic and psychological aspects of this Black penalty on
loan denials presents a significant obstacle for Black access to credit.
The analyses in previous sections show that the Black denial penalty persists when the US
Federal Reserve engages in QE as an emergency response to a bolster a faltering economy.
Relative to normal economic periods, it is especially important that the response to an
economic crisis has racially proportional outcomes, because of the way financial institutions
change their lending behavior during economic downturns. Specifically, recent research has
revealed that, during the same time periods covered in this paper, institutions significantly
lower their extensions of credit in low-and-moderate-income (LMI) neighborhoods during

93
economic downturns (Bostic and Lee 2021). Further, while one of the primary goals of
monetary policy during recessions is to stimulate extensions of credit to households, lending
institutions across the US showcase an elevated proclivity to lend to safer households (Agarwal,
Chomsisengphet, et al. 2018). Due to centuries of oppression, (racial steering, ownership laws,
redlining, racist housing policies, etc) Black people are more often located in these LMI census
tracts, which are historically underserved (Rothstein 2017). Thus, programs designed to
proportionately boost the extensions of credit in the US are particularly important during
extreme negative economic shocks, which are exactly the scenarios in which the US Federal
Reserve would engage in QE. In the aftermath of the Great Recession, the US Federal Reserve’s
Survey of Consumer Finances shows that, between 2007 and 2010, the percentage of White
people holding mortgages in the US was propped up by QE and remained constant (US Federal
Reserve 2021). Contrarily, over the same time period, the same survey shows that the
proportion of Black people holding mortgages declined by 16%, in part due to the
disproportionate limitations in the extensions of credit to Black communities.
The COVID-19 pandemic has been very damaging to the economic welfare of Americans.
However, as the pandemic carries on, the asset-holding class of America is much better off
because the Federal Reserve’s current and unprecedented form of quantitative easing steadily
bolsters asset prices. This will very likely result in an increase in racial wealth inequality, but this
does not have to be the way forward. Learning from the aftermath of quantitative easing to
support the economic recovery during and after the Great Recession, Congress and the Federal
Reserve can implement more targeted strategies that put money into the pockets of ordinary
Americans.

94
Targeted Fiscal Policy
The fiscal policy response of the Great Recession was successful in spurring economic
growth, but failed to deliver adequate employment outcomes. The American Recovery and
Reinvestment Plan of 2009 was created with the ambitions of protecting jobs in the wake of the
Great Recession. Specifically, the plan intended to increase GDP by 3.7% and save 3.7 million
jobs between 2009 and 2010 (C. Romer and Bernstein 2009). However, the policy decision to
engage in a top-down economic strategy yielded lackluster labor force retention (Tcherneva
2012). Further, this top-down fiscal policy contributed to massive income inequality post the
Great Recession, such that over the first 3 years of recovery, 91% of the growth in income was
provided to the top 10 percent of income earners (Saez 2016).
To avoid the shortfalls of the past fiscal policy response, Congress and the Federal
Reserve should consider alternative strategies that do not rely on policies that target top
lending institutions in order to increase extensions of credit to public. Researchers have offered
alternative policy approaches that stabilize employment for the most vulnerable American
citizens during a crisis. One such alternative is to use fiscal policy to directly address the labor
gap by partnering with nonprofit organizations. Nonprofit organizations typically experience an
increase in demand for their services when there are negative shocks to the economy. Fiscal
policy that provides jobs through nonprofits will supply a labor force to meet a labor force
demand, and ensure that those who want a job during an economic downturn can get a job
(Tcherneva 2012). This type of fiscal policy strategy would have directly addressed the sluggish
unemployment recovery, provided the most impacted Americans with sources of income, and
driven up demand for private sector products and services. From a racial equity standpoint,

95
providing a job security to the most vulnerable Americans through fiscal policy would avoid the
negative wealth disparities created, in part, by the promotion of extensions of credit with
disparate impacts. Instead of relying on greater liquidity to trickle-down into wealth gains and
stability for Black people, directly providing jobs through fiscal policy would do better to
maintain a labor force without large breaks in income. As evidence that such a fiscal plan would
work to provide proportional effects to Black people, again consider the labor retention rates
through the COVID-19 pandemic. Although losses in Black labor were 25% greater than losses in
labor overall between 2019 and 2020, there was no disparity between Black labor and overall
labor in the public sector (BLS 2020; 2021). The primary reason racial disparities are not as
prevalent in the public sector is because the public sector is held to a higher standard of equity
than the private sector (Wilson 1989). Thus, a fiscal policy that handles economic crises by
directly creating jobs will likely provide a proportional response to Black communities.

Direct Payments to Americans
Economic scholars state that The Great Recession “has taught us that supporting asset
prices alone does not prevent a crisis turning into long-lasting economic slump,” but it does
work at increasing the welfare of the entities it targets (Coppola 2019; Al-Jassar and Moosa
2019). From lessons learned, the Federal reserve can, in fact, provide money directly to the
people in a form commonly called “helicopter money.” Popularized by Milton Friedman, and
similar to past stimulus packages, the idea is that the government finds a way to provide funds
directly to the public (such as the helicopter drop analogy). This will put more money into the
economy by fueling the bank accounts of ordinary Americans. This will spur an economic

