To get the story about race and bank loans clear, all you have to do is take everything you know about the relationship between race and crime and switch around a few words.
Ask a liberal to explain the causes of the 2007 financial crisis, and xie’ll lay much of the blame at the feet of deregulation. The main policy targeted by this charge is the Glass Steagall Act, which was effectively repealed in 1999. To be fair, the repeal of Glass Steagall did allow banks to grow larger (for example, J. P. Morgan and
Chase Manhattan arrived at a $33 billion merger in September of 2000), but the housing boom began in 1997, a full two years before the repeal of Glass Steagall took effect. And, as we’ll see shortly, the practices that actually caused these banks to fail would have still continued to take place regardless of the repeal of Glass Steagall, the only question being whether a larger number of smaller banks, or a smaller number of larger banks, would have failed (for more detailed background, see these two papers from the Suffolk University Law Review and the University of Pennsylvania Journal of Business Law). As a matter of fact, banking regulations in general increased substantially in the period leading up to the financial crisis: a study published by George Mason University found that “between 1997 and 2008 the number of financial regulatory restrictions in the Code of Federal Regulations (CFR) rose from approximately 40,286 restrictions to 47,494—an increase of 17.9 percent. Regulatory restrictions in Title 12 of the CFR—which regulates banking—increased 18.2 percent while the number of restrictions in Title 17—which regulates commodity futures and securities markets—increased 17.4 percent.”
Interestingly enough, since the Democratic debates in 2007 Hillary Clinton has apparently focused blame on neither banks nor government policy dictated towards banks, but on individual homeowners themselves for taking out loans they couldn’t afford. While it is true that one of the most significant causes of the financial crisis was individuals taking out loans they couldn’t afford, Clinton’s elitist condemnation of the poor masses ignores the fact that they were incentivized to take out these loans by government policy—policies put into place, no less, by her very own husband. They also ignore the ideology that motivated the creation of these policies: racial egalitarianism.
One month before Bill Clinton’s election to the Presidency in 1992, the Federal Reserve Bank of Boston released the discoveries of a major study on “redlining”, the practice by which banks supposedly drew “red lines” around minority neighborhoods and refused to offer loans within them out of nothing more sensible than sheer unreasoned racial bias. The study found that, even after controlling for a variety of nonracial variables, including debt burdens, loan–to–value ratios, and credit histories, there were still disparities in lending, with 17% of black loan applicants at FDIC–supervised banks rejected for mortgages compared to just 11% of whites.
Alicia Munnell, who directed the research, concluded that the reason for this disparity was simply that “there’s a natural tendency to be nicer to the man or woman who went to the same school you did or the same church you did or lives in the same neighborhood as you.” But the study still failed to control for a swath of relevant variables, and reached its conclusion of racial bias by controlling for only some of all the relevant variables on which the individuals composing different racial groups might differ.
49 of the 70 banks [in Munnell’s study] (70 percent) did not reject any minority loan applications; 2 of the remaining 21 banks were responsible for over half the denials of black applicants. Both of those banks, one of which was minority owned, had conducted extensive minority outreach programs and participated actively in affordable-housing programs.
Similarly, a 1997 study by David K. Horn found that “Estimates of the race effect are shown to be highly sensitive to the assumptions that underlie the model; minor modifications in model specification are sufficient to eliminate the race effect. The empirical results suggest that the statistical models used to evaluate the impact of race in mortgage lending may not provide reliable information about lending bias.” And Harold Black found that black–owned banks actually ‘discriminate’ more against blank loan applicants than white–owned banks.
