Quite longish, but, then, the subprime mortgage meltdown didn't happen in a day.
I recall all those 20/20 & 60 Minutes "exposes" about how the bad old banks are discriminating against NAMs (non-asian minorities) by insisting that they qualify the same as everybody else.
The original found at the link below, has a great many links to other documents mentioned throughout the article.
http://www.takimag.com/site/article/the_diversity_recession_or_how_affirmative_action_helped_cause_the_housing/The Diversity Recession, or How Affirmative Action Helped Cause the Housing CrisisPosted by Steve Sailer on June 22, 2008
Uncovering the roots of the disastrous home mortgage bubble that popped last year will keep economic historians busy for decades. Yet, one factor has so far been largely overlooked: the bipartisan social engineering crusade to drive up the rate of homeownership by handing out more mortgages to minorities.
More than a negligible amount of the blame for the mortgage meltdown can be traced back to multiculturalism: government-mandated affirmative-action lending, demographic change, illegal immigration, and the mind-numbing effects of political correctness.
The chickens have finally come home to roost.
About half of all mortgages for blacks and Hispanics are subprime, versus roughly one-sixth for whites. Not surprisingly, the biggest home price collapses have occurred in heavily Hispanic cities such as Las Vegas, Miami, Phoenix, and Los Angeles.
The mortgage bubble was essentially a bet on the purportedly increased creditworthiness of the bottom half of the American population. After three decades of the home ownership rate stalling at around 64 percent, a series of federal initiatives to increase minority and low-income ownership helped push the rate up to just below 70 percent.
As this graph from a 2006 article by three economists with the Federal Reserve Bank of St. Louis shows, the great bubble of the last dozen or so years was driven by bets on marginal households well below the median.
Economist William T. Gavin, a vice president at the St. Louis Fed wrote in 2006:
One of the stated goals of current and past administrations since the Great Depression has been to increase home ownership. After remaining relatively stable around 64 percent, the rate of home ownership has risen to 69 percent in the past decade. This uptrend has been driven by a sharp rise in the rate of home ownership among young, minority and low-income households.In contrast, at least the previous bubble, the Internet stock boom of the 1990s, had a bit of prima facie credibility. It was a largely a wager on a three-phase business plan:
1. The smart fraction of American society would invent amazing new online services.
2. ?
3. Profit!
As it turned out, bright young people really did start up lots of websites that did things that almost nobody in 1994 had imagined. The problem turned out to be getting from Phase 1 to Phase 3. So many of them became competent at website creation that few (with the huge exception of Google) ended up with the kind of lucrative quasi-monopoly of which investors dreamt.
The housing bubble, on the other hand, never made much sense. The lower half of American society, where the new homeowners had to come from, isnt getting better educated, is not settling down to more stable family structures, and is not developing a more rigorous code of honor about paying debts.
Nor was the government doing much of anything to help the bottom half earn more in order to afford home ownership. Indeed, by not enforcing the laws against illegal immigration, the Clinton and Bush Administrations were flooding the country with unskilled workers who competed down the wages of blue-collar Americans.
The home construction industry lured in Mexicans to build new exurban houses for Americans trying to get their children away from public schools overrun by the children of illegal immigrantsin effect, a Ponzi scheme that had to break down eventually.
It turned out, not surprisingly, that contrary to the assurances of the Great and the Good of both parties, many of these marginal homebuyers should have continued to rent.
Pushing black and Hispanics into buying was risky for all concerned. Economist Edward N. Wolff calculated that in 2004 the median net worth of black households was only $11,800, exactly one order of magnitude less than the median net worth of whites. (Hispanics were similar to blacks.)
Yet, pointing out that expanding credit to minorities was likely to lead to a debacle is not the kind of thing a prudent corporate manger would put in an email--too great a chance it would be discovered in a discrimination lawsuit.
For four decades, political leaders have viewed subsidizing minority home buying as insuring social peace. The Wall Street Journal reported on white flight from a Chicago neighborhood on March 2, 1977:
The whites in Marquette Park are particularly embittered over the Federal Housing Administration mortgage insurance program, which they claim is causing neighborhood deterioration by subsidizing home purchases by blacks too poor to maintain them. Long conservatively run and an engine of the post-World War II suburban housing boom, the FHA program was liberalized shortly after the 1968 urban riots to encourage lower-income black home ownership (if they own it they wont burn it was the maxim of the time).Whether home ownership actually precludes riots is uncertain. In the Florence-Normandie neighborhood in South Central Los Angeles, where the 1992 race riot broke out, five of every eight residences were owner-occupied.
Still, if they own it, they wont burn it provides a hardheaded-sounding excuse for a complex web of policies that please real estate developers, who contribute so much to local campaigns. (For instance, Barack Obama has admitted to receiving a quarter of a million dollars from developer Tony Rezko, recently convicted on 16 counts).
