The transformation of the American economy and polity into a racial spoils system has been a defining goal of President Obama’s first term in office. It is set to become more defining in his second term, especially in light of a federal appeals court ruling two weeks ago. Obama, by various accounts, wants to be more aggressive about suing banks, employers, schools and other institutions whose practices, however unintentionally, adversely affect “disadvantaged” (read: nonwhite) populations. This is the doctrine of “disparate impact.”Attorney General Eric Holder (foreground in photo) already has used it to extract hundreds of millions of dollars in settlements from Wells Fargo and other major banks. Its widespread application is further evidence, as if any more were needed, that “civil rights” has become a well-organized shakedown racket.
These past few years National Legal and Policy Center has been anything but muted in its criticism of government-mandated racial preferences. A major task has been to unmask it true character. Typically, mandatory preferences come dressed in euphemisms such as “affirmative action” and “diversity.” The language may be benign, but it functions as the basis for devising enforceable goals, quotas and timetables, with close official monitoring to ensure “progress.” Equality of outcome, not equality of opportunity, is the overriding goal. If an employer’s work force, for example, is only two percent black and the surrounding labor market area is 10 percent black, that employer may have to explain to a government agency why it has “only” one-fifth the number of black employees it should have. Employee traits such as perseverance, punctuality, intelligence and an ability to work with others don’t matter much in such a context.
This civil rights principle is built upon the ostensibly race-neutral 1964 Civil Rights Act. It took root during the Johnson administration and became a fixture during the Nixon administration. In 1969, President Nixon’s Labor Secretary, George Shultz, with approval from Attorney General John Mitchell, developed a mandate known as the “Philadelphia Plan,” which required contractors working on large federally-funded construction projects to adopt “numerical goals and timetables” for black hires. Even more far-reaching was the U.S. Supreme Court’s 1971 ruling in Griggs v. Duke Power Company. The 8-0 decision invalidated employee aptitude tests which, though race-neutral, had the effect of reducing the likelihood of blacks getting hired or promoted. The court rationalized that the tests were unrelated to job requirements, though common sense would dictate that if this were the case, the employer wouldn’t have administered the tests in the first place. No matter. Racial egalitarians had found their Ur-text. For the first time in U.S. history, it was possible to file a discrimination suit against organized activity unwittingly producing statistical disparities by race.
“Disparate impact” is at once bad law and a near-guarantee of full employment within the legal profession. It’s noteworthy that not a single presidential administration has ventured to challenge it. Only once, briefly, in the mid-Nineties, has Congress – more accurately, a few of its Republican members – made a go of it. Facing no real opposition, affirmative action supporters within and outside government have had almost free reign. As a report released last year by the Congressional Research Service indicated, affirmative-action federal regulatory mandates are more numerous than ever.
President Obama remains unsatisfied. Not to fear – his administration is home to many diversity zealots, most of all, Attorney General Eric Holder and his chief civil rights enforcer, Thomas Perez. Last December the Justice Department extracted a commitment from Bank of America for $335 million to settle allegations that its Countrywide Financial Unit had discriminated against black and Hispanic borrowers during 2004-08 – the period immediately before BoA took over the insolvent Countrywide. Perez and his band of prosecutors this July also announced a $175 million “settlement” with Wells Fargo Bank for racial disparities in home mortgage lending. The government didn’t demonstrate any intent to discriminate, and for that matter, never looked for such intent. It didn’t matter; Wells Fargo succumbed. This sum, moreover, was on top of a sizable out-of-court settlement the bank reached with the City of Baltimore and a prodigious one it reached with the City of Memphis and surrounding Shelby County, Tenn. It’s hard to conclude which was more appalling – the enthusiasm of government or the timidity of bank management.
President Obama wants to close what he calls “persistent gaps” in economic and social outcomes across race. At the same time, he knows that enforced affirmative action, though wildly popular among blacks, is somewhat unpopular among the nation’s white majority. While Congress is fearful of challenging Diversity enthusiasm, most of its white members are also fearful of the political consequences of promoting it. Thus, the administration prefers to file (or threaten to file) lawsuits, knowing such action can strike fear in everyone in a given endeavor, not just the immediate target at hand. Taking the lead are federal agencies with a civil rights division such as the Department of Justice and the Department of Housing and Urban Development (HUD). A new player in Washington, the Consumer Financial Protection Bureau (CFPB), may emerge as the most powerful agency of all.
