Thanks to everyone who helped educate me on this. I've learned a lot from reading comments and from some e-mails (special shot-out to my American Prospect peoples.) from those in the know. One of the privileges of blogging here is that, while I hope I do my own bit of teaching, I also get to do some learning. So, for those who don't read comments, here's some of what I've learned.
Probably the best handling I've read is this great piece by Robert Gordon. The basic conservative critique seems to be that the Community Reinvestment Act (CRA) strong-armed banks into giving loans to minorities and low-income folks who subsequently defaulted at higher rates than the norm. That wave of defaults caused the current meltdown. Two things about that argument immediately made me suspicious. I know very little about economics, but I know quite a bit about people. 1.) Folks who use single cause logic to explain gigantic complicated phenomena are almost always lying, ignorant or children. 2.) Folks who peddle victimology for giants ("the banks were forced to do it") while decrying the victimology of individual humans ("the white man forced me to do it") are also usually just lying. The Blame The Negroes (BTN) theory satisfies both criteria.But Gordon offers a more technical takedown giving us a history of the
CRA and basically summing up why the BTN theory is just wrong. Please check it out.
One could certainly oppose the CRA on principle. But simply shoe-horning that argument into the current crisis connects the argument with an ugly, ugly history. One of the most disturbing aspects of racism is how whites have historically used the black community as a kind of sin-eater for their own moral shortcomings. So post-slavery, even as sexual assaults on black women were virtually never prosecuted or punished, whites concocted the myth of the rapacious, sex-crazed black ogre and organized mass lynchings to purge themselves of the beast. Of course they were really purging themselves of their own guilt. So today as we pay the price for becoming overconsumers, we now hear voices telling us that the real problem is that the niggers and spics are overconsumers. It is from the conservative disciples of the same people who historically defended southern white thuggery that we get this novel theory. It's hard to not wheel around and hurl large objects across long living rooms when faced with such brazen displays of cowardice, and blatant punk-assness. But as I've said, it's best not to dwell on these people. At night, when no one is around, they know who they are. And now, so do we.
The Beautiful Struggle: A Father, Two Sons, and an Unlikely Road to Manhood 
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
Amen!They wonder why African Americans and Hispanics will never vote enmass with the republican party. Whats worst, harldy no conservatives or republicans are denouncing such vile foolishness. Blacks and Latino's accounted for roughly 26% of the subprime mortages. 72% for whites. (don't know what happen to the remaining 2%. Yet the darkies are the ones that caused this mess, being uppity and living beyond there means. Yikes. How can you be a person of color and be part of that dispicable party?
Amen!They wonder why African Americans and Hispanics will never vote enmass with the republican party. Whats worst, harldy no conservatives or republicans are denouncing such vile foolishness. Blacks and Latino's accounted for roughly 26% of the subprime mortages. 72% for whites. (don't know what happen to the remaining 2%.) Yet the darkies are the ones that caused this mess, being uppity and living beyond there means. Yikes. How can you be a person of color and be part of that dispicable party?
While it *MAY* be true that the houses outside of Cleveland that were bought for $70,000 and are being defaulted on are contributing to the problem, I'd like to point out that it would take seven of those for every half-million dollar house in the Vegas suburbs being defaulted on.
And there are a *LOT* of "half-million dollar" houses in the Vegas suburbs.
Get used to debunking it A LOT more because the House may have just resigned us to economic suicide. In the next 2 weeks you will see panic, bank runs and the beginnings of economic collapse. I hope to God I'm wrong here, but I don't think so.
We're in for a REALLY rough ride and I shudder to think of the nasty political movements to be spawned from this.
Be scared, be very, very scared.
Meanwhile...THE HOUSE JUST VOTED DOWN THE BAILOUT PLAN.
Its a long way from loaning money to poor people to selling those mortgages as AAA low risk. I dont imagine that the bond market was ruled by political correctness. Of course, the failure of AIG is probably the result of homosexuals.
