Tom West,

"The problem with letting the free market correct its own errors are that it doesn't just punish the mistaken. If my home builder skimps on materials, he doesn't just go out of business because he has no repeat business. He also has destroyed my home."

That's why we have courts to enforce contracts. Materials should be specified in the contract. We don't need a bureaucracy and regulations to enforce private contracts. Just a court system. Corporations seem pretty able to get those who construct things for them to build it right without Daddy.

"Our problem is that current modern society is like a well oiled jet liner. If a big enough piece breaks, we *all* hit the ground at 1,000 km/h."

While its nice to find out that you don't even live here (no Americans talk about kilometers per hour), and have no business commenting on America's problems, you're again completely wrong. The analogy of a jetliner is only true if everything is linked together. The US used to be a place where the power was divided and there was competition--so that if something failed it was isolated, like the compartments of a submarine. The lust for regulation and tinkering by government destroyed that. NOW its linked together for the worse.

Chris White,

"And keeping the focus on leftist do-goodism gone awry rather than the "conservative" mania for reducing regulation and oversight of the financial markets...was it primarily due to greedy kleptocrats in the financial industry lobbying for deregulation so they could profit from less oversight, fewer rules, and creating "complex financial instruments" like derivatives."

Talk about a one-note johnny! It's like you got hit in the knee with a ball-peen hammer! Your reflex to hate the anyone wealthier than you borders on insanity. Anyone smarter, wealthier, or more moral than you is a target of your snarky socialist nonsense. It just can't be because of anyone with dark skin. It just can't be! It's those damn rich whites! And just to prove what I'm saying is true...

I'd really like to know how much of the sub-prime mortgage activity was connected to low income minority first time buyers versus how much was connected to middle class mainstream Americans (read: white people) re-financing or buying McMansions and condos far more luxurious than they might otherwise have been able to afford.

Yes, Chris, it was just the poor, poor huddled brown victims with their tin cups, flies buzzing around their faces, for a small piece of bread from the plutocrats! They didn't lie on their mortgage applications, they didn't buy two or three houses to try to cash in on the mania. No, just the FIRST TIME buyers, the outcast, the poor race victims hit again by whitey.

Oh the white devils! Buying "Mcmansions" and "luxury condos"! Your hatred and desperation to try to make yourself out to be superior to other white people is so disgusting and vile that its hard to put it into words. The Christmas spirit indeed! There's no more pathetic example of prejudice than what you hurl at your fellow man. You are, without question, the most insecure and vicious hater I've ever seen. The fact that you hate your own kind just makes it that much more disgusting. You would love to have more money than them, but you don't work hard enough, so you invent ways to hate what you can't be. Ugh!

The moldy idealism of the 60's--what hast thou wrought?

Do you want to know how you destroy the most prosperous, free, and tolerant society ever? You do it by saying its not prosperous enough, its not free enough, its not tolerant enough. Then you need the government to make it more free by mandating what people do. And make it more prosperous by having the government raise taxes and transfer wealth to those who are screw-ups. And you make it more tolerant by having government ban intolerance!

Hahahaha! What nonsense! Have a good Christmas! It'll be the last one that looks like the ones you knew before!

Posted by: L on December 24, 2008 5:22 PM

"it was gov't intervention that helped to bring the country out of the depression": apart from FDR's stopping of the run on the banks, a good case can be made that virtually all of the gov't intervention by Hoover and FDR made things worse.

Posted by: dearieme on December 25, 2008 7:01 AM

Uh-oh! I see that the "Alyysa" spam comment snuck past our host's watchful eye.

Posted by: PA on December 25, 2008 9:30 AM

L: While its nice to find out that you don't even live here (no Americans talk about kilometers per hour), and have no business commenting on America's problems, you're again completely wrong.

I don't live "here" either, and I have every business commenting on America's problems. Just as you have every business commenting on the problems of any other country.

In any case, I think the people who run this blog have more right to decide who gets to comment on what. So the next time the urge comes over you to set yourself up as this blog's owner, you might want to consider whether you're doing something that you really have no business doing.

As it is, you're now in my "skip-over" file. And I think that was just your second or so comment here! Well done.

So L, mind your own g*dd*mned business, and Merry Christmas!

Posted by: PatrickH on December 25, 2008 9:47 AM

Steve Sailer shrewdly gamed the NYTimes by focusing on accusing Bush of encouraging the loans. If he'd said Congress encouraged it, he'd have got nowhere.

Posted by: Noumenon on December 25, 2008 12:27 PM

Steve's point is still not valid, still racist, and he has no business gloating. The NY Times article was really incoherent. The only evidence you're going to find of the Federal government "leaning" on banks to make loans to minorities is the Community Reinvestment Act -- which was passed in 1977, had its enforcement significantly weakened by the Bush administration, and in any case did not regulate the independent mortgage servicers who originated most subprime loans and also did not regulate the Wall Street non-bank financial operations that securitizing those subprimes.

The Bush administration just made a series of general speechs about the "ownership society" in which they cheered on the lending binge from the sidelines, and usually the laundry list of supposed good things in those speeches included a talking point about minority homeownership.