Republicans theorized that raising the rate of home ownership would create more conservative voters, as Margaret Thatcher was said to have done in Britain by selling public housing flats to their tenants. Thus, George W. Bush campaigned in 2004 under the rubric the ownership society. As the President explained in his eye-glazing prose style:
...if you own something, you have a vital stake in the future of our country. The more ownership there is in America, the more vitality there is in America, and the more people have a vital stake in the future of this country.Thus, in a 2004 address to home builders, Bush called for the Federal Housing Administration to issue zero down payment mortgages in order to aid 150,000 first-time buyers per year, saying,
To build an ownership society, well help even more Americans to buy homes. Some families are more than able to pay a mortgage but just dont have the savings to put money down.Long before Bush came up with the phrase ownership society, Democrats had gleefully been using this justification to funnel vast sums of mortgage money to their base voters among minorities through the liberal-dominated quasi-state institutions Fannie Mae (once run by former Obama adviser Jim Johnson) and Freddie Mac and via leftwing NGOs such as ACORN (to which Obama had long and close ties). The government both devised de jure quotas and leaned on lenders with discrimination lawsuits to get them to impose their own de facto quotas.
The strong growth in the homeownership rate from the early Forties into the early Sixties was a symptom of an economically and socially healthy society in which good-paying jobs were widespread and human capital was rising. The high school dropout rate, for example, fell steadily from early in the century until the end of the Sixties.
In the mid-Sixties, however, the fraction of households owning their residence plateaued at around 64 percent, where it more or less remained into the mid-1990s, as the collateral damage of the Sixties cultural revolution hit the lower half of the population hard. The upper reaches of American society flourished under the new customs that emerged in the Sixties & but they already owned their own homes. To boost homeownership beyond 64 percent would require millions of people in the bottom half of society to convert from renting to owning.
In retrospect, this post-Sixties stagnation of the ownership rate stagnation was hardly surprising. American society began fragmenting in the Swinging Sixties, reducing the number of grown-ups per household. For example, the percentage of babies born to unmarried women has risen from six percent in 1963 to 39 percent in 2006. The 22 percent black illegitimacy rate that so alarmed LBJs advisor Daniel Patrick Moynihan in 1965 has grown to 71 percent. The percentage of babies born to unmarried white women hit 27 percent in 2006, and the illegitimacy rate of Latinas, a category that barely mattered in the 1960s but now accounts for a quarter of all babies, is now 50 percent.
After 1973, economic inequality grew steadily as well.
Moreover, the human capital of the bottom half of society stopped improving. According to a 2007 study by Nobel laureate economist James Heckman, the high school dropout rate has risen from around 20 percent in 1969 to about 25 percent in 2000.
Rather than make the fundamental reforms needed to help the bottom half actually become economically productive and domestically stable enough to afford to buy a home, the government tried to juice the home-ownership rate directly. Indeed, without ever-increasing government efforts, such as the 1977 anti-redlining Community Reinvestment Act (CRA), to artificially boost minority housing purchases, the rate would have naturally fallen due to the increasing number of single parent homes.
The CRA enables leftist lobbies like ACORN to shake down big financial firms whenever they tried to merge. Economist Thomas J. DiLorenzo observed that the Community Reinvestment Act:
compels banks to make loans to low-income borrowers and in what the supporters of the Act call communities of color that they might not otherwise make based on purely economic criteria. & These organizations claim that over $1 trillion in CRA loans have been made &The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA protest is issued by a community group. & They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.To avoid the Community Reinvestment Act hassles, more than a few respectable institutions avoided doing business in minority communities. A lender could define its community as, say, stretching only five miles north and south from Mulholland Drive along the top of the Hollywood Hills.
Then, whos more likely to offer mortgages to Compton and Pacoima? Why, high-pressure bucket shop operations that have no skin in the gametheyre just sales outfits that immediately repackage often fraudulently documented subprime mortgages and sell them to Wall Street.
Two events in 1992a much-publicized study and a new piece of legislationratcheted up mortgage affirmative action.
U. of Dallas economist Stan Liebowitz recently pointed out:
Yet a landmark 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic.
That study was tremendously flaweda colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination.
As Peter Brimelow noted in Forbes on January 4, 1993, blacks had the same default rates as whites, suggesting racial fairness. After all, if current financial institutions were really discriminating irrationally against minorities, it would be highly profitable for a non-discriminator to enter the market, just as the Brooklyn Dodgers won six National League pennants in the decade after they became the first team to sign black baseball players.
In reality, as Insight on the News reported in 1999:
A recent study by Freddie Mac, the federally chartered Federal Home Loan Mortgage Corp. that buys mortgages from banks to resell to investors, documents the shaky financial standing of minorities. The study found that nearly half of black borrowers and a third of Hispanics have bad credit recordsthat is, they have a record of delinquent loans or bankruptcycompared with a quarter of whites. Moreover, income does not explain the disparity, according to the study. Among people with incomes of $65,000 to $75,000, 34 percent of blacks have bad credit, compared with 20 percent of whites.Today, however, non-Asian minorities (NAMs) have much higher default rates, suggesting racial bias has entered the system of judging creditworthiness.