96
expansion in the form of bottom-up economics. Providing income for ordinary Americans
would boost economy and create higher demand in the private sector (Tcherneva 2012). If the
Federal Reserve provides funds to ordinary Americans, there will be an economic expansion as
the spur in the concomitant economic activity helps the economy bounce back. Unlike the case
described previously, if ordinary Americans are given cash by the Federal Reserve, they are
much more likely to spend it. Landlords will be paid rent owed to them, grocery stores and local
businesses will see a boom in patrons, and those most vulnerable to the negative impact of the
Coronavirus will be more financially secure, food secure, and mentally secure.
There is evidence from the pandemic that supports this anticipated economic effect of
providing funds directly to ordinary Americans. Part of the aforementioned CARES Act sent
$1,200 stimulus checks to Americans earning $75,000 or less, and those individuals struggling
with low amounts of cash in their bank accounts spent 44.5% of those stimulus checks within
the first 10 days of receipt (Nikos-Rose 2020). This is evidence that providing funds directly to
those in need will have a positive impact on the economy and quickly. Unfortunately, after the
CARES act, the American people did not receive another stimulus check from Congress until
December due to partisan gridlock.
Providing the nonpartisan Federal Reserve with authority to greatly engage with local
government entities during economic crises will likely result in a much more expedient
provision of aid. Unlike Congress, the Federal Reserve is designed to be more insulated from
political pressure in its monetary goals. As was mentioned previously, the guarantees provided
by the Congress have allowed the Federal Reserve to purchase corporate debt to prop up the
economy through its corporate credit facilities. These very same extensions of liquidity can be

97
extended to state and local governments for the purposes of providing funds to their
community members. State and local governments also issue bonds, and if Congress provided a
federal guarantee similar to what they provided for corporate debt, local governments could
have access to stimulate their economies through direct provisions for their community. The
Congress and Federal Reserve could also provide restrictions on the local uptake of such a
Federal Reserve program in order to mandate equitable dispersion of payments. Further,
because the funds would flow directly to the folks in need, Black people would be better
protected from the inequities left unaddressed by the top-down quantitative easing discussed
in this article. If the US Congress and the Federal Reserve can create a game plan so that the
Federal Reserve can engage in unprecedented purchases of corporate bonds, they can come
together to serve the people directly as well. The COVID-19 crisis is the perfect reason for
unprecedented action that serves America’s most vulnerable. Unfortunately, the pandemic may
have been used instead to create lasting changes to the Federal Reserve’s suite of crises
responses, ultimately creating another avenue for wealth inequality to grow.

98
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Abstract (if available)

Abstract Since its origin, the United States has created a legacy of oppression through slavery and racial discrimination. The U.S. has passed many anti-discrimination laws, and as a society, has condemned discriminatory behavior on the basis of race, color, ethnicity, and a handful of other reasons. As such, overt racism has declined over the last 6 decades- especially discrimination in the de jure form. However, this American legacy of oppression remains relevant in individuals and institutions today. Specifically, scholars have shown that many types of racism continue to play a prominent role in the lives of Americans, surviving primarily in the forms of aversive racism, laissez-faire racism, symbolic racism, and color-blind racism. However, all of these forms of racism deal in the unintentional racism of individual actors. There is a significant gap in the political literature, such that there has not been a focus on the intentional actions of modern-day racists who engage in racist actions only when they believe they will not be exposed or held accountable by society. This dissertation explores this gap in the literature through the development of a theory of pernicious racism in the first article, and the deployment of this theory to assess Black Homeownership in the United States in the second two articles.
Black homeownership is declining across the United States at a significantly higher rate than White, Hispanic, or Asian homeownership. In spite of the lower costs to own a home in Republican states, Black Americans are much less likely to maintain homeownership in those areas. The second article attempts to gain leverage on the following question: “what is the penalty of political parties on Black homeownership in America?” Leveraging OLS and Difference-In-Difference Regression analysis, the findings in the second article support that there is a penalty of political parties on black homeownership in America. Moreover, the penalty varies depending on the opportunity structure for institutional racism, which changes in each state based on the state’s foreclosure laws and political leanings. To support the nationwide findings, this second article analyzes the penalty on Black homeownership across the state of New York’s judicial districts, finding that there is a penalty in Republican judicial districts.
While the second article focuses on the racially disparate impacts of differing legal structures around foreclosures, the third article analyzes pernicious racism within the process of achieving homeownership through the mortgage market. Throughout the years following the Great Recession, the Black communities across America were also exposed to a more pernicious deprivation of credit made possible by a Federal Reserve program that will likely lead to the exacerbation of racial wealth inequality in America: quantitative easing (QE). Further, the 116th Congress and President Trump put forth $75 billion in equity to aid the Federal Reserve in creating a new quantitative easing program that was capable of purchasing up to $750 billion in corporate bonds. This was an unprecedented institutional shift, as this allowed the Federal Reserve to circumvent its usual policy of dealing exclusively with assets that are issued or backed by the US government. This third article leverages data on over 100 million mortgage applications following the Great Recession and following the onset of the COVID-19 pandemic to provide evidence of the racially disparate wealth effects maintained by quantitative easing. The results presented here imply that the COVID-19 round of quantitative easing will have impacts similar to the past quantitative easing programs following the Great Recession: Black people will be disproportionately left behind, and wealth inequality will be exacerbated.

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Creator Roberson, Kendrick Bilal (author)

Core Title Pernicious racism and the impacts of intentional racist in a color-blind society

School College of Letters, Arts and Sciences

Degree Doctor of Philosophy

Degree Program Political Science and International Relations

Degree Conferral Date 2022-12

Publication Date 01/06/2023

Defense Date 12/12/2022

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Federal Reserve,foreclosure,Homeownership,mortgage,OAI-PMH Harvest,pernicious racism,politics,Racism,wealth inequality

Format theses (aat)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Hancock-Alfaro, Ange-Marie (committee chair), Bennett, Daniel (committee member), Grose, Christian (committee member)

Creator Email kbrobers@usc.edu,kendrickbroberson@gmail.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-oUC112710940

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Rights Roberson, Kendrick Bilal

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