B-b-b-but, Steve Sailer said and/or linked to...
PUH-leeze, keep the math in mind: this is NOT a crisis because home mortgages have tanked, even in the sub-prime market.
It's a crisis because speculators created a few TRILLION in bets on debt.
Spend time and energy arguing about dumbass scapegoating, and you won't even notice when the other hand picks your pocket.
Do the math, already. Trillions are bigger than billions.
Really, think about it: Why is it that Republicans are always the ones trying to sell this sort of bullshit to people?
Between having reps resort to slurs like "uppity," voting against aid for Katrina victims, hosting folks who are selling Obama Waffles and this, is there any wonder why black folks are so reluctant to hear out the GOP.
I'm certainly not saying there's some serpentine Democrats in our midst - the primary season illuminated that for us.
But, really, this is getting ridiculous. Niggers are always to blame among that crowd.
So the economic meltdown was caused by a sort of Liberal-forced economic affirmative action? Those poor banks were forced to give their money to poor minorities and look what happened.
I heard this theory for the first time last weekend while, yes, in our very own Charm City of Baltimore.
But I was told this theory not with the "can-you-believe-this-malarkey!" tone that you probably were but in a whisper hush-hush the-truth-ain't-always-P.C. kind of way. And then the eye-roll meaning, "See! There they go again, trying to force handouts to blacks and them screwing everything up."
What amazes me about so many white conservatives is how their world-view plays so heavily on victimization, but they almost never come right out and say it.
When working-class whites play the victim card, there's somehow this belief that 13% of America (and a generally poor 13% at that) is pulling the strings of liberals and mooching all the wealth from the rest of us.
At least when blacks play the victim card, they come right out and say it (and can point to the 87% of America that isn't black).
Maybe being able to blame others makes people able to sleep better at night. But when it comes to the economy (or most things) it just seems to make more sense to blame the people with the power and money.
I don't know much about economics, but I do know that where my family lives in Florida there are loads of brand new houses sitting empty that had owners who never lived in them and who purchased them with crappy mortgages in the hope that they could flip them quickly for a profit.
These are not homes owned by poor folks who maybe bought a little bit more house than they could afford. These are homes that were bought by people trying to make a quick buck on the ever-expanding, and loosely regulated, real estate market. A few years ago, I had a (very white) friend in NYC who caught the bug and flew down to Florida to look into flipping houses. I had no idea what she was talking about when she explained it to me. Sounded like bullshit. It was.
My father has a property mgmt. company that has contracts w/ HUD & Fannie Mae. Per his conversation w/ a housing official, the housing crisis has very little to do w/ bad lending. A large portion of it is due to cohusion between appraisers & real estate agents that overpriced homes & sold them. Phantom purchasing is also largely to blame, brokers began buying blocks of homes @ overpriced rates to drive the price of the remaining homes up, & would then sell those homes to buyers; once the home was sold, the builder would re-purchase the overpriced homes & put them back into inventory.
Also, people were passing homes from one person to the next. One broker would buy a home, then sell it to another broker @ higher price, who would sell to another broker; this was done to inflate financials.
So, it hardly had anything to do w/ bad loans, & moreso to do w/ greed & corruption.
Regarding your Bill Clinton post, note that Bill Clinton and his administration (especially Rubin and others in Clinton's treasury dept.) were critical toward continuing the CRA and enhancing its protections for the ability for low-income (and redlined) areas to get home and other loans. In my book, this is one of the best things done by Clinton during his presidency. Also, since Clinton was behind it, the BTN theory gets to also have a partisan anti-Clinton angle as well.
Such short memories. Everyone over 40 knows it was Cadilac-driving welfare queens that cause the economic troubles of the 70s. Now her children are all growed up and defaulting on mortgages they never should have been allowed to have. The Community Organizers made us do it!
Note above I said "were critical to continuing the CRA," I meant they "were crucial to continuing the CRA."
If the gold market crashes you just know it will get blamed on rap bling.