This is just flat-out racist scapegoating from the usual suspects on the wacky right. A black person must be behind every bad headline in your morning paper. This is a deep systemic issue that is bipartisan and comes from the top down -- the national and international financial system and how it was regulated.

Posted by: MQ on December 25, 2008 8:22 PM

Patrick H,

As it is, you're now in my "skip-over" file.

Likewise. In just about as many posts.

"I think the people who run this blog have more right to decide who gets to comment on what."

I never said he couldn't comment. I said he had no business commenting. Don't read too good, do ya?

I don't live "here" either, and I have every business commenting on America's problems. Just as you have every business commenting on the problems of any other country.

No, I don't have every business to do that. I don't live there. Just like I have no business telling anybody how to run their family life.

The mortgage mess originated here because of a false set of premises about "minorities" that are uniquely American in origin. It was done by our politicians. I don't see what the point is of a Tom West who is a foreigner telling us that our government should take over more and more of our economy. He doesn't live here. Most people here don't want it. He should be happy in his socialist homeland and leave us alone.

If orginizations in his country were stupid enough to buy these pails of garbage, and people where he is are suffering, then he should encourage his compatriots to stop buying American securites and invest in his own country with said organizations surplus capital. If we suffer from that, then so be it. The sooner our socialist system collapses, the better.

As far as Chris White goes, he doesn't give a crap about minorities. He lives far away from them and uses them to paint himself as morally superior to his fellow man, because he dislikes them and feels inferior.

Posted by: L on December 25, 2008 8:59 PM

Some of the Sailer diversity recession thesis doesn't require minorities being a huge percentage of the defaulting dollars (though I gather that Sailer does believe that too). From reading Sailer and his blog commentators, I also gather the following:

Yes, along with minorities, lots of whites got in on the fun and got in over their heads on mortgages. But an important question to ask is what was the rational this was allowed to happen, and would this rational have flown in a homogeneous country?

The main rational for lowering lending standards was disparity in home-ownership rates (and other wealth measures that were in part blamed on disparities in home-ownership rates) between races. Under this rational, standards were lowered for everyone, because this would have been a bridge too far for affirmative action if marginal white borrowers alone would have been prevented from getting in on the fun. Loans you can't get are a lot more in your face than one (out of many) job applications you never hear back from due to affirmative action that you never even know was due to that.

If the US consisted of just white people (no I don't advocate expulsion of all non-whites), few people would have cried about a 69.1% home-ownership rate. This was the white american home-ownership rate in 1996. See:
http://www.infoplease.com/ipa/A0883976.html

About 30% of households not being ready to own a home would seem about right. It's not at all unfashionable in the US to talk disparagingly about white-trash, rednecks, appalachians, often with the "inbred" adjective added. This is something you can do on national television and keep your job and barely even be criticized. In an all white society I am sure it would be the same way. Rightly or wrongly, it is just accepted that a certain portion of white people aren't too hard-working and have bad habits. Who would agitate for a higher white home-ownership rate? "What do you think the rate should be, 90 freaking percent? You think that many whites can be diligent enough to make the payments?" might be the response.

But in the actual US, we have a large black and hispanic population (currently 28% of the pop.) that had less than a 45 percent home-ownership rate in 1996 (see above link). So you can get people agitating about disparities. The white home-ownership rate being 55% higher among whites (70/45=1.55) is big news. It is easy to say that 30% of whites probably shouldn't own homes in the first place. It is hard to say that 55% of minorities probably shouldn't. You can cite minority education, wealth, earnings, and IQ that are lower than the white average and you will still be shouted down as a racist and ostracized. No, I am not talking about anonymous blog comments, I am talking about the real world, where real people make decisions, on television, in boardrooms, in congress, and in universities. That is where this liberal philosophy of "zero group differences if we all just try hard enough" rules (yes even among lots of Repubs, as Sailer and the NYT articles show).

So the train rolls on, and racial disparities are used to push for lowered lending standards, and marginal whites also jump on that band-wagon. That is why this should be called a "diversity recession". Without diversity, and thus without racial disparities, standards would never have been lowered this much.

American was born with racial diversity. That was a fact of life. But then we went ahead and raised our minority population from 12% to 35%, mostly starting in 1965. That multiplies the (proportional) minority political power. That multiplies the power of social activists and liberals to clamor for lowered lending standards. Here we are continuing the immigration which will raise the minority percentage even higher. Here is a cost of that immigration. Everyone needs to know what massive third-world immigration helped do to America. Get ready for more of it if that immigration isn't halted.

Posted by: scottynx on December 25, 2008 9:48 PM

ps, read Sailer's volumous works on this. My comment was predominantly influenced by Sailer and his blog commenters, but crucially filtered through the prism of my own mind as well. I can't/don't speak for him.

Posted by: scottynx on December 25, 2008 10:00 PM

The problem with Sailor is that for him, everything bad whatsoever traces back to illegal immigration and minorities. If he believes in global warming, it's because he believes that minorities caused it.