Authorized by the Dodd-Frank financial reform legislation of 2010, the CFPB is vested with broad powers to sic affirmative action attack dogs on potentially offending organizations to ensure their practices produce the right racial breakdowns. Bureau Director Richard Cordray flexed his muscles a few weeks ago, remarking that his agency will “protect consumers from unfair lending practices – as well as those that have a disparate impact on communities of color.” Just to make sure lenders got the message, he added: “That doctrine is applicable for all of the credit markets we touch, including mortgages, student loans, credit cards and auto loans.” In his haste to achieve racial balance in loans, regardless of borrower creditworthiness, he intends to subject all credit reporting agencies, including the three major ones – Equifax, Experian and TransUnion – to “effects tests.” Thus, if applications by blacks and Hispanics for mortgage or credit cards exhibit significantly higher rejection rates than applications by whites, these reporting agencies could be sued even if their risk analyses in no way took race into consideration.
Institutional lending isn’t the only realm where the Obama administration plans to turn up the temperature. Also likely to be closely monitored are: college admissions guidelines; voter ID requirements (all the better to root out minority “disenfranchisement”); school disciplinary codes; professional licensing examinations; employee background checks; and prison sentencing guidelines. The intent is to minimize or eliminate “disparities.” Because equality of outcome is the goal, equality of process – i.e., rule of law – necessarily becomes an obstruction.
The Obama administration over the last several months has given us a taste of what to expect. In July, for example, HUD successfully intervened on behalf of the National Fair Housing Alliance and the Greater New Orleans Fair Housing Action Center to drop their lawsuit against the State of Louisiana over its administration of federal “Road Home Program” grants to homeowners whose properties were damaged by Hurricane Katrina and Hurricane Rita in 2005. In exchange, the state would make available $62 million to about 1,300 homeowners (nearly $50,000 per homeowner) in predominantly black neighborhoods in Cameron, Orleans, Plaquemines and St. Bernard Parishes. Under the Road Home Program, a qualifying homeowner could receive as much as $150,000 toward rebuilding and temporary resettlement. The black grant program allocated $16.7 billion for resettlement and reconstruction costs, of which $13.4 billion went to Louisiana. That would seem generous. Certain nonprofit civil rights groups didn’t think so.
At issue was the method by which award sizes were calculated. The State of Louisiana used a standard insurance industry practice to derive grant amounts. Homeowners would receive the lower of either the pre-storm fair market value or the cost of repairing the damages. Because most, if not all, homes in black low-income New Orleans neighborhoods had low property values to begin with, Louisiana officials wound up setting aid levels on a market value, rather than cost replacement, basis. The plaintiffs filed suit, claiming this method had a “discriminatory impact on African-American homeowners.” The suit was preposterous. It was no different in principle than demanding that an insurance company pay $20,000 for parts and labor to fix a $10,000 car totaled in a wreck. The Department of Housing and Urban Development, predictably, sided with the plaintiffs. HUD Secretary Shaun Donovan rationalized: “This agreement is a huge help to families who clearly want to get back into their homes but continue to struggle to make the needed repairs to their properties.”
Affirmative action zealots within the U.S. Department of Education under President Obama also have been on the march lately. This past October, department bureaucrats coaxed an agreement from the Oakland, California school district to impose “targeted reductions” in the number of suspensions of black, Hispanic and “special education” students for violent or otherwise disruptive behavior. The district’s suspension policy allegedly had a “disparate impact.” “Disparate impact is woven through all civil rights enforcement of this administration,” glowed Russlynn H. Ali, assistant secretary for civil rights for the Department of Education, back in 2010. The possibility that blacks far more than whites engage in behavior that should result in a suspension apparently is immaterial. Here’s a statistic that might be of interest to Ms. Ali: Nationally, the homicide rate among males between the ages of 14 and 17 is nearly 10 times higher for blacks than it is for whites and Hispanics combined. Here’s another statistic: In Chicago public schools, the very system headed not long ago by Obama Secretary of Education Arne Duncan, black students were arrested 25 times more often at school than white students during September 2011-February 2012. The Oakland case, by the way, is merely one of about 20 similar cases underway across the nation. Isn’t diversity wonderful?