Did you know that the Jews spread the black plague in Europe? Someone should really let the National Review and Steve Sailer know. It's a serious problem.
Yeah, for 28 years since passage of CRA things are fine, and they've gone to hell in the last 2. Definitely evidence for the "it's the CRA's fault". Sigh.
As a white guy, the first reason for me to examine and reject my own racist attitudes is human empathy. The second is that it will functionally blind me to important truths.
This is like a cowpie. It's kind of dried out and ok-looking on the top, but when you turn it over, it's just a stinky mess. Just like this sort of simple minded scapegoating, it's meant to distract us from the real issues and causes.
In my view the real causes of the financial crisis are:
Loans given out too freely by loan brokers who can resell them and walk away.
Buyers too eager to hear "yes, you can have that McMansion, and roll it over in 2 years for big money".
Rating agencies who allowed themselves to rate stuff as "AAA" when they shouldn't have.
Big banks that created highly leveraged financial products with these "subprime" (meaning risky) loans and didn't respect the fact that there's always something that could go wrong.
Buyers of said products that got themselves too highly leveraged.
Regulators such as Alan Greenspan that refused to intervene to pop the housing bubble.
Politicians with a "free marketz forever!" attitude, and cozy relationships with bank lobbyists.
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We need a new regulatory regime for banking. A complete makeover. We need FDIC for investment banks. Some of those home buyers were Black, to be sure. Some were Hispanic, too. Many were white, though. Pretty much all of the brokers, bankers, regulators and politicians were white.
"At night, when no one is around, they know who they are. And now, so do we."
Probably nothing more needs to be said about the legions of wingnut, glibertarian, "classical liberal" or "race realist" bloggers and trolls that cling to the internet as the last best hope of SOMEONE, SOMEWHERE taking them seriously, or even noticing them. At the end of the day, outside the safe confines of a message board, they are who they are, and they have to look in a mirror every morning and live as themselves. No need to insult, refute, or make fun of...all the heavy lifting has already been done.
Thank you so much for this post. I suspected that this BTN story was an attempt at scapegoating (it just didn't smell right--as Letterman said about something else last week), but I didn't have the facts. Now I do. Again, the facts betray their well known liberal bias.
Right on.
Fortunately for those like me, the "Jewish media" has been renamed the "liberal media".
The biggest problem with the BTN theory is that there just ain't enough of you folks to have caused the problem. Do the math.
Another part of this - I think the primary part of this stems from the basic impulse to avoid the conclusion (and the ensuing upset) that this financial crisis was the result of a huge market failure. Their primary target in this argument isn't the poor and minorities, it's the political and ideological opposition: Regulation and Democrats and wherever possible (via a Franklin Raines phone call) Barack Obama. Minorities are only important to this argument insofar as they are Democratic constituencies. So it is in a sense, even worse than you say. The black borrower functions in this argument as a premise and a pawn, a secondary scapegoat if you will. Her irresponsibility is assumed, not even blamed; and the racism here is, repulsively, a means to an end.
Ta-Nehisi: "The basic conservative critique seems to be that the Community Reinvestment Act (CRA) strong-armed banks into giving loans to minorities and low-income folks who subsequently defaulted at higher rates than the norm. That wave of defaults caused the current meltdown."
That's not the conservative critique. That's just a silly straw man wearing a white sheet.
The actual conservative theory is that the 1995 modifications to the CRA led to an increase in subprime loans, not to mention lower lending standards (contemporary lending standards were decried "discriminatory" by the Boston Fed, among other groups).
The lower lending standards led to more loans to unqualified people of all races, and eventually a wave of defaults. The only negro getting any blame is Bill Clinton.
I think pretty much everyone agrees that large scale miscalculation caused the credit bubble. The actual critique to which you are refering goes,
"further regulation will not make future problems less likely or less serious since most regulator such as the CRA, Barney Frank, and the climate at Fannie and Freddie, all pushed in the direction of less responsible loan practices."