The Times is an extremely erratic centrist newspaper hated by both sides. They and the Post have been sucking up to the right wing for quite some time, without much success. Brad DeLong, who's not even very liberal, has been hoping for their demise for years. They're not much of an authority for anything controversial any more, they're just wallowing around. They don't even represent a point of view, especially not the liberal point of view.

As for the financial crisis, an enormous part of it came from excessive leveraging of debt -- purely financial questions not directly related to housing. Some came from high-level management looting their corporations with enormous bonuses. This is one example of perverse incentives all the way up and down the line -- rewards incentivizing people to do things that would harm the business they supposedly worked for, but which would profit them. All of this has something to do with deregulation and lax enforcement.

As for the bad housing loans, a certain proportion of them were Freddie Mac-Fanny Mae loans to minorities. The majority, and I think the vast majority, were by other lenders not affected by the rules Sailor talks about. Non-poor non-minority borrowers bought homes much larger than they could afford, or they bought several homes they couldn't afford for speculation purposes, or took out equity loans on their houses to get mad money. How it happened is still being worked out, but blaming it on minorities is just demagogy.

Posted by: John Emerson on December 25, 2008 10:27 PM

Liberals move quick. It seems just yesterday that lowering loan standards for NAMs was The Best Thing Ever and how we needed to lower standards otherwise it would be Racism. Yes, Racism! Now the NY Times has issued the communique to all right thinkers...it is bad and Bush's Fault.
That guy is the best thing that has ever happened to liberals. When shit goes wrong, it doesn't matter how many liberals were involved, Bush gets the blame. When liberals voted with and supported Bush, they could claim that they were tricked(like with the Iraq War) when they got nervous and things start looking bad.
If this loan program was such a bad idea, why didn't any liberals speak out against it? I keep hearing how smart liberals are. They couldn't think this through? Were they tricked by Bush again?! Not that it matters anymore. The damage has been done(and we aren't even seeing the full extent yet, believe me). But this little disaster that liberals created will disappear down the memory hole and they can move on to the next disaster they are supporting that further destroys the US. That too will create mass destruction and I'm sure Bush again will be blamed yet again...

Posted by: Bled Dry on December 25, 2008 11:00 PM

If this loan program was such a bad idea, why didn't any liberals speak out against it?

because there was no "loan program" for minorities. The Times article doesn't identify one, there is no such government program, although right-wing propagandists keep trying to come up with candidates for one.

Anyone making the argument that the financial crisis is about government pressure to make loans to minorities is immediately demonstrating that they don't know fact one about how American finance has worked for the last 10-15 years.

Posted by: MQ on December 25, 2008 11:59 PM

I never said he couldn't comment. I said he had no business commenting. Don't read too good, do ya?

I don't know what the site's profanity policy is, but that's [very very very] stupid and obnoxious.

Posted by: John Emerson on December 26, 2008 12:36 AM

Posted by MQ at December 25, 2008

Memory Hole indeed...

Posted by: Bled Dry on December 26, 2008 12:02 PM

The rationale of the fiasco was that "home- ownership" (do you own a home, or have you just taken out a huge loan where the bank really owns the home?) should be extended to "all" americans--even if they were illegal aliens! What a scam!

And then the federal government set up policies to ensure this was to be carried out. The evil capitalist banking houses were told that they were to carry out such policies. If they balked at making such a bad loan, and then selling said bad loan off to an investor, they were told that there would be a ready buyer in Freddy Mac and Fannie Mae, which were stocked to the rafters with government insiders. Said crappy loans would be "bundled" with good loans. Investment insurance, now known as "derivatives" would act like your local insurance company if there were trouble--for a small sum, you protect the whole enchilada if things went south. Federal regulators approved of the whole business and things went swimmingly for a few years. Now we have tens of trillions of dollars of real estate losing value, and more and more loans going bad as people lose their jobs. The problem is cascading, not getting better.

The whole thing was based on the false premise that minorities were shut out of the "American Dream" (which I thought used to be based on freedoms, but now I see that its just about money) unfairly. No mention was made that they had poor credit histories or didn't make enough to actually be able to afford the house(s) that they bought. Or that they were here illegally and shouldn't have qualified for the loans because they were currently felons.

Of course there were white people buying houses too. But they were not the largest class of credit risks. The government policy of forcing banks to make bad loans was not justified to increase white home ownership. The policy was based on the same philosophy that has gradually bankrupted and ruined the rest of our country--that people are not free enough, not prosperous enough, not tolerant enough, etc, so we have to even it all out by government intervention. This of course leads to bankruptcy and totalitarianism, but that's a minor detail. No real differences exist among groups. Any that do are just discriminatory, not real.

In any event, Sailor is not erroneous in pointing that out, and neither is anybody else for agreeing with it. It's true.

And it wasn't the greedy banks lobbying for less regulation--it was the government commanding the banks to do something stupid through regulation. I think the banks know the difference between a fast buck, and steady good business. What do you think, that they like the recession/depression now that nobody is taking out loans?

On the separate issue, I guess I have no business saying that foreigners have no business in this domestic issue, other than to gripe about bad investments their own institutions made in this fiasco. Why the cry for censorship? If people don't know the differnce between saying that its none of your business and that you should be censored, then they can't read properly. The two things are not the same. I think that I have no business at all commenting on the affairs of other countries. I don't live there, and I don't know the whole story, so I keep my thoughts, if I have them, to myself. I don't think that foreigners who promote more government intervention in the US know what they are talking about. That's the problem here, not the solution.

