From the New York Times
, a new entry in the sweepstakes to put a politically correct spin on the emerging facts about the mortgage meltdown
The Recession's Racial Divide
... Despite the sense of white grievance, though, blacks are the ones who are taking the brunt of the recession, with disproportionately high levels of foreclosures and unemployment. And they weren’t doing so well to begin with.
In fact, you could say that for African-Americans the recession is over. It occurred from 2000 to 2007, as black employment decreased by 2.4 percent and incomes declined by 2.9 percent. During those seven years, one-third of black children lived in poverty, and black unemployment – even among college graduates – consistently ran at about twice the level of white unemployment.
So, maybe importing so many millions of foreigners from 2000 to 2007 to "do the jobs [African] Americans weren't willing to do"
wasn't such a hot idea after all? Well, don't ask Ms. Ehrenreich about immigration. She evidently has no opinion on the subject, since it doesn't come up in her long spiel.
...Plenty of formerly middle- or working-class whites have followed similar paths to ruin: the layoff or reduced hours, the credit traps and ever-rising debts, the lost home. But one thing distinguishes hard-pressed African-Americans as a group: Thanks to a legacy of a discrimination in both hiring and lending, they’re less likely than whites to be cushioned against the blows by wealthy relatives or well-stocked savings accounts. In 2008, on the cusp of the recession, the typical African-American family had only a dime for every dollar of wealth possessed by the typical white family.
In other words, blacks weren't
as good credit-risks on average, even when incomes were the same. So, why, then, four decades of government effort to change the culture of lending in order to get more mortgage dollars into the hands of minorities? Maybe the old culture had a more accurate view of the creditworthiness of blacks than the new government-nurtured culture?
Racial asymmetry was stamped on this recession from the beginning. Wall Street’s reckless infatuation with subprime mortgages led to the global financial crash of 2007, which depleted home values and 401(k)’s across the racial spectrum.
So, maybe Wall Street shouldn't have looked favorably on lending more to minorities? Is that what you are saying?
People of all races got sucked into subprime and adjustable-rate mortgages, but even high-income blacks were almost twice as likely to end up with subprime home-purchase loans as low-income whites – even when they qualified for prime mortgages, even when they offered down payments.
I call this the "thread-the-needle"
part of the new conventional wisdom. It's like Ptolemy's complex system of epicycles intended to "save the appearances"
of the theory that all planetary orbits were perfect circles. Our era's Ptolemaic theory is that minorities can only be victims of discrimination, not beneficiaries of discrimination, so the only logical solution is that all those blacks who defaulted on their subprime loans were victims of discrimination: see, they should have gotten prime
As Ehrenreich just mentioned, blacks tend to have an order of magnitude less net worth and fewer relatives to help them make payments during a crunch, so why would anybody think that blacks with low incomes would be just as good credit risks as whites with low incomes? As Laderman and Reid of the San Francisco Fed's study of California mortgages showed, even adjusted for income and FICO score, black borrowers went into foreclosure at 3.3X the rate of white borrowers. And the Boston Fed's study of subprime mortgages in Massachusetts showed that black subprime borrowers have consistently had about 2.3X higher default rates even long before the crash.
In reality, people who defaulted on subprime mortgages shouldn't have gotten a mortgage.
Economists are studying this argument that higher interest rates caused delinquency differences among the races and are finding it very dubious. For example, in "Liar's Loan?" Jiang, Aiko Nelson, and Vytlacil report on 700,000 mortgages from one lender:
Our data suggest that loan pricing is an unlikely explanation for the higher delinquency rates observed among black and Hispanic borrowers. Black borrowers exhibit higher delinquency rates relative to white borrowers, even for bank-originated loans for which we find no evidence of unfavorable pricing. The average (median) unpaid balance on loans among black borrowers is $185,000 ($150,000). Thus, the estimated black-white difference in interest rate among roker-originated loans—10-16 basis points— amounts to an additional monthly payment of $15-$25 (or $13-$20) using the mean (or median) balance. It is unlikely that such a difference could be pivotal in loan delinquency. Moreover, Hispanic borrowers exhibit the highest delinquency rates in our sample among all demographic groups, although there is no evidence that they face unfavorable interest rates in comparison to other groups
According to a 2008 report by United for a Fair Economy, a research and advocacy group, from 1998 to 2006 (before the subprime crisis), blacks lost $71 billion to $93 billion in home-value wealth from subprime loans. The researchers called this family net-worth catastrophe the ”greatest loss of wealth in recent history for people of color.” And the worst was yet to come.