Arnold Kling at econlog has a pretty good series of posts on this idea. He also details how the MultiFamily division of Fannie (I think) pushed to make loans in the 80s on a more or less charitable basis and blew up. Obviously without widespread miscalculation you get minor blowups like that one, and with the miscalculation you get disasters without the regulation, but we cant undo the current problem, the question is whether more regulation will help in the future, and at what cost.
I dont think theres anything necessarily racist about that view, maybe you disagree. If you do agree though, I think its bad form to mischaracterize a large group of people as racist, when their actual views are pretty easy to find.
If we actually had transferred $700 billion dollars' worth of housing to poor and minority families in the past 5 years, it would be the single most successful low-income housing program in Earth's entire known history.
I don't think the argument that the CRA cause was blaming minorities is even remotely accurate. The CRA was the seed that was planted that eventually grew into this mess and the people that it intended to benefit aren't to blame for it. The ones with noble intentions but no clue of unintended consequences are. The farmer that left the chicken coop open and let the foxes in is just as much to blame as the foxes. But both sides of the aisle are to blame for this mess. Bush is wrongly touted as trying to fix the subprime loan mess. Sure he may have acted in a half-hearted way to regulate Fanny and Freddie and the rest. But at the same time he was actively trying to get
grant those same subprime loans to illegal immigrants and others not previously able to get loans because of credit and down payment problems.
It was the CRA that opened the door for people like our favorite community organizer, Barack Obama and his friends to intimidate banks into giving out risky loans which is exactly at the heart of this entire mess.
You mix the CRA with the strengthening that happened under President Clinton and George W. Bush embracing and broadening it's application and you can see that it was the government's push to get more poor people(NOT minorties) into houses that set up the conditions for predatory lenders to swoop in and magnify the problem. And all those bad loans being bought by Fannie and Freddie make lessened the risk to banks making those loans so there was no incentive NOT to make them. I mean, hey, they were government insured, right? And you had so many people in the pocket, not the least of which was Barack Obama, that there was absolutely no will to reign them in and stop this from happening.
But all that is still not a problem until the economy takes a downturn. The second that happens the entire house of cards comes down. And Greenspan's attempts to stave off a recession by lowering interest rates just exacerbated the problem by enticing lenders, predatory or otherwise into making even crazier loans available to people who should never have been able to get them.
The financial meltdown isn't happening because of unbridled capitalism. It's an unintended consequence of giving poor people money they didn't earn and can't afford. A false, non capitalistic criteria was put in place for home loans. One that would NOT exist in a true capitalistic economy. We absolutely would NOT be here if it weren't for the incentive banks were given to make risky home loans to poor people. Something that never would have happened naturally on its own without government intervention. So if you believe strongly in the CRA and its intentions then you have to swollow its unintended consequence as a part of life.
Apparently, oddjob wants to blame the shortcomings of the CRA to explain this mess, but I think it misses the broader point. Blaming the CRA for the financial crisis, in whole or in part, sounds an awful lot like a republican mantra that has been pushed down our throats over the past few decades.
To stir the pot somemore, I think that the blanket statement "less regulation" is completely nonsensical. Less bad regulation should be the process that governs us.
Sure, after doing a post mortem of anything this big, there is ample opportunity to blame any of the contributing factors. Saying that most of the problems are because of some type of housing welfare-giveaway gone bad is just as bad as BTN. It's a generalization on a specific group of people (poor, not black) in order to deflect blame from where the blame truly lies. A fool (lenders) and his money are soon parted, as they say.
Less regulation may be beneficial, but whatever happened to "Trust, but verify"?
Walden:
So, I have a couple points. First, I think we agree that much of our existing regulations were providing pressure to exacerbate the subprime crisis, so why then do you think we had "bad" regulations before and can have "smart" ones in the future, b/c i doubt the people who put the old regulations into place were trying to produce dumb regulation. Obviously the govt is better informed, but so is the market, and its pretty unlikely that the next crisis will come in MBS, so how can you be confident todays regulators will predict tomorrows problems? Obviously I am in favor of "smart" regulations although i guess thats suboptimal, i think id prefer "perfect" ones, but im pretty sure we'll see something like the uptick rule, free cash to interest group, covered with nonsense economics.
