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The Astonishing Collapse of Black and Latino Household Wealth

Most families suffered decreasing wealth when the recession devastated the American economy, but African American and Latino families were hit the hardest.

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Despite growing economic inequality and mass unemployment, Washington is focused on austerity. Politicians and pundits debate how much to cut and how much revenue to raise rather than creating jobs or alleviating the suffering of millions of people. What also gets lost in the dominant discourse about the economy is the suffering of the black community. The Great Recession has increased racial inequality and set back the modest socioeconomic gains of the civil rights movement. 

Recently, the Urban Institute released a  study on the racial wealth gap titled "Less Than Equal: Racial Disparities in Wealth Accumulation." The study found that, while the racial wealth gap has existed for decades, it's drastically expanded during the last 30 years. It says the "average wealth of white families was $230,000 higher than the wealth of black and Hispanic families in 1983." In that year, white families had an average wealth of nearly $300,000 in 2010 dollars. Wealth for all families increased, but not evenly.

The 2007-2009 recession devastated the American economy and all families suffered decreasing wealth. However, African American and Latino families were hit the hardest. According to the study, "between 2007 and 2010, Hispanic families saw their wealth cut by over 40 percent, and black families saw their wealth fall by 31 percent." In comparison, white family wealth "fell by 11 percent."

The average wealth of white families, in 2010, was $632,000 but $110,000 for Latino families and $98,000 for African American families -- a wealth gap of over half a million dollars. Median wealth shows the same trend: $91,000 for white families versus $10,000 for Latinos and $11,000 for African Americans in 1983; for 2010, it's $124,000 for white families, $15,000 for Latino families, and $16,000 for African American families. These are all in 2010 dollars. Therefore, between 1983 and 2010, the racial wealth gap nearly tripled. 

The largest sources of wealth within black and Latino communities are homes and retirement. White families derive wealth from their homes and many other sources, such as stocks and other financial investments. Moreover, one needs to have a certain level of disposable income to make such investments. Low-income families have to spend their income on rent, supporting their families, and other necessities just to survive. As a result, they don't have enough excess cash to save and invest. Those with higher incomes can afford not only to take care of themselves but have enough money to save and invest. Since white families have higher incomes than black and Latino families, they have more money to invest, hence their larger amounts of wealth. 

The housing bubble seemed to provide an opportunity for blacks and Latinos to build up wealth, enter the middle class, and achieve the "American Dream." However, this proved to be a ruse. Black and Latino communities were targeted by major banks, such as  Wells Fargo and JPMorgan Chase, for subprime mortgage loans, even if they qualified for normal prime loans. Subprime is a form of risky, high-priced lending to people with poor credit histories, giving the loans higher interest rates.

According to a  2009 NAACP study, "even when income and credit risk are equal, African Americans are up to 34 percent more likely to receive higher-rate and subprime loans" than whites. This drove up home ownership in those communities but the foundation was on a flimsy stack of cards. When the housing bubble burst and the recession hit, black and Latino communities were hit the hardest. 

The Urban Institute study is not the only one to point this out. Other studies, such as a  February 2013 study by Brandeis University and another by Pew Research Center in July 2011, while using different methodologies and coming up with different numbers, show the same trend -- the racial wealth gap was large to begin and grew exponentially after the recession.