Funny how our politicians and journalists and bankers didn't learn anything from this earlier, smaller-scale debacle with subprime loans to blacks, nor from the FHA debacle of the late 1960s and early 1970s. It's almost as if political correctness makes you stupid.
In a new documentary film about the subprime crisis, ”American Casino,” solid black citizens – a high school social studies teacher, a psychotherapist, a minister – relate how they lost their homes when their monthly mortgage payments exploded. Watching the parts of the film set in Baltimore is a little like watching the TV series ”The Wire,” except that the bad guys don’t live in the projects; they hover over computer screens on Wall Street.
While they were being egged on by regulators, politicians, and the press for breaking down racist barriers to homeownership.
It’s not easy to get people to talk about their subprime experiences. There’s the humiliation of having been ”played” by distant, mysterious forces. ”I don’t feel very good about myself,” says the teacher in ”American Casino.” ”I kind of feel like a failure.”
Well, when you default on a loan, you are at fault. But, if you are black you can always blame it on "distant, mysterious forces,"
so your crucial self-esteem won't take a hit.
Even people who know better tend to blame themselves – like Melonie Griffith, a 40-year-old African-American who works with the Boston group City Life/La Vida Urbana helping other people avoid foreclosure and eviction. She criticizes herself for having been ”na??ve” enough to trust the mortgage lender who, in 2004, told her not to worry about the high monthly payments she was signing on for because the mortgage would be refinanced in ”a couple of months.” The lender then disappeared, leaving Ms. Griffith in foreclosure, with ”nowhere for my kids and me to go.” Only when she went public with her story did she find that she wasn’t the only one. ”There is a consistent pattern here,” she told us.
But, pattern recognition is racist, so Americans aren't very good at it these days.
Mortgage lenders like Countrywide and Wells Fargo sought out minority homebuyers for the heartbreakingly simple reason that, for decades, blacks had been denied mortgages on racial grounds, and were thus a ready-made market for the gonzo mortgage products of the mid-’00s. Banks replaced the old racist practice of redlining with ”reverse redlining” – intensive marketing aimed at black neighborhoods in the name of extending home ownership to the historically excluded. Countrywide, which prided itself on being a dream factory for previously disadvantaged homebuyers, rolled out commercials showing canny black women talking their husbands into signing mortgages.
Damned if you don't and damned if you do.
... Joel Osteen, the white megachurch pastor who draws 40,000 worshippers each Sunday, about two-thirds of them black and Latino, likes to relate how he himself succumbed to God’s urgings – conveyed by his wife – to upgrade to a larger house. According to Jonathan Walton, a religion professor at the University of California at Riverside, pastors like Mr. Osteen reassured people about subprime mortgages by getting them to believe that ”God caused the bank to ignore my credit score and bless me with my first house.” If African-Americans made any collective mistake in the mid-’00s, it was to embrace white culture too enthusiastically, and substitute the individual wish-fulfillment promoted by Norman Vincent Peale for the collective-action message of Martin Luther King.
So despite the right-wing perception of black power grabs, this recession is on track to leave blacks even more economically disadvantaged than they were. Does a black president who is inclined toward bipartisanship dare address this destruction of the black middle class? Probably not.
Does anybody dare address the question of how we got into this mess?
In summary, the government and the media worked for 40 years to change the business culture to demonize anyone holding perceptions that minorities tend to be worse credit risks. They succeeded on a vast scale. The debauching of credit standards for everybody, and the creation of a false sense of confidence, which has been promoted by all right-thinking people in the name of minority homeownership, led to a mortgage meltdown which set off a huge recession.
And we still aren't supposed to talk about it.