He That Despises The Poor Despises His Maker: Scapegoating in an Economic Crisis
Posted: Thursday, October 08, 2009
by Edward Rhymes
Introduction
There is a familiar and ominous theme that is recurring in the conversation about the economic crisis we still find ourselves in: that the implosion of the housing market and subsequent mortgage debacle was the result of subprime loans extended to unqualified buyers (the poor and people of color). In the Christian call "to do justice to the fatherless and the oppressed ," I wanted to deconstruct this heinous lie.
This piece was written a little less than a year ago, but it is still extremely relevant and important today. I submit this writing to reasonable minds and compassionate hearts who also desire to do justice to those impacted by these myths and painful misconceptions.
The Heart of the Matter
I was wondering when someone would get around to really addressing the myths concerning the real, primary reasons for the mortgage and economic crises; when someone would stand up to the lies; the guilt-by-extension racial & poor-people scapegoating by naming Fannie Mae, Freddie Mac and the Community Reinvestment Act. On Thursday October 23rd 2008, during the House Oversight Committee's hearing on the Role of Federal Regulators, Henry Waxman finally did it.
One by one he asked Allen Greenspan, Christopher Cox (former SEC Chairman) and John Snow (Former Bush Administration Treasury Secretary) if they believed that Fannie Mae & Freddie Mac was the cause of the mortgage bust and one by one (as they hedged, going against their greatest traditionalist inclinations) they all said no. This attack being launched has less to do with getting to the bottom of this economic conundrum, and more to do with trying to ascribe blame to the American poor and the American citizens of color.
According to many commentators including Cavuto, Charles Krauthammer ( Washington Post), Lou Dobbs (CNN), and editorial writers at the Wall Street Journal, it is the federal Community Reinvestment Act-basically a ban on redlining-that forced lenders to make bad loans to Blacks, Hispanics (communities of color), and other unworthy recipients in poor neighborhoods around the nation leading to the challenges that are now plaguing the nation's economy.
Under the Community Reinvestment Act, passed in 1977, Congress concluded that "regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered." This included all communities in a lender's service area, and federal financial regulatory agencies were charged with the responsibility to "assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution."
The goal was to put an end to redlining and to increase access to credit for qualified borrowers in areas that had long been underserved. But, again, only "consistent with safe and sound" lending practices. And the law has worked.
According to studies by the Treasury, Federal Reserve, Joint Center for Housing Studies and others, the CRA has led to increasing homeownership in precisely those markets where the law was intended to do so and CRA-related lending has been found to be profitable.
Coincidentally, the law was strongest in the 1990s, before the statute was watered down and before the surge in subprime lending. Not coincidentally, the CRA was weakened by the Phil Gramm-led Financial Modernization Act of 1999 and subsequent regulatory "reforms." As a result, fewer mortgage lenders were covered by the law, and the rules that did apply were less stringent to many institutions.
So the CRA was strongest when families were able to buy and stay in their homes at record levels. The law was weakened just as the subprime lending craze took off, with the foreclosure and related economic crises that immediately followed.
More important, it is essential to understand that CRA-covered lenders did not make the loans that went bad. When the law was passed in 1977 approximately three-quarters of all mortgage loans were made by depository institutions covered by the CRA. Today approximately three-quarters of all loans are made by independent mortgage brokers and bankers who have never been covered by the law.
And as the National Community Reinvestment Coalition reported, CRA lenders have originated only one-quarter of subprime loans, with the overwhelming number of those loans-the loans that have led to the mortgage meltdown-being made by institutions that had no CRA responsibilities. In 2005 the Federal Reserve reported that just 5 percent of loans made by CRA institutions were high-cost loans, compared to 34 percent for non-CRA lenders. Admittedly, I am a sociologist and not an economist, but I am familiar enough with simple math to know that 34% is significantly larger than 5%.
This position is further supported by a report published in July of 2008 by UC Irvine's Paul Merage School of Business Center for Real Estate, in which they used 1998-2006 housing and mortgage data from a variety of sources - including First American Loan Performance, the S & P/Case-Shiller Home Price Indices and the Federal Housing Finance Board - to analyze 20 U.S. metropolitan areas as part of their study.
The study argues that the considerable 2003 pullback of government-sponsored financial service corporations Fannie Mae and Freddie Mac from the mortgage credit market and their subsequent 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 run-up that peaked in early 2006.
The researchers found that rising home prices up to 2003 could be explained by economic fundamentals, such as low unemployment rates, expanding household incomes and population growth. These factors fueled housing demand and, in turn, increased U.S. home prices. During this time, Fannie Mae and Freddie Mac actively issued and purchased conventional, conforming mortgage-backed securities.