Yet, despite these significant criticisms, the march for racial egalitarianism based on poorly controlled studies and false premises carried on: in 1993, the Federal Reserve advised accepting down payments from “nonprofit organizations” like ACORN in lieu of down payments, as well as the acceptance of “welfare payments and unemployment benefits [as] valid income sources.” Can we really side with Clinton in blaming individuals for taking out loans they couldn’t afford when it was her very own husband’s explicit policy to use the force of government to demand that banks to extend their loan offers to those very same individuals? The newly elected Bill Clinton even went on to appoint Alicia Munnell as his assistant secretary of treasury for economic policy
Since the late 1970’s, a collection of policies have operated under the assumption that minorities are routinely denied loans on the simple basis of racism. Just as the ACLU has for years published countless ‘studies’ alleging racism from the observation of different arrest rates amongst black and white Americans without even asking how much black and whites’ criminal behaviors dif
But differ they do. Here are just a few of the pertinent facts:
- Nearly half of all blacks have poor credit.
- This disparity remains intact even after controlling for income.
- In fact, whites who earn less than $25,000 have better credit scores than blacks earning between $65–75,000.
- While black–owned firms are twice as likely to get rejected for a loan as white–owned firms (62.3% versus 28.8%), they’re also nearly twice as likely to default (45.1% versus 27.6% for white–owned firms and 37.3% for Hispanic–owned firms).
- The percentage of black owners declaring bankruptcy in the past 7 years: 6%, versus whites’ 2.2% and Hispanics’ 4.6%.
- The percentage of black owners with judgments against them: 9.7%, versus whites’ 3.3% and Hispanics’ 6.6%.
- The percentage of black owners delinquent on personal obligations: 30.4%, versus whites’ 11.6% and Hispanics’ 13.1%.
- The percentage of black–owned firms delinquent in business obligations: 21.2%, versus whites’ 13.3% and Hispanics’ 16.1%.
[David G. Blanchflower, et al, “Discrimination in the Small Business Credit Markets,” The Review of Economics and Statistics, November 2003, 933.]
- While blacks face a higher rate of home loan denials (blacks: 54%; Hispanics: 39%; whites: 26%; Asians: 12%), and represent a higher share of high–cost home loans (blacks: 32%; Hispanics: 20%; whites: 9%; Asians: 6%), they also represent a higher share of consumers with bad credit amongst those with incomes under $25,000 (blacks: 48%; Hispanics: 39%; whites: 31%; Asians: 22%), ad a higher share of consumers with bad credit amongst those with incomes between $65–75,000 (blacks: 34%; Hispanics: 27%; whites: 20%; Asians: 12%). [http://community.seattletimes.nwsource.com/archive/?date=19990921&slug=2984481]
- Again, Asian–Americans had the best credit, and were least likely to end up with high–priced loans. [http://www.federalreserve.gov/pubs/bulletin/2005/3-05hmda.pdf]
- Exclusively considering people earning above $75,000 per year, 1 in 3 blacks have bad credit, compared to 1 in 5 whites—and fewer than 1 in 8 Asians. [Associated Press. (1999) “Bad Credit is Pervasive Among Blacks, Survey Says 47 Percent of Blacks, 27 Percent of Whites Reported Problems in Study”, St. Louis Post-Dispatch, September 22, p. A7]
It raises suspicion in the public eye to openly talk about racial differences in behavior. Even the books I’ve taken several of the citations for this article from (and cite at the end of this post) refrain from placing the racial element of the crisis front–and–center, despite the fact that even according to their own sources, the racial element is the bulk of that story. It was ignorance of these very differences in behavior by race that drove the bad policies that created the housing crisis. And those policies, in the end, screwed over the very minorities they were formed under the pretense of helping.
As Peter Schweizer writes in Architects of Ruin, “The housing activists, while certainly loud and annoying, have generally been perceived as a fringe phenomenon, or at best a local problem. How could a bunch of ragged-looking radicals shouting themselves hoarse in front of a bank or city agency present a threat to the global economy?” But that is exactly what they did: claiming to desire an end to “racism” and operating on the premise of racial egalitarianism, they put into place the very policies that wrecked the global economy — and then took control of the narrative to shift the blame onto their victims (which included both the banks and the poor individuals who subsequently took out bad loans that the banks were forced by government policy to extend).