Posted by: L on December 26, 2008 4:45 PM

People who say "kilometers" instead of "miles" should not be excluded from this discussion. This is a global crash now.

Of course there were white people buying houses too. But they were not the largest class of credit risks.

As I understand, that's flat wrong. The Fanny-Mae/Freddy-Mac minority buyers were a minority of the bad debt. The law encouraging minority ownership (back fairly early in Clinton's Presidency) was an early minor to moderate factor. Things hve happened since then.

We're really facing the biggest financial disaster in 80 years or so, and we really should try to get to the bottom of it.

Posted by: John Emerson on December 26, 2008 6:15 PM

My source says:

More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

McClatchey Oct 12, 08

Posted by: John Emerson on December 26, 2008 6:28 PM

More

Posted by: John Emerson on December 26, 2008 6:30 PM

Now John, don't try logic, reason, or facts when there are perfectly good scapegoats to sacrifice.

Posted by: Chris White on December 26, 2008 7:50 PM

Uh, the fact is that Freddie Mac and Fannie Mae were there to buy up the bad mortgages--under the direction of the politicians, even though said agencies swore up and down that they were private entities not backed by the taxpayer. We all know how that turned out! Franklin Raines (a black), a good buddy of Bill Clinton, presided over this debacle, and bailed with how many hundreds of millions of dollars?

It matters not if the subprime lender was subject to the housing law--they made said bad loans because the Fanny and Freddie were buying up those mortgages. And Freddie and Fannie were instructed to do so by the Govt. And minorities made up a disproportionate percentage of the bad loans. And said minorities were lying their asses off on mortgage applications.

You really need to read more clearly. It has been stated here often that the policy of giving loans to bad credit risks was driven by the same tired 'ol nonsense about racial discrimination rather than on sound business practices of evaluating credit risks individually (rather than collectively) with objective criteria.

This racial horse manure is a uniquely American bit of nonsense that has been foisted on the US for over 40 years now and has bankrupted the country. It truly is an American problem, and yet somehow the solution is to give more power to the government which caused the problem in the first place.

You also need to figure out that a significant portion of the white participation in such a disaster was the same process of white flight from said minorities as they were allowed to move into white people's neighborhoods with this legislation. Or you would know that if you lived here in the US. Remember, this white flight is based on rational reasons--higher crime rates, gang activity, drugs, and failing schools, (eventual) falling real estate prices, etc. This is REAL. This is an American problem.

Or maybe a British one now too. Or maybe an Austrailian one. For the same reasons.

It was nice to hear from Chris White, whose head popped up at the thought that he can go back to blaming the middle class white people he so dearly hates for all the world's problems. He won't rest until he can claim moral and intellectual superiority to them all--no sir! It's a personal thing.

Posted by: L on December 26, 2008 10:06 PM

And minorities made up a disproportionate percentage of the bad loans.

As far as I know, that's just plain false. Minorities (i.e. black and Hispanic) make up almost 25% of the population by now, so you'd expect a fair number of minority loans to be involved. You're just making up your facts. White flight started long before Fanny Mae and Freddy Mac, and in any case white flight wasn't the reason why, for example, speculators were buying up four high-value houses for resale when they couldn't really afford one.

Based on what I know, about 20% of the bad home loans were of the type you describe, and the originally housing market problems were multiplied by securitization. No one is saying that the minority loans were no part of this at all, but it's just wrong to make them the most important factor.

If your only tool is a hammer, everything looks like a nail.

Posted by: John Emerson on December 27, 2008 12:54 PM

The truth peeks through in this NY Times article...

http://tinyurl.com/9qzq3e

Posted by: Charlton Griffin on December 27, 2008 3:58 PM

Where is the government interference in the article you just posted? It looks like management looting the company they managed.

Posted by: John Emerson on December 27, 2008 5:57 PM

I don't know where you get your 20% number (speaking of making up facts). Half of all subprime mortgages were taken out by minorities, which is where the main problem exists. White flight has been going on for a long time and accelerated recently during the housing boom.

You make the logical fallacy of saying that the housing speculators were white. But I guarantee that there were many hispanics, blacks, and other minorities in this mix. Why? Perhaps you are like Chris White, and see tham as not smart enough to try to speculate on the housing boom. Just poor, first-time buyers, eh?

I prefer a hammer to a wet noodle, thanks.

Posted by: L on December 27, 2008 7:35 PM

The 20% is the Fanny Mae/Freddy Mac proportion. That's the part people are using to blame it on Clinton.

Of the remaining 80%, I don't know the racial proportions. A lot of the houses that are underwater are million dollar houses in upscale suburbs. I don't think that they were bought by itinerant fruit pickers.

The link Griffin posted describes management going crazy with loans that made no sense either for the bank or the buyer, except if the market kept rising forever. So the bubble kept expanding and more loans were taken out until the bubble collapsed. The big players were Kerry Willinger, various contractors who found the actual borrowers, and the borrowers themselves. Willinger and the contractors were effectively looting WaMu at the expense of stockholders.

