race and the subprime loan scandal Did poor minorities c

[natina]

The Wall Streeters often used shaky accounting schemes to buy the loans from brokers who were not regulated by anyone. These brokers took their generous commissions and ran. Like the first people to cash out of a pyramid scheme, the brokers were out of the picture before they could be held accountable for fraud, misrepresentation or other coercive tactics they used to sell the bad loans. Thus, a system of non-accountability flourished outside of the regulated financial system, in what Floyd Norris of The New York Times calls the "shadow banking system."

A crisis arose from a perfect storm: There was the loose-money era created by low interest rates set by then-Fed Chairman Alan Greenspan and a burgeoning, unregulated financial sector. Then we saw the integration of financial systems around the world. Many older CEOs did not really understand these new and complex financial instruments that were too good to be true. Even if the CEOs did, they had no incentive to rein them in because they brought huge profits to their companies, and golden parachutes to them, when things collapsed.

The racial scapegoating in this financial crisis has echoes of another political season two decades ago. Willie Horton, a convicted murder, raped a Maryland woman and beat up her boyfriend while he was out on a weekend furlough from Massachusetts, where Michael Dukakis was then the governor. In 1988, during the winning presidential campaign of George H.W. Bush, the late Lee Atwater, Bush's strategist and a mentor to Karl Rove, announced, "By the time this election is over, Willie Horton will be a household name."

The ad based on Horton, made by a political action committee, became infamous because it never mentioned Horton's race. It featured just a picture of Horton's close-up prison mug shot looking fearsome and warlike with uncombed, nappy hair, a beard and an ice-cold stare.

Being the crafty Republican strategist that he was, Atwater, in choosing to make Willie Horton a household name, affixed a black face to the national problem of crime. This Machiavellian manipulation distorted the fact that 16 white prisoners and only two black prisoners had been furloughed under the program. But facts lost out in the '88 election. H.W. won.




Present-day circumstance cannot fall prey to the same manipulation. Racializing a complex global financial panic is an unforgivably incendiary tactic that has special significance because Barack Obama is the first black nominee for president of either major political party. This campaign, unlike Michael Dukakis' campaign in 1988, is more vulnerable to crude racial manipulation. We have witnessed the claims that Obama is a Muslim, an unpatriotic, American-hating radical, with a wild wife and a raving black pastor. The Atwater Alumni Club seems to forget that their patron saint, Lee Atwater, recanted the Willie Horton tactics and apologized to Dukakis before he passed away in 1991.

Still, the bare-knuckle strategies persist. The sub-slime ploys continue as the Joe Six-Packs of America inject race into a global financial panic. Enough! I hope that this election year, Americans push these race-baiting tactics back into the racial Stone Age where they belong.

This article was written by Emma Coleman Jordan, a professor of law at Georgetown University Law Center, where she teaches Banking, Commercial Law and Economic Justice. She is the author of several books on race, gender and economics.


http://articles.moneycentral.msn.com/Banking/HomeFinancing/did-poor-minorities-cause-the-crisis.aspx?page=1


http://articles.moneycentral.msn.com/Banking/HomeFinancing/did-poor-minorities-cause-the-crisis.aspx?page=2

[yodajazz]

I had already read this article and agree with it. It's funny how the people who push the loans and profited are removed of responsibilty. At one time, I was get 4 or 5 phone calls a night from loan solicitors asking if I needed money. I heard about some friends whose 75 year old mother was given a 30 year loan.

There were some loan/housing financiers who went to jail around here. but from what I can see their dirty work was probably packaged and sold to others.

I was actually going to link this same article myself to prove a point on another thread, regarding lack of regulation.

[NYBURBS]

People should be held to answer for fraudulent business practices. However, regulation got us into this mess to begin with. The truth of the matter is 1) Government Sponsored Enterprises artificially manipulate the economy. 2) The requirement that banks lend to subprime loan candidates was disastrous. Am I saying that there wasn't racism involved in some bank practices? Nope not saying that. Even with that said, we still should not have forced them to lend to bad risk borrowers. Undue government interference in the markets got us to this disaster, and now its continued interference will only worsen it in the long run.

[Gh0strider]

It was not additional regulation that got us into this turmoil, it was plain and simple greed. More to the point it was fraud. It was not the forcing of banks to lend to unfit borrowers that caused this issue. Case in point it was a lack of regulation that lead to this catastrophe.

I worked to help start a bank, the issue was not expansion of Freddie and Fannie lending ability that caused the issue, that just helped to compound the issue. The issue was the belief (fraud) that you could reduce risk dramatically by bundling and then monetizing loans. This was a ponzi scheme as the risk did not become less, in fact they became greater and any basic economic analysis would have shown this but there was sooooo much money to be had in creating this unregulated secondary market that banks and mortgage companies fell over themselves to produce as many loans as possible without the due dilegence that should have been given. The thought was I am not going to carry the risk the market will bear the risk....like I said the root of this was not poor people getting loans the problem was excessive greed. Poor people near the end of the bubble were just tool not the problem. There is no regulation forcing banks to give loans to poor people, the banks wanted to give loans to them because it helped build their ponzi scheme...dont be fooled

[NYBURBS]

It was not additional regulation that got us into this turmoil, it was plain and simple greed. More to the point it was fraud. It was not the forcing of banks to lend to unfit borrowers that caused this issue. Case in point it was a lack of regulation that lead to this catastrophe.