But in 2003, political, regulatory and economic factors including accounting irregularities that led to their senior officers' resignations and the capping of their retained loan portfolios forced the two entities to significantly slow their lending volume. Private funding in the form of asset-backed securities and residential mortgage-backed securities replaced conventional, conforming mortgage-backed securities as the prevalent source of mortgage capital. The new credit environment allowed looser underwriting standards and increased tolerance for riskier, high-yield loan products.
Here are some hard and stubborn facts (supported by the Dept. of Treasury, Federal Reserve & Compliance Technologies):
It appears that the low-income/people-of-color bashing forces are immune to these facts, which is sad but unsurprising. When you couple this slanderous line of attack with the data that consistently shows that even when Blacks and Hispanics have equal or better credit than their White counterparts, they are still, disproportionately, more likely to be steered towards a subprime loan, it is downright unjust and shameful.
Although the real culprits may be symbolically cursed by the masses, they have been left largely unscathed. While millions of Americans of every hue are drowning in a sea of economic devastation, it is reprehensible to add to the peoples of color and to the American poor & working class, the extra tax of demonization and scapegoating.
Sources
U.S. Senate Committee on Banking, Housing & Urban Affairs: Turmoil in the U.S. Credit Markets: The Genesis of the Current Economic Crisis
Subprime Lending Not to Blame for Credit Mess, Says Study
U.S. House of Representatives Committee on Oversight & Government Reform. http://oversight.house.gov/story.asp?ID=2256
There is a familiar and ominous theme that is recurring in the conversation about the economic crisis we still find ourselves in: that the implosion of the housing market and subsequent mortgage debacle was the result of subprime loans extended to unqualified buyers (the poor and people of color). In the Christian call "to do justice to the fatherless and the oppressed ," I wanted to deconstruct this heinous lie.
The Heart of the Matter
I was wondering when someone would get around to really addressing the myths concerning the real, primary reasons for the mortgage and economic crises; when someone would stand up to the lies; the guilt-by-extension racial & poor-people scapegoating by naming Fannie Mae, Freddie Mac and the Community Reinvestment Act. On Thursday October 23rd 2008, during the House Oversight Committee's hearing on the Role of Federal Regulators, Henry Waxman finally did it.
One by one he asked Allen Greenspan, Christopher Cox (former SEC Chairman) and John Snow (Former Bush Administration Treasury Secretary) if they believed that Fannie Mae & Freddie Mac was the cause of the mortgage bust and one by one (as they hedged, going against their greatest traditionalist inclinations) they all said no. This attack being launched has less to do with getting to the bottom of this economic conundrum, and more to do with trying to ascribe blame to the American poor and the American citizens of color.
According to many commentators including Cavuto, Charles Krauthammer ( Washington Post), Lou Dobbs (CNN), and editorial writers at the Wall Street Journal, it is the federal Community Reinvestment Act-basically a ban on redlining-that forced lenders to make bad loans to Blacks, Hispanics (communities of color), and other unworthy recipients in poor neighborhoods around the nation leading to the challenges that are now plaguing the nation's economy.
Under the Community Reinvestment Act, passed in 1977, Congress concluded that "regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered." This included all communities in a lender's service area, and federal financial regulatory agencies were charged with the responsibility to "assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution."
The goal was to put an end to redlining and to increase access to credit for qualified borrowers in areas that had long been underserved. But, again, only "consistent with safe and sound" lending practices. And the law has worked.
According to studies by the Treasury, Federal Reserve, Joint Center for Housing Studies and others, the CRA has led to increasing homeownership in precisely those markets where the law was intended to do so and CRA-related lending has been found to be profitable.
Coincidentally, the law was strongest in the 1990s, before the statute was watered down and before the surge in subprime lending. Not coincidentally, the CRA was weakened by the Phil Gramm-led Financial Modernization Act of 1999 and subsequent regulatory "reforms." As a result, fewer mortgage lenders were covered by the law, and the rules that did apply were less stringent to many institutions.
So the CRA was strongest when families were able to buy and stay in their homes at record levels. The law was weakened just as the subprime lending craze took off, with the foreclosure and related economic crises that immediately followed.
More important, it is essential to understand that CRA-covered lenders did not make the loans that went bad. When the law was passed in 1977 approximately three-quarters of all mortgage loans were made by depository institutions covered by the CRA. Today approximately three-quarters of all loans are made by independent mortgage brokers and bankers who have never been covered by the law.
And as the National Community Reinvestment Coalition reported, CRA lenders have originated only one-quarter of subprime loans, with the overwhelming number of those loans-the loans that have led to the mortgage meltdown-being made by institutions that had no CRA responsibilities. In 2005 the Federal Reserve reported that just 5 percent of loans made by CRA institutions were high-cost loans, compared to 34 percent for non-CRA lenders. Admittedly, I am a sociologist and not an economist, but I am familiar enough with simple math to know that 34% is significantly larger than 5%.