As for the racial proportions, I don't know. Where do you get your information? But I do not see Willinger as an example of liberal political correctness or someone forced by the government to make bad loans. He just looks like an gambling CEO who made sure that had his own cut salted away when the collapse came.

One perverse inentive people are talking about is short term bonuses. Bonuses could be much bigger than salaries, and were based on the annual bottom line and not the long term, so for a CEO who got three years of bonuses and then saw his company go under would come out ahead.

The article doesn't even mention the additional factor in finance, leveraging the loans with financial instruments no one was able to understand. This is why even banks that didn't make home loans were hurt. I don't think that fruit pickers were responsible for that either.

Posted by: John Emerson on December 28, 2008 9:32 AM

I think I've said what I have to say. There are several questions on the table.

To what extent was the housing crisis caused by Fannie Mae and Freddy Mac. I'd say, to a rather small extent.

To what extent were political attempts by Clinton and Bush to increase low-income or minority ownership responsible? I'd still say that this factor was relatively small.

What proportion of the underwater borrowers are minorities? I'd say definitely less than 50%, but possibly more than 25% (the random proportion). But I don't know.

How much of the problem is the bubble, and how much is leveraging? I don't know.

Whose actions caused the most damage? My guess it was the managers of the large lending institutions, together with the contract agents they found, as well as whoever was responsible for lenient regulation.

Posted by: John Emerson on December 28, 2008 1:36 PM

Wow. Here's the deal--the subprime mortgages are the ones going bad. And 51% of those were to minorities. If you figure that foreclosures are evenly ditributed among the group, then minorities make up the majority of foreclosures.

Most of the foreclosures are not for multi-millon dollar homes the highest rate of forclosures are in towns like Detroit, Atlanta, Las Vegas, Memphis, Miami, Oakland, Cleveland, and lots of cities in Texas, Florida and California--areas with huge numbers of minorities.

Socialists can't stand the truth! I'm sorry that the fruit pickers and blacks are destroying the country for everybody else, but they are. Send the illegal aliens home, and leave the rest of us alone. Things should then work out better. Socialism has bankrupted every country its been tried in, even those European countries that everyone touts as wonderful.

Posted by: L on December 28, 2008 1:48 PM

L, I think that your facts are wrong, and your level of analysis can be found at any corner tavern. Your most recent post is just hot air. Why'd you drag socialism in, for God's sake?

Posted by: John Emerson on December 28, 2008 2:13 PM

L, where do you get the 51% number? I'm not disputing it, I'd just like to see a source.

Posted by: JV on December 28, 2008 3:15 PM

My video on culturism and economics argues that the word culturism could have stopped this whole meltdown. Why?

When we see disparity in achievement varying by cultural group, we discount inherent racial differences. Then we make the multicultural mistake of discounting the impact of culture. So we are left with the system being racist. We then try to correct it and . . .

If we had used culturist logic, if we had the word culturist, we would see that differences in attainment reflect cultural values. Some scrimp and educate. Some skip and fornicate.

Rather than making us think America is racist, acknowledging culture as being important enough to impact economic and educational achievement could lead to groups being self-reflective about their values. This would lean us towards culturism and away from multiculturalism. It would also stop the government from saying differences show we are racist.

www.culturism.us

Posted by: Culturist John on December 28, 2008 7:44 PM

Gentlemen,

The L is not blowing hot air:

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2007/04/13/carollloyd.DTL

http://www.usatoday.com/money/perfi/housing/2005-03-16-subprime-usat_x.htm

http://cityroom.blogs.nytimes.com/2007/10/15/subprime-mortgages-concentrated-in-citys-minority-neighborhoods/

http://www.consumersunion.org/finance/minority-rpt1002.htm

I could post many, many more articles.

John Emerson, prepare to eat your crow!

Posted by: L on December 29, 2008 2:28 AM

The root of the current problem was the Clinton administration's extension of the Community Reinvestment Act to require mortgage lenders to meet quotas of loans to problem minorities. Because of pre-existing social conditions, these groups were disproportionately unqualified for mortgages. Under Asst. Sec of HUD Achtenberg, the Feds went from enforcing strict lending standards to requiring lenders to weaken their standards to met the quotas.

The lenders rolled over, and some of them found it was good: they could make quick money on these mortgages, and resell them. Fannie and Freddie enabled a big chunk of that by turning dubious mortgages into securities with a perceived Federal guarantee. Once the sub-prime door was open, lenders used it for everybody, sucking up the easy money. Wall Street loved it too.

The Bush administration made an effort to rein in Fannie and Freddie, but F&F lobbying shot it down with the aid of House Speaker Denny Hastert and other Republicans, and a lot of Democrats. Besides which, the "ownership society" was an attractive concept for conservatives, no one wanted to be against home ownership for minorities, and Wall Street opposed any interference with its gravy train. As long as property prices kept rising, the balls stayed in the air. Now the clock strikes midnight, and everything's turning into pumpkins, mice, and rags.