Second, TNC's post essentially picked the racist argument against the CRA from the set of all arguments, represented it as all the arguments against the CRA, briefly noted that it was in theory possible to oppose the CRA without being a bigot, and finally moved on to excoriate opponents of the CRA as racists. In your attack on Oddjob you seemed to basically agree. Its surprising b/c i think you both agree that "dumb" regulations hurt us, but b/c he weights it more than you, you conclude hes motivated by class hatred. (To be fair he may have some history here in which case I take back what i said about you)
It seems to me that youre both engaging in bad faith accusations, which is just as wrong on this issue as it is when, say, neocons use the presence of anti-semites in the ranks of their opponents to tar all their opponents with the same brush.
E
That's a pretty good assessment, but I think that the fact that we have these "dumb" regulations is at least partially to blame for this. Until we can acknowledge that what has been in place didn't work, we can't really move forward and find ways to improve. As far as the government and the market being "more informed", i'm a firm believer in the saying that "Common Sense isn't Common". Obviously, someone was asleep at the wheel somewhere. That also in no way absolves any misinformed buyers either.
The fact that securities played a role in getting us where we are today shows that the banking industry was just another part of the problem. Sure, the govt and the financial industry know more than we do, but that still doesn't take away from them being at the very least complicit in all of this.
I do think you're right, though, to say that MBS probably won't be the cause of the next financial crisis. The problem isn't that there's going to be a problem. It's that there has to be better regulation on some level to keep something of this magnitude from going south.
I also think you're right about "perfect" regulation, but I think that "smart" regulation lends itself to a process that can adapt to different market forces. I just see "perfect" as an end instead of a process.
I'll take the heat for being a little harsh towards oddjob, as I did take exception to the generalization. I think when I read it, I inadvertently tapped into TNC's remarks of an ugly, ugly history.
As far as the broad brush is concerned, I do need to quit being so lazy.
Ta-Nehisi: The intentions of the CRA didn't force Franklin Raines into the posh position at Fannie Mae. In accordance with the mission of Fannie Mae to enable home ownership by a greater proportion of the population, Franklin Raines, while Chairman and CEO, began a pilot program in 1999 to issue bank loans to individuals with low to moderate income, and to ease credit requirements on loans that Fannie Mae purchased from banks.
Those initiatives encouraged entreprenuers of ALL races to advertise and sell financial products to people of ALL colors. In Atlanta, Houston, Cleveland, Brooklyn, and black neighborhoods across the country, new black owned start-ups were peddling loans to black people because they were trusted. It didn't matter that the people didn't know what amortization tables were! These homes represented the best thing in social status since keys to a white cadillac back in the 1970's!
It's senseless to blame another race for the financial pitfalls of one's own doing. We had the same thing happen in all of our Hispanic communities, and many of the industry culprits are losing their homes too! If you need to blame someone or something, blame the DEVIL for slipping greed into our hearts that clouded our common sense.
My old man, and many like him, was a bookie in Harlem during the 50's and 60's. I ride along, and watch good black people who kind and loving spend what little cash they had betting on numbers, on dogs, and on horses, hoping that my old man would come back with a sack of money if they won. The only thing they ever got was my old man coming around the following week for their next bet. And he would turn over the money to a crafty black lady who ran the syndication for all the illegal activities in her section of town. Today people simply go to the 7-11 and buy their own lottery tickets. I've travelled most major cities throughout the south, midwest, and west, and with simple inquiries I can find you people exploiting their own poor people of every color, every night and day. That is why it is called the "survival of the fittest". Once it was the hood, short for hoodlums, but now in many cases it is the educated folks who have become attorneys and CEO's doing the thievery, just like Franklin Raines.