Even the role of the Federal Reserve has been overstated by libertarians and conservatives, by comparison; mortgage rates are tied to long–term Treasury bond yields, not the effective federal funds rate (EFFR) used by the Federal Reserve, which means the Federal Reserve does not control mortgage rates directly to begin with. And lower interest rates on loans have nothing to do with the standards applied to who qualifies to receive a loan in the first place, anyway: giving relatively more irresponsible people loans may cause a higher default rate even if those loans have relatively low interest rates; giving relatively more responsible people loans may fail to do so even if those loans have relatively higher interest rates. But besides, once again, the timing is simply off: as previously mentioned, the housing boom took off in 1997; but the Fed didn’t even begin lowering interest rates until the early 2000s. Furthermore, an increase in worldwide savings probably did more to lower interest rates than the Federal Reserve’s policies.
To give you an idea of the scope of these problems, there are approximately 27 million subprime loans (and “Alt–A”) loans in the United States, totaling more than $4 trillion and accounting for almost half of all mortgages. From 1997 to 2007, the share of home loans purchased with a down payment of 5% or less on the books at Fannie Mae and Freddie Mac increased from 3.3% and 1.1% to 26.0% and 19.3% of their totals, respectively—combined, the value of subprime mortgage–backed securities purchased by Fannie Mae and Freddie Mac increased from $38 to $110 billion over roughly the same period of time. [HUD Office of Policy Development and Research: “Profiles of GSE Mortgage Purchases in 1999 and 2000,” April 2002; “The GSE’s Funding of Affordable Loans: A 2000 Update,” April 2002; “Profiles of GSE Morgage Purchases in 2001–2004;” April 2008, “Profiles of GSE Mortgage Purchases in 2005–2007,” September 2008.] The number of subprime mortgages originated by lenders rose over 9 times, from 104,000 to 997,000 across the period from 1993 to 1998—a period which covers the years of Bill Clinton’s first term in office.
Meanwhile, “community organizers” have pocketed more than $10 billion from corporate commitments to pay for salaries and services like “credit counseling,” and $6.1 trillion in CRA agreements and commitments to poor communities — community organizers literally including Barack Obama and close associates. Obama was the third top recipient of Fannie and Freddie campaign donations from 1989 to 2008. Obama himself was, in fact, personally involved in filing a lawsuit against Citibank alleging racism because of a number of black applicants it had rejected, even though many of them actually had faced bankruptcy, and even more of them did in subsequent years. Citibank eventually settled out of court. During the run-up to the 2008 election, the mainstream media reported that Obama had won the case, which is false.
Pay attention for long enough, and you’ll discover that the connections between the activists and legislators who pushed these policies repeatedly come full circle. For one example, Deepak Bhargava, who now sits on the board of George Soros’ Open Society Institute and attended Harvard with the young Obama, played a notable role in convincing HUD officials that Fannie and Freddie’s lending standards were “discriminatory.” Bhargava later invited Senator Obama to his Center for Community Change to receive its Community Change Champion Award in 2005, and in 2008 Obama awarded ACORN $832,000 for what was eventually admitted to have been a get-out-the-vote effort.
Today, Democratic lawmakers blame the housing crisis on “fraudulent” and “predatory” practices whereby banks disproportionately “trapped” minorities in subprime loans. Even studies published in the mainstream press today condemn these loans as “racially predatory” without saying a word about why they expanded during the ’90s. The study found that living in a predominantly black region or to a lesser extent a predominantly Hispanic one was a “powerful predictor of foreclosures” — with no mention of the fact that it was state policy, motivated by a denialist conviction in racial egalitarianism which ignored the ways in which behaviors actually did differ by race, which was responsible for this expansion in the first place.
And during the years when Clinton’s policies were directly responsible for this rapid escalation of subprime lending to minorities, Democrats boasted about it openly.
