- [Narrator] We'd like to thank NordPass for supporting PBS.
The American dream,
it's the idea that in the United States,
upward mobility is available to everyone.
We're told from an early age
that if you work hard and sacrifice,
one day you too, will have a beautiful family,
money in the bank and of course your very own house
with a white picket fence.
- Today, we don't really appreciate
how radical this idea is.
For most of human history, real estate was where
money and power were wholly concentrated
and only the most connected and wealthy families
could be landowners.
- Since the 19th century, millions of people in our country
really did climb the socioeconomic ladder this way.
The creation of a burgeoning middle-class
was a remarkable achievement and a revolutionary step
towards a society in which wealth is shared
more evenly amongst its citizens.
But the ugly truth is that for decades,
the federal government intentionally created programs
that ensured the dream only became a reality
for one type of person.
And to this day, we are dealing with its consequences.
(gentle music)
- Back in the 1930s, our country was reeling
from years of economic depression and housing was in crisis.
Many banks had failed,
causing them to call their loans early,
contributing to a wave of foreclosures.
Home ownership across the nation hovered around 45%.
And the housing inventory that did remain, was tight.
Especially for those in the middle and lower classes.
- In response, Congress passed
the National Housing Act in 1934,
which created the Federal Housing Administration.
The FHA's job was to make buying a house
affordable to the everyday person,
mainly by offering to insure certain home loans
against borrower default.
This government sponsored safety net
gave private banks and lenders the confidence
to extend much more generous terms
than had ever been available in the past.
Like 30 year mortgages, higher lending limits
and low fixed rates.
The sort of things we take for granted today
and it was a resounding success.
The FHA helped take the country's home ownership rate
from 43.6% to just under 70% by 2005.
Heck, we even got an FHA loan
when we bought our house back in 2010.
Thanks FHA.
- But there's a very big difference
between the original FHA mortgages
and the ones we have access to today.
Nowadays, approval for an FHA mortgage
is based on your personal financial situation
and credit worthiness.
But originally, FHA mortgages focused on some other factors.
Let's crack open the 1936 FHA Underwriting Manual.
Shall we?
It stated, if a neighborhood is to retain stability,
it is necessary that properties be occupied
but the same social and racial classes.
Schools should not be attended in large numbers
by inharmonious racial groups.
If the children living in such an area
are compelled to attend schools
where the majority of the peoples
represent a far lower level of society
or an incompatible racial element,
the neighborhood will prove far less stable and desirable.
- So, to quote the FHA, communities of color
were branded as undesirable populations
and their mere presence would have a detrimental influence
on the housing prices surrounding them.
But this stance was not supported by any evidence.
In reality, when people of color managed to buy homes
in mostly white neighborhoods,
the property values would go up
because they were willing to pay more
due to the shrinking housing inventory available to them.
- Nevertheless, cities across the nation
ended up being divided into specific zones by the FHA
and local housing authorities.
The areas where whites were more concentrated
got the green light for those sweet FHA backed loans.
But the areas with higher concentrations
of communities of color and immigrants were sectioned off
on maps with red lines
to indicate they were not eligible for FHA loans
regardless of individual financial credentials.
This practice, now referred to as red lining,
also occurred for new affordable developments
popping up in suburbs.
Many of those builders even added language to deeds,
known as restrictive covenants,
with phrasing like no property shall be sold,
conveyed, rented or leased to any person
not of the white or Caucasian race.
Yep, it was that explicit.
- The combination of federal policy
and private sector reinforcement
was devastatingly effective.
Between 1934 and 1968, black families specifically,
received only 2% of all federally insured, home loans.
And housing segregation tightened its grip
on the American landscape.
It wasn't until 1968 that title eight
of the Fair Housing Act finally outlawed
housing discrimination.
Think about that.
For 34 years, an entire generation of people
denied access to one of the biggest tools of wealth building
of the entire 20th century.
It's depressingly easy to find evidence
of its impact all these years later.
- According to the federal reserve,
the typical white family today,
has eight times the wealth of a typical black family.
And five times the wealth of the typical Hispanic family.
This is in large part, due to home equity being bequeathed
from one generation to the next.
Nearly 30% of white families
report receiving an inheritance or monetary gift
from family compared to 10% of black families
and 7% of Hispanic families.
- And even though it's been 52 years
since those FHA policies were ruled unconstitutional,
the gap between white home ownership
and black home ownership is the worst it's ever been.
And even if a black family does own a home,
the typical value of it is only 65%
of the average white families.
We even see this sort of divide play out
in the most elite circles.