This position is further supported by a report published in July of 2008 by UC Irvine's Paul Merage School of Business Center for Real Estate, in which they used 1998-2006 housing and mortgage data from a variety of sources - including First American Loan Performance, the S & P/Case-Shiller Home Price Indices and the Federal Housing Finance Board - to analyze 20 U.S. metropolitan areas as part of their study.
The study argues that the considerable 2003 pullback of government-sponsored financial service corporations Fannie Mae and Freddie Mac from the mortgage credit market and their subsequent 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 run-up that peaked in early 2006.
The researchers found that rising home prices up to 2003 could be explained by economic fundamentals, such as low unemployment rates, expanding household incomes and population growth. These factors fueled housing demand and, in turn, increased U.S. home prices. During this time, Fannie Mae and Freddie Mac actively issued and purchased conventional, conforming mortgage-backed securities.
But in 2003, political, regulatory and economic factors including accounting irregularities that led to their senior officers' resignations and the capping of their retained loan portfolios forced the two entities to significantly slow their lending volume. Private funding in the form of asset-backed securities and residential mortgage-backed securities replaced conventional, conforming mortgage-backed securities as the prevalent source of mortgage capital. The new credit environment allowed looser underwriting standards and increased tolerance for riskier, high-yield loan products.
Here are some hard and stubborn facts (supported by the Dept. of Treasury, Federal Reserve & Compliance Technologies):
- Wall Street Investors, not Fannie Mae & Freddie Mac, were the major purchasers of and investors in subprime loans
- The vast majority of subprime loans went to white, middle and upper income borrowers
- From 2004-2007 Non-Hispanic whites had more subprime loans than all minorities combined
- The Wall Street Journal reported that 60 to 65 percent of those who received subprime loans qualified for conventional mortgages
- Whites made up 71 percent of the borrower population in 2006 and received 56 percent of the subprime loans originated that year
- Blacks, meanwhile, made up 10 percent of the loan pool, yet received 19 percent of the subprime loans. Hispanics constituted 14 percent of the borrower community and received 20 percent of the subprime loans
- In 2006, the height of the subprime lending frenzy, roughly 56 percent went to non-Hispanic whites. Affluent borrowers, those with annual income at least 120 percent of their given area's median income, meanwhile, took out more than 39 percent of the loans
It appears that the low-income/people-of-color bashing forces are immune to these facts, which is sad but unsurprising. When you couple this slanderous line of attack with the data that consistently shows that even when Blacks and Hispanics have equal or better credit than their White counterparts, they are still, disproportionately, more likely to be steered towards a subprime loan, it is downright unjust and shameful.
Although the real culprits may be symbolically cursed by the masses, they have been left largely unscathed. While millions of Americans of every hue are drowning in a sea of economic devastation, it is reprehensible to add to the peoples of color and to the American poor & working class, the extra tax of demonization and scapegoating.
Sources
U.S. Senate Committee on Banking, Housing & Urban Affairs: Turmoil in the U.S. Credit Markets: The Genesis of the Current Economic Crisis
Subprime Lending Not to Blame for Credit Mess, Says Study
U.S. House of Representatives Committee on Oversight & Government Reform. http://oversight.house.gov/story.asp?ID=2256
This Article has been viewed 3,133 times. (Not updated in real-time.)
More commentsSo how innocent was Fred Raines? Did anyone review his bonus? White does not equal racist. Capitalist does not equal injustice or racism.When did I say that white equals racist or that capitalist equaled injustice or racism? To state the facts about what has actually taken place with the mortgage crisis; the actual statistics (instead of the untruths and the myths) & to try to clear up those misconceptions; and to speak against the injustices that are taking place (capitalist or not) should not be viewed as a frontal assault on anyone or any group of people --- I said as much in my first comment.
I don't know what Fred Raines has to do with this particular article or conversation --- does his bonus or misdeeds make any of the information I cited and produced less relevant or true?