In other words, there's lots of blame to go around. But the root of the problem was government mandated lending quotas - not deregulation - and the trunk was F&F's privileged position as GSEs - not deregulation.

Posted by: Rich Rostrom on December 29, 2008 4:45 AM

One wonders if "L" fully read and comprehends the articles he linked to. Do they support his thesis that minorities disproportionately hold sub-prime loans? Yes. However, these articles also make clear that this is essentially due to unscrupulous lending practices, a collusion as it were between real estate agents and mortgage writers who benefited from the sales commissions and high front loaded fees built into subprime loans.

Here are a handful of quotes from the linked articles.

"One argument is that these groups naturally get subprime loans because they have bad credit or are buying in riskier neighborhoods. But according Fannie Mae, there is an enormous lending disparity across the nation: One study found that 50 percent of all borrowers qualified for a cheaper loan than the one they eventually got. They even discovered that female buyers tend to get higher-cost loans than male counterparts."

"Neither Rosa nor Alberto speaks English, so they were completely dependent on their real estate agent and their mortgage broker for advice and to translate and educate them about the process. "In other business transactions in California, if you negotiate in Spanish, you are required to provide translations of all documents. But real estate contracts are exempt from this,""

"... first-time home buyers who "buy homes that they can't afford, with mortgage brokers raking in the fees and an added twist that the homes are often substandard and they are appraised above their actual value." The other kind of cases involves seniors -- often African American -- who are persuaded to refinance their homes with more expensive adjustable-rate loans that carry steep prepayment penalties."

"Regarding subprime lenders going bankrupt, she has "no sympathy whatsoever. They created this monster.""

" ... buyers in predominantly black and Hispanic neighborhoods in New York City were more likely to get their mortgages last year from a subprime lender than home buyers in white neighborhoods with similar income levels."
"Even after accounting for other factors, the likelihood of getting a subprime loan increases for minority borrowers, especially Black borrowers. Among higher income borrowers, the distinction between subprime lending to Whites and subprime lending to minorities is stark."

"We find Black borrowers are 3.9 times as likely to end up with a refinance loan from a subprime company than non-Blacks (combining all other borrowers), after accounting for all these other factors. We find that Hispanics are 1.6 times as likely to end up with a refinance loan from a subprime company as non-Hispanics (combining all other borrowers)."

The power of borrower race to predict that the borrower will get a loan from a subprime company shores up the findings of our recently released studies on women borrowers and elderly borrowers. We previously reported that women get loans from subprime companies more than men, but that subprime companies enjoy their highest penetration rates among Black women borrowers and in high elderly/high minority neighborhoods."

The facts and views expressed in the articles to which "L" linked seem to show that the fault for the crisis now affecting all of us lies with the mortgage and real estate industries that took immediate profits on inflated home values before bundling and selling those mortgages to other financial institutions ... many of which again bundled and sold these risky items to yet other companies as each tried to take their profit up front and push the risk off on some other company. Rather than blaming the disproportionately minority victims perhaps "L" should consider the old adage of "follow the money" to those who benefited when seeking to apply blame.

Posted by: Chris White on December 29, 2008 9:50 AM

Oh for a preview function! The itals noting linked article quotes mostly disappeared. Sorry about that.

Posted by: Chris White on December 29, 2008 10:55 AM

Agree with CW, and also, L, no one here is denying that minorities are involved in this whole mess, just not as the main problem. None of the articles you link to even hint that lending to minorities is what caused the housing crash.

Posted by: JV on December 29, 2008 11:56 AM

Also, I'm still looking for your source on this:

"Here's the deal--the subprime mortgages are the ones going bad. And 51% of those were to minorities"

Again, I'm not disputing it, I'd just like to see where you got that number since it's the thrust of your argument that minorities were the MAIN cause of the housing crash. Once again, no one here is disputing that minorities were being lent to unscrupulously right along with everyone else.

Posted by: JV on December 29, 2008 12:00 PM

None of the links seem to show that 51% of the subprime loans were to minorities.

In the Times article I see mentioned Bush's encouragement of home ownership, especially to minorities; Bush's staffing agencies with unqualified cronies, and deregulation. Then there's Freddy Mac / Fannie Mae, Clinton's change in the rules (8 years before the meltdown), and people taking equity loans on their houses or trading up (not subprime).

This article argues that subprime lending wasn't the primary problame at all:

Instead, the considerable 2003 pullback of government-sponsored financial service corporations Fannie Mae and Freddie Mac from the credit market and their replacement by aggressive, private mortgage securities issuers in late 2003 had a significant impact on home prices and was more responsible than subprime lending for the drastic price runup that peaked in early 2006.

My understanding as that we're in the worst economic crisis since 1929. It's worth tryong to figure out what happened rather than using the disaster as a hook to hang our pre-existing prejudices on.

Posted by: John Emerson on December 29, 2008 12:39 PM

You all are totally full of crap. The articles I linked say conclusively that minorities make up the majority of the subprime mortgages. Minorities make up about 1/3 of the country, and they got subprime mortgages at 2-3 times higher rates than whites. I don't know how you graduate from a university without being able to do that simple math, but you guys managed it. Grade-schoolers know more math than you!