Legislative overhauls also will expand opportunities for legal mischief. The Patient Protection and Affordable Care Act of 2010 (P.L. 111-148), colloquially known as “Obamacare,” offers a generous supply of affirmative action tripwire. Section 5301, which defines the criteria for federal aid to medical schools, for example, contains a subsection, “Priorities in Making Awards,” which states: “The Secretary [of Health and Human Services] shall give priority to qualified applicants that…have a record of training individuals who are from underrepresented minority groups.” Section 5303, which spells out criteria for aid to schools of dentistry, contains a subsection with similar language. In neither case does the law specify what constitutes “a record.” One thus can expect medical and dental schools to do everything possible to boost minority enrollment, including lowering admission standards, in order to stay clear of being sued. Health care delivery almost certainly will suffer as a result.
The Obama-backed Wall Street Reform and Consumer Protection Act (P.L. 111-203, or the Dodd-Frank law), also contains a cornucopia of racial favoritism. The law, among other things, gives banks a window of opportunity to escape safety and soundness requirements if they lend heavily to blacks and Hispanics, especially in neighborhoods where they predominate. An orderly liquidation of an insolvent institution, states the law, should “take into account actions to avoid or mitigate potential adverse effects on low-income minority or underserved communities affected by the failure of the covered financial company.” The legislation also created a Financial Stability Oversight Council headed by the Treasury Secretary to consider a struggling financial institution’s “importance as a source of credit for low-income, minority or underserved communities” before taking it over. And the law also creates an Office of Minority and Women Inclusion within the Treasury Department, the Comptroller of the Currency, Federal Deposit Insurance Corporation and other federal housing finance agencies.
One only can envision the opportunities for shakedowns of mortgage lenders not getting aboard the diversity express – and the fearful compliance by lenders to avoid such an outcome. Already, the capitulation has begun. Recently, the American Bankers Association advised its roughly 5,000 member institutions to give rejected minority loan applicants “a second look.” Such reconsideration, noted the ABA, “can result in suggested changes in underwriting standards.” Translation: Banks should be willing to lose money on bad loans if they made them to blacks and Hispanics.
The affirmative action juggernaut got a huge boost on November 15 when the U.S. Court of Appeals, Sixth Circuit, invalidated a ban on race-based admissions at the University of Michigan and other public colleges and universities in the state. By a thin 8-to-7 margin, the court ruled that the ban, approved by 58 percent of Michigan voters in a November 2006 referendum, violated the U.S. Constitution’s Equal Protection Clause. With convoluted reasoning, Judge R. Guy Cole, a Clinton appointee, writing for the majority, stated that the referendum “targets a program that inures to the benefit of the minority and reorders the political process in Michigan in a way that places special burdens on racial minorities.” The new arrangement, he said, “undermines the equal protection clause’s guarantee that all citizens ought to have equal access to the tools of political change.” In the view of Judge Cole (who, incidentally, is black), a race-neutral higher education admissions process somehow creates “special burdens” on nonwhites because of the likelihood of lower admissions rates. It was pure sophistry, yet it was made possible by the unwillingness of any branch of government to challenge the doctrine of disparate impact. A silver lining: The State of Michigan plans to appeal the ruling to the U.S. Supreme Court, especially given that the Ninth Circuit Court of Appeals this April upheld a similar ban (Proposition 209) in California.
Racial favoritism possibly got an even bigger boost in September when the City of St. Paul, Minn. unexpectedly withdrew its appeal of a February circuit court decision to U.S. Supreme Court. The case, which appeared on the Supreme Court docket as Magner v. Gallagher, grew out of an allegation that St. Paul’s aggressive enforcement of its housing code had a disparate impact against minorities. A group of residential landlords, led by Thomas Gallagher, invoked the Fair Housing Act to invalidate the enforcement procedure (though not the code itself). City officials, led by Vacant Building Manager Steve Magner, moved to have the case dismissed. A district court granted the motion, arguing the code enforcement was not discriminatory. Gallagher appealed, and an Eighth Circuit Court sided with him and denied Magner’s request for a rehearing. Magner and other city officials in turn filed an appeal with the U.S. Supreme Court, which granted them certiorari. But the city for some reason pulled out two months ago.