If you can find anywhere in my piece where I denigrated white people or railed against capitalism, please let me know. Thanks for reading & commenting Deana."White does not equal racist. Capitalist does not equal injustice or racism."It's clear Edward DID NOT make either claim...He presented only facts to make his case, the same way a scientist after experimenting might say (using his data), "Gray rats are more prone to get cancer than white rats." That does not equal a racist statement...It is a fact based on the data!I also went back to read Ed's article again, and I didn't see the word Capitalism used even once....I am the one who spoke of Capitalism - not Ed.Apparently Deana, you chose to let your emotions do your speaking for you. Not a wise thing to do. That's a good way for you to lose your respect from others. Trust me - in the long run it pays to read things as they are, and not as you want them to appear....Kenny
I agree with Gregory, this is in my opinion one of the greatest articles on SearchWarp. This issue of ‘despising the poor’ is probably what I find most disturbing in the current political climate.When I read the Bible looking for God’s will for my life and lifestyle, I read throughout that I should have great compassion for the poor, the sick and the outcast. This is certainly one of the major themes of the entire Word of God.Yet still, when I bring this up to my conservative friends, I am almost always met with seething and sneering as if I am speaking something un-Christian.Please keep it up Mr. Rhymes. I am convinced you are doing the work of the Lord.Thank you Anon. Your words are a welcome blessing. I am doing my best --- WWJD can't just be a catchphrase or slogan, it has to be a way of life & living.Those friends of yours? Keep loving them & keep speaking the truth to them in love. We have to be as uncompromising in our love as we are in the truth.Thank you again --- you have truly made my day. God bless you.
Very well done, Edward. You are a nationsal treasure.Bottome line? Too many people who could not handle their loans got them, irregardless of race.I, for one, think the house "flipping" craze had an effect as well.Thanks Ken. You will get no disagreement from me that many people got loans they couldn't afford. Yet, even that wasn't the chief cause - "The study argues that the considerable 2003 pullback of government-sponsored financial service corporations Fannie Mae and Freddie Mac from the mortgage credit market and their subsequent 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 run-up that peaked in early 2006."I suppose what has been more troubling than anything is that not enough are saying: people should not be blamed for things that are not heir fault; people should not be made scapegoats to buttress people's political agenda or ideology. The basis of this piece was to point out one aspect of this discussion that was quite disturbing for me.It seems to bother some if you merely state facts and point out that an argument that has been forwarded is without factual support. I'm sorry if I sound like I'm venting --- I know I can do that with you brother :)National treasure? I'm thankful for the compliment and I appreciate you as well Ken. Thanks again for reading and commenting.Yes sir, National Treasure!Ok, Ok :)
I believe it's a shame that trying just to live in this country everything must be so complicated. Why can't we make things more simple for everyone to understand? Good article EdwardI believe that life is full of wonderful and, as sometimes, frustrating complexities. Yet, I do not believe it was meant to be vindictive, malicious and rancorous. As long as there is greed and power-lust, there will always be a very powerful group who will bent on keeping the vast majority of people ignorant and powerless --- it is the only way they can maintain any semblance of control.
Nevertheless, I am convinced that God has better plan for our lives if we just trust Him. Thanks for reading & commenting David
Hi Edward,This was a very interesting article. Thank you for sharing this information with me.--CrystalThanks for reading & commenting Crystal. It was my pleasure (and duty, I suppose) to share it. I could do no less. Thanks again.
I enjoyed your article very much. Thank you for sharing.Linda DThanks for reading and commenting Linda. I am happy that you gained something from this writing. Thanks again for taking the time to read and comment.
An excellent and very informative article, Edward. Well researched and extremely well written. Thanks for sharing it wiht us.Thanks Joel. When it comes to subjects like these, I believe I have to respect the reader enough to give them information that is rooted in much thought and research --- in that way, I am also not adding other misconceptions to this discussion.I am very appreciative of your comment & compliment Joel and thanks again for taking the time to read.
Thank you for such a wonderfully well-written and 'right-on-the-mark' article, Edward. It is all so true. Very few poor, people of color, people with no or low credit ratings would have been given loans in the best or the worst of economic times. The loans were given to high-credit rated and people with good jobs (at the time). Then the executives of these big banks, loan, and mortgage companies thinking that they had a bottom-less pit of income gave themselves huge bonuses and raises with never a thought to the problems our country might soon be facing. They say hind-sight is 20/20---I learned to watch my back many years ago.Thanks again for summing it all up for us.SandraThanks Sandra. It is sad and shameful when we make the most economically vulnerable people in our society and world the focal point of such demonization and misinformation. There is something very wrong, and dare I say, ungodly about that.Thanks for taking the time to read and comment dear sister; you continue to be a blessing to me.
Great article. Well done.I get mad when people blame the entire economic on Gordon Brown - the man is not that powerful. If it was the British economic cries it would be partially believable but not a global economic crisis. Some people are just being silly.Thanks Connor.It is silly (and in my opinion) shameful when people are blamed for things that are not their fault. We, in many societies, have become far too loose with slanderous statements regarding individuals and groups of people. I believe that if we conclude that someone or some group as a whole, is guilty of some transgression, we better have the goods to back up the claim.Thanks for taking the time to read and comment Connor.
Readers Club this time, Edward.Thanks again brother.
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