Of course the newpaper articles I referenced say that minorities are "victims"--but they also prove my point. I intentionally chose the sources because they are socialist rags! I read the articles and I knew you would say that. But they are good sources for the numbers. You want sources for numbers, you got sources for numbers!

A clue for Chris White--every single one of these people are legal adults, not children, who signed their names to a mortgage that they either didn't understand or couldn't afford, and knew it. Many of these people LIED on their mortgage applications about their incomes. They are responsible for their actions!

What the hell is wrong with you guys? Don't let a simple matter of facts get in the way of your otherwise noble visions of Utopia!

This whole mess was brought on by INCREASED REGULATION AND GOVERNMENT INTERFERENCE, not an absence of regulations and free markets. Do you understand that? Anything fuzzy about that? What is it about that you don't get?

I can't make it any clearer. People who refuse to see the truth in the face of abundant facts are beyond help. Good luck with your religion. Just don't force it on the rest of us.

Posted by: L on December 29, 2008 8:51 PM

"L" you mistake your own opinions for facts. Since subprime mortgages generally include increased up front fees and profits for the initial underwriter there has been a distinct advantage to the underwriter to convince a borrower to take out such a mortgage, especially if that underwriter then bundles and sells these mortgages to other companies and passes the risk along after taking their profits. As your own linked articles show those subprime products were marketed more aggressively to minorities and the elderly, often when those buyers were eligible for conventional mortgages. To blame the buyer rather than the experts, the real estate agents and mortgage companies, to whom the buyer goes for advice, is simply backwards.

Let's see, do I find it more credible that vast numbers of minorities purposely lied to obtain mortgages that would lead them to lose whatever savings they did have to put into their down payment before losing those homes to foreclosure, or that real estate agents and mortgage companies convinced less informed buyers to take out subprime loans with attractive initial monthly rates that would balloon dramatically, but not until those mortgages could be sold off to other lending institutions who would bear the risk? I follow the money and conclude that the blame lies primarily with the financial industry.

Virtually every credible expert agrees that the mortgage industry benefited during the past twenty years from lax regulation and decreased government oversight with unfortunate results. Your insistence that this is a result of increased regulation and government interference is a statement of political belief, not objective reality.

Posted by: Chris White on December 30, 2008 11:07 AM

Chris White, your insistence that the housing debacle is a result of decreased regulation and less government interference is a statement of political belief, not objective reality. Is anyone on this blog seriously claiming that government has been SHRINKING over the past 25 years? Name one branch of government that has fewer employees today than it did in 1980.

Posted by: Bob Grier on December 30, 2008 3:08 PM

Bob, more gov't employees does not automatically correspond to more oversight. Of course gov't employees have been increasing in numbers, just as regulations around the housing industry have been stripped away.

Posted by: JV on December 30, 2008 5:05 PM

RE: Chris White, your insistence that the housing debacle is a result of decreased regulation and less government interference is a statement of political belief, not objective reality.

One can very easily discover the roots of this problem in the Republican Congress, abetted by bonehead Democrats, de-regulating the financial capital industry and forbidding the states from restricting some of the practices that led to this crisis. Oddly enough, some of these practices had been outlawed after the debacle of the Great Depression. Some people never learn.

And since this is obviously a problem of global markets, you would have a hard time -- no, it would be impossible for anyone except a professional fool like Steve Sailer, connecting minority lending to the near collapse of the economy of Iceland, or the German financial system (which oddly enough ending up holding the paper of a lot of mortgages in the Detroit area) or any other institution which got involved in subprimes and credit default swaps.

Posted by: Alec on December 30, 2008 5:50 PM

Jesus Christ, Chris, you're still going on with this sanctimonious crap!

Ok, let's be serious about what motivates you. You never learned a job skill and you're broke. I've been around this hippie shit for 40 years, so I understand the whole rationalization process you're going through.

You're broke (in your bizarre thinking) because (1) you're too good for this evil world, and (2) you didn't want to get in the way of the advancement of those holy women, blacks and gays.

This is why you keep playing out this Jesus Christ complex. It's your rationalization for why you are broke. It's awfully damned tiresome, Chris. Stop it. You don't give a damn about the poor. You are just looking for an excuse for yourself. Give it a break and come up with something sane to say.

You didn't really do a damned thing for women, blacks and gay, Chris. It's all hot air designed to excuse your personal failures.

Posted by: Shouting Thomas on December 30, 2008 6:01 PM

Chris White

THEY SIGNED THEIR NAME ON THE MORTGAGE! THEY ARE ADULTS! I don't care how or if they were "targeted". It doesn't matter at all. Lots of said "victims" intentionally lied on their mortgage applications. They walked into the offices and signed the mortgage. What about that don't you understand?

Posted by: L on December 30, 2008 6:38 PM

Here is an admittedly quite hypothetical situation that may be useful in discussing the size of government.

Let us say that in 1980 there were 10,000,000 painted toys imported from China and 10 inspectors who each tested 20 toys each workday and each inspector gets a two-week vacation each year. That means 50,000 toys or 0.005% of the total were tested. Now let's say that in 2000 there were 1,000,000,000 painted toys imported from China inspected by 20 inspectors with greater tools than their predecessors leading to higher productivity enabling them to test 40 toys each workday. Under this regimen 200,000 toys were tested or 0.0002% of the total.