Some leading members of Congress believe they know why: The Department of Justice had put the squeeze on the city. A group of ranking lawmakers and oversight committee chairmen sent Attorney General Holder a letter in September which stated in part: “Mr. Perez fretted that a decision in the city’s favor would dry up the massive mortgage lending settlements his division was obtaining by suing banks for housing discrimination based on disparate effects rather than any proof of intent to discriminate.” The letter suggested the department made a quid pro quo deal: In exchange for St. Paul dropping its appeal, the DOJ would refrain from intervening in a separate $180 million suit against the City invoking the False Claims Act. Justice Department officials deny using such intimidation. A DOJ spokesperson said, “The decision was appropriate and made following an examination of the relevant facts, law and policy considerations at issue.”
The Justice Department may be truthful in letter, but it is dishonest in spirit. The department, which for the next four years will be in the hands of affirmative action fanatics, has proven to be unyielding in its application of the disparate impact standard as broadly as possible. Currently the DOJ has at least five active lending discrimination suits and has opened another 30 investigations. At a Columbia University World Leaders Forum in February, Holder expressed his support of affirmative action this way: “The question is not when does it (affirmative action) end, but when does it begin? When do people of color truly get the benefits to which they are entitled?” In a nutshell, Holder summarized the Obama administration’s arrogance and contempt for constitutional liberty. Never mind that diversity enthusiasts already have used enormous intimidation to extract huge financial concessions under the guise of combating discrimination. Never mind that there might be good reasons to oppose such an approach to law. Holder insists the process barely has begun and thus must expand radically. As for his notion that people are morally entitled to the fruits of others’ labors by virtue of not being white (“people of color”), it is nothing less than a rationale for legalized theft.
Affirmative action began in earnest more than 40 years ago. And its pace is accelerating. The real question should be: When will it end? One thing is for sure: It’s not going to end, or even begin to end, as long as Eric Holder’s employer, Barack Obama, occupies the White House. Obama’s success as a presidential campaigner in 2008, if one recalls, rested heavily on his self-constructed image as a “healer,” someone who could bring the nation together by transcending seething racial division. But just underneath the surface, for those willing to look, was a man who defined himself by his partial African ancestry and animosity toward whites (including the white side of his family). Even a cursory reading of his 1995 book-length memoir, Dreams from My Father: A Story of Race and Inheritance, reveals as much. Obama and allied anti-white shakedown artists, from Eric Holder to Al Sharpton, see government coercion of white-managed institutions as laudable because the goal is full social equality. Unfortunately, it’s a goal that can’t be achieved without chipping away at the foundations of liberty. And in any event, it is unachievable.
A little over 50 years ago, well before the affirmative action platoons swung into action, the late Austrian economist-legal philosopher Friedrich Hayek, in his now-classic book, The Constitution of Liberty, foresaw the futility of this project. He wrote:
From the fact that people are very different it follows that, if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently. Equality before the law and material equality are therefore not only different but are in conflict with each other; and we can achieve either the one or the other, but not both at the same time…(W)here the state must use coercion for other reasons, it should treat all people alike, the desire of making people more alike in their condition cannot be accepted in a free society as a justification for further and discriminatory coercion.
This, then, is the central problem. The current administration believes that because whites as a whole are better off than blacks and Hispanics, their condition necessarily must be due to illegal and immoral “discrimination.” Obama, Holder, Perez and other affirmative action soldiers decry any social arrangements that allow whites to enjoy advantages because to them, such advantages, by their nature, are unfair. This view is 180 degrees removed from rule of law. “Discriminatory coercion,” to use Hayek’s term, is precisely what describes the Obama administration’s approach to law and social policy. And it is whites, not nonwhites, who have much to fear. The first Obama term, corrosive of liberty as it has been, may be an omen of far worse things in the second term.