Of the 616 billionaires that call America home,
only seven are black and none of them
the product of inheritance.
- And honestly, the deeper you go on this subject,
the more it feels like you're peeling back layers
upon layers of rotted, termite infested wood.
Housing policy directly impacts education
because we fund our public schools via property taxes.
Lower property values means less money for schools
resulting in lower graduation rates,
lower college attendance, et cetera.
Then there's the impact on policing, incarceration rates,
mental health, even our diet.
Areas with higher concentrations of black,
Latino and indigenous Americans
are far more likely to lack easy access
to fresh and affordable food,
creating what are known as food deserts.
This leaves the residents of these areas
more susceptible to chronic health issues.
- We here at Two Cents, deeply believe
that taking ownership of your finances
can completely change the game.
But we collectively have to acknowledge
that the cards are not fairly dealt.
We are perfect examples of this.
We take our financial responsibilities very seriously
through budgeting, saving, and living within our means,
but we are fourth generation homeowners.
And when we bought our FHA insured house a decade ago,
we were graciously gifted some of our down-payment.
Our net worth, like everyone else's,
is due to a combination of choice and circumstance.
- We also hope this show helps strip away
the taboo from money talk.
How can we find solutions to issues
that we aren't educated on
and don't converse openly about?
This subject is no different.
As the writer, At-Nehisi Coates puts it,
All of our solutions to the great problems
of healthcare, education, housing and economic inequality
are troubled by what must go unspoken.
- Hopefully, if enough of us honestly talk
about this rigged game,
we just might be able to see more people actually win.
And that's our Two Cents. - And that's our Two Cents.
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- Hey everybody, we are back to answer
some of your questions and reply to some of your comments
on our last episode, which was
should the U.S. government balance its budget?
- All right, our first comment that we're gonna address
is from John L., he says, "all my life I heard
that the U.S. government could print money if needed,
I just thought it was an old wives tale, until now.
Am I understanding this correctly?
If they find themselves in hot water
that they can just print some more money?"
Also, is the U.S. the only country that can do this
or others can as well but we never hear about this ability?
- What John is alluding to here,
is what economists now call modern monetary theory.
It's just a theory, but it's kind of this idea
of maybe we should start thinking about
the government printing more money differently.
So to this first part of it,
can they just kind of make more money
to get out of hot water?
No, not necessarily because making more money,
especially to a higher degree, does devalue the money.
And so you can't just do this infinitely
or every time you get into trouble.
- And I actually don't know the answer
to that ending question, which is,
is the U.S. the only country that can do this?
I'm assuming not, right?
What do you know about this?
- So not every country can do this.
You have to have a sovereign currency for this to work.
So because the U.S. has its own currency,
the dollar, we can do this
because we fully control our own currency.
But the Euro zone that has a lot of different countries
with the same currency, the Euro,
cannot do this in the same way
because they can't just print more euros in one country.
It's sort of a different system.
- So, our second question comes from Robert Murray.
Do you two have any strong opinions
about modern money theory?
Like what Stephanie Kelton and L. Randall Wray talk about?
Again, this is a theory,
so it can only be proven through practice,
but we have a pretty good history
that seems to prove this to be the case.
- I just listened to an amazing podcast on this
from Planet Money.
It was just called modern monetary theory.
They interview Stephanie Kelton,
who is kind of one of the forefront thought leaders
around monetary theory and hearing them talk
through these ideas and a lot of the old ways of thinking
that we kind of talked about in this episode,
which is got to balance our budget,
we can't go into infinite amounts of debt.
That has kind of proven not to be true.
- And finally, we definitely want to address
the somewhat elephant in the room that Nope brought up.
He said, can you guys do a video
on this whole GameStop thing?
We actually shoot videos pretty far in advance,
so it's not really in our capability
to have something happen and then pump out something
that week for it.
But what we've decided, after talking about it,
that what we want to do is take the opportunity
to dig more into the idea of derivatives.
- I think it's so interesting,
the kind of match that ignited the whole 2008 crash
was derivatives.
If you've watched the Big Short or anything
kind of exploring that a little bit.
And this whole GameStop thing, all about derivatives too.
- So thanks so much for letting us know how you feel
for chiming in and for watching us.
We really appreciate it.
And we'll see you next time.
- See you later.
- Thanks to our patrons
for keeping Two Cents financially healthy.
Click the link in the description
to become a Two Cents patron.
If you want to get into the nitty gritty
of the home buying process,
check out our video on the path to home ownership.
(cheerful music)