So, the question is do we look at the fact that there are twice as many government inspectors, each twice as productive as previously, and say that this shows that government oversight has increased fourfold? Or, do we look instead at the percentage of imported toys inspected and say that oversight has decreased by a factor of 25?

In short, the government does not have to shrink per se to have a decreased ability to fulfill its oversight responsibilities.

Posted by: Chris White on December 30, 2008 6:54 PM

Hey L, ONCE AGAIN, no one here is denying that minorities were involved in this whole mess, both by being offered ridiculous loans and by agreeing to sign their name to them; just like non-minorities were. The issue we're disputing is yours' and others' assertion that lending to minorities was the MAIN cause of either the housing mess or the overall economic downturn.

Now, L, can you, once and for all, provide some kind of citation or source that minorities were the MAIN cause, or that 51% of bad loans were made to minorities (as you stated)? Every number I've seen, including the ones in the articles you linked, show minorities making up a percentage of the bad loans proportionate to their general population.

Posted by: JV on December 30, 2008 9:11 PM

Well, Chris, I guess we're pretty well fucked, because at the efficiency rate you're projecting for bureaucrats, we'll be broke long before we have a government capable of "protecting" us. And of course, there's no guarantee that the "regulated" won't figure out how to buy off the "regulators". In fact, they always do. You think banking interests weren't interested in who Blago was going to appoint to that empty senate seat? You libs have some curious ideas about the sanctity of government.

Posted by: Bob Grier on December 30, 2008 9:17 PM

ST - What ARE you talking about? And PLEASE stop projecting your fantasies about folks you don't like in Woodstock onto me.

Posted by: Chris White on December 30, 2008 9:45 PM

I've spent 35 years around this deranged hippie shit, Chris.

Stop this foolishness.

The fate of blacks, women and gays (and hispanics) doesn't rest on your pompous opinions. Gassing is all you've ever done.

Stop gassing about your holiness. It's awful. It's all you ever do.

Posted by: Shouting Thomas on December 30, 2008 10:01 PM

Shouting Thomas, let's be serious about what motivates YOU. You're not too happy, you like to make noise and insult people, you have a lot of grudges going back decades, you don't know much about anything but you think you have common sense and are a man of the people, you used to be a musician or something.... and what else is there?

The upcoming depression is going to be really serious, nobody really knows what happened or what we should do about it, and most of the people here at Blowhards is just using it as an opportunity to project their personal problems by venting about their pet issues. I often like the cultural stuff on this site but I'd just as soon watch people having enemas as spend any more time talking about politics here.

Posted by: John Emerson on December 30, 2008 11:12 PM

Well, Bob, you seem to agree that the financial services industry has an interest in (and lobbyists to influence) the government, as I do. As voters and citizens we also have some direct influence over government through its elected officials, while we have little to no direct influence over the financial services industry ... just that we can exert via the government.

I do not believe that we would be in a Utopia if government was to disappear and our fates and fortunes left entirely to the free market. Rather I believe that left entirely to the free market we would have monopolies squeezing every last dime out of the many so that wealth would be even more concentrated in the hands of the few.

To believe that the government is the best means we have to attempt to have the financial service industry follow rules and regulations that assure a reasonably fair market and protect the interests of consumer/citizens is hardly to believe in the "sanctity of government." To offer an admittedly skewed analogy, if we're on a ship designed and built by a given shipyard and it springs multiple leaks and starts to go down in the middle of the ocean, I'm still more likely to get in a lifeboat made by the same shipyard than swim for it. This hardly constitutes my endorsement of the shipyard.

My point, obviously, was that as the scope of the private sector grows ever more huge and influential if we are to have some assurance that the rules and regulations in place to assure a degree of fairness and transparency requires government of a size equal to the task. To think that we can shrink government while the private sector expands exponentially is a path to corporate fascism.

Posted by: Chris White on December 31, 2008 8:06 AM

So, Chris, where do you propose we get the DNA to man this utopian government that will be absolutely pure in heart and untainted by "greed"? A convent? And who will regulate the regulators? You liberals have a penchant for stepping into tar pits, do you not?

Posted by: Bob Grier on December 31, 2008 3:19 PM

So, Bob, where do you see me suggesting a utopian government is possible? I merely pointed out that I do not believe an unregulated "free" market is a utopian alternative to the messy and inefficient system we have.

The topic here is whether the world wide financial crisis has primarily been caused by [a] government interference in the mortgage industry forcing companies to lend to minorities in order to increase home ownership and said minorities either lying or being too stupid to understand the fine print and going into default thus bring down the world economy or [b] other factors like [c] FIRE lobbyists successfully getting looser regulations and lax oversight from government so that they could freely "innovate" with financial instruments like credit default swaps, etc. which proved to have flaws that were catastrophic.

Seems to me that [c] is the most logical answer and that particular tar pit has "free market" conservative written all over it.

Posted by: Chris White on December 31, 2008 8:15 PM






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