Clinton’s CRA appointee Ellen Seidman bragged that, “Growth in the sub-prime credit market indicates that credit needs in many low- and moderate-income areas are being met,” noting that this would not have happened “without CRA as an impetus.” Andrew Cuomo, then secretary of HUD, exited that position with a speech in which he gloated that “Minority families have made major gains in access to the mortgage market in the 1990s. A variety of reasons have accounted for these gains, including . . . enhanced enforcement of the Community Reinvestment Act, more flexible mortgage underwriting, . . . [and] the improved performance of Fannie Mae and Freddie Mac under HUD’s affordable lending goals [which mainly served to increase the number of subprime loans generated each year].” Gary Gensler, later to be appointed Obama’s top commodities regulator, testified in 2000 that “Today, due to the growth of subprime lending, more lower-income and minority families have the opportunity to buy homes, to refinance their debts, and to finance educational, medical, and other important expenses.”
Of course, we know very well today how well these policies actually served the interests of minorities: during the housing bust, black areas had three times more foreclosures than others — yet, as the number of new mortgages fell sharply for blacks in New York City in 2007, the number of Asian borrowers nonetheless rose by 6%. Once again, white racism can’t explain that, unless white racism is really being practiced in service of Asian supremacy. But differences in individual behavior can — and as the facts collected in the opening of this article above demonstrate, do — explain it.
And if we don’t start facing up to the fact that individual behaviors can differ on average by race even when circumstances are accounted for, we’re going to create crisis after crisis in this pursuit of delusional racial egalitarianism. This has nothing to do with asking why these behaviors differ, be it cultural, biological, or a combination of one of the two or something else. These crises are being created out of blind denial that behaviors even differ by race at all, when that is an undeniable, empirically recorded fact.
One of the Obama administration’s last initiatives in office will be to make the value of Section 8 housing vouchers dependent on the neighborhoods in which they are used, rather than the value of housing in the metropolitan area in which they are redeemed — while reducing subsidies for those who remain in poor areas. The effect of the policy will be to subsidize the movement of low-income groups into higher-income areas. Though this policy was already tested under the Clinton administration in what was known as the “Moving to Opportunity” Initiative, which involved the relocation of more than 4,600 mostly minority families from lower- to higher-income areas, policymakers still refuse to learn any lessons that contradict hardheaded assumptions of racial egalitarianism.
In fact, the Department of Housing and Urban Development’s very own summary report on the results of the experiment concluded that:
No discernable benefit to economic self-sufficiency, employment outcomes, and risky and criminal behavior for adults and children was observed as a result of moving. Similarly, moving had few positive effects on educational achievement for youth. . . . These findings indicate that barriers to employment . . . may be based more on skill development . . . than proximity to employment opportunities.
In other words, rather than improving the lot of those relocated in the course of the scheme, moving the ghetto into the suburbs simply made the suburbs become more like the ghetto.
These findings converge with the results of a major Swedish study I discussed in an essay I called “The ‘Poverty’ of Sociology” which found that children born to families after they rise out of poverty have exactly the same increased risk of criminal behavior as children who actually grow up in poverty themselves.
The conclusion Amir Sariaslan’s research came to?
“There were no associations between childhood family income and subsequent violent criminality and substance misuse once we had adjusted for unobserved familial risk factors.”
Sariaslan’s study, in other words, had proven that growing up in poverty is not what creates one’s adult likelihood of committing violent crimes. Children who grow up in previously-poor families have exactly the same likelihood of committing crimes as children who actually grow up poor. The only conclusion we can soundly come to is that something else about poor families other than poverty itself must explain why their children go on to more frequently commit violent crimes.
How many economic crises must we create that tremendously harm black people in addition to everyone else before we acknowledge that peoples’ behaviors really do differ, on average, for reasons other than economics?
How many innocent people need to be victimized by violent crime through social engineering policies that turn suburbs into ghettos?
How much damage will egalitarians have to cause before they’ll grow the nerve to step up and face a few mildly uncomfortable facts of reality?
Policymakers’ denial of the fact that blacks’ and whites’ economic behaviors really do in fact differ even once economic circumstances are controlled for is literally one of the single largest factors that destroyed the global economy.
Is that not enough to take some suspicion of mean, evil raaacism off of people who think it’s important that we start acknowledging the reality of some of those differences?
Recommended Further Reading