I worked to help start a bank, the issue was not expansion of Freddie and Fannie lending ability that caused the issue, that just helped to compound the issue. The issue was the belief (fraud) that you could reduce risk dramatically by bundling and then monetizing loans. This was a ponzi scheme as the risk did not become less, in fact they became greater and any basic economic analysis would have shown this but there was sooooo much money to be had in creating this unregulated secondary market that banks and mortgage companies fell over themselves to produce as many loans as possible without the due dilegence that should have been given. The thought was I am not going to carry the risk the market will bear the risk....like I said the root of this was not poor people getting loans the problem was excessive greed. Poor people near the end of the bubble were just tool not the problem. There is no regulation forcing banks to give loans to poor people, the banks wanted to give loans to them because it helped build their ponzi scheme...dont be fooled

If we had a hands off policy both ways then people would look harder at who they actually lent too, understanding the risk that came with it (like they are now to an almost paranoid degree). When we introduce government policies that essentially force banks to loan to less than credit worthy persons we travel down a dangerous path. You are correct to say there was massive fraud and that is unacceptable. If anything the definitions of and penalties for fraud need to be strengthened. However, that is not an argument for increased regulation.

As for nothing "forcing" them, the Community Reinvestment Act of 1977 essentially requires them to make loans if they want to be able to open additional branches. It says they shouldn't make unsafe ones but like so many other federal laws it is vague as to many definitions. It's undue government interference. The lending isn't the only reason we're in this mess but it most certainly is part of it.

[trish]

The regulation was put in place to eliminate redlining, which is a blanket procedure for refusing loans to anyone who lives on the wrong side of the tracks. Banks were circling regions on the map (in red) and refusing loans to anyone within those areas without looking at their specific case. Not a good idea if you want to spur economic growth in those areas. Some form of regulation was called for, unless you're ok with letting whole regions of the map go to seed.


It says they shouldn't make unsafe ones but like so many other federal laws it is vague as to many definitions.


So your argument is that things went badly because the federal laws allowed too much flexibility in the interpretation of what distinguishes a safe from an unsafe loan. Something one would’ve thought the banks granting the loans would’ve been in the best position to determine on a one to one basis. Continuing with this line of argument one is led to the conclusion that more regulation is required. The federal laws should in fact delineate more clearly what loans are safe and what loans are not, because it appears that bankers are either too stupid or too stubborn to figure it out on their own.

[NYBURBS]

So your argument is that things went badly because the federal laws allowed too much flexibility in the interpretation of what distinguishes a safe from an unsafe loan. Something one would’ve thought the banks granting the loans would’ve been in the best position to determine on a one to one basis. Continuing with this line of argument one is led to the conclusion that more regulation is required.

No my argument is that they shouldn't involve themselves in private business in the first place. If there were no banks lending to a particular area then we need to pause and ask ourselves why. Because I don't care how racist someone thinks a person is, if there was a good chance to make money and get a good return they would lend it. If one bank wouldn't than that would be an opportunity for someone else to. I would imagine that areas were red lined for being extremely low income. I would hesitate to loan my money to someone to buy a home there also. Not because of race but because lower income people are likely to have less stable jobs and if it forecloses then I'm stuck with a tough piece of property to sell.

From a website:
Definition: Redlining is against the law. It is a discriminatory practice, involving lenders which refuse to lend money or extend credit to borrowers in certain "struggling" areas of town. It is against the law to discriminate against borrowers based on race or income level, among other factors. Redlining became known as such because lenders would draw a red line around a neighborhood on a map, often targeting areas with a high concentration of minorities, and then refusing to lend in those areas because they considered the risk too high. Even though it is now against the law, some lenders today are still accused of redlining.

Is the racial issue shitty? Yep but in a real and competitive free market someone would make use of an untapped market of say middle or high income blacks/hispanics. Refusing to loan to lower income persons? I see nothing wrong with it, in fact I see it as a sound and logical business practice.

PS- The practice itself was started by a government agency, another ding in the keep them the fuck out of the economy column.

[Gh0strider]

CRA banks are not the banks in trouble, most CRA banks still hold the loans and believe it or not are in better financial shape. Look this is a bait and switch arguement and they have you hook line and sinker. The CRA act was not and I repeat not the cause of the this economic crisis. The cause was Greed, plain and simple. The banks new the loans were fraudalent but did nothing because they decided to pass the risk off to the unregulated secondary market. Why would you blame the government and worse yet "victims" for this crisis. The blame lies at the foot of the banks and mortgage companies plain and simple. They knew what they were doing and I bet you when this is all said and done with you will see that many and I mean many of these CEOs, Dir and VPs were hedging their bets that there would be a collapse and made money on the short side of this too. You are being gamed if you really believe the CRA caused this collapse its almost laughable if werent so sad that so many have easily embraced this lie.

[Gh0strider]

In addition because this BS that the CRA caused this irks me to no end. Let me state some facts for you, the three areas of the country worse hit by this were california, nevada and florida. The neighborhoods worse hit by this were not the inner city but affluent suburbs. CRA loans typically were 30 year fixed loans at worse they were 90/10 30yr fixed. The loans that blew up were subprime ARMs, do you know who most of these loans went to mid to upper income individuals who tried to buy more house than they could afford and to speculators betting on the flip. Prime examples are the incredible walk away loans in Miami. These arent in the starter home neighborhoods these are in the million dollar condo market. What poor person regardless of the CRA is qualifying for a 450k loan for a one bedroom condo the answer is none unless both the bank and the mortgage company is committing fraud. This crisis was simply a case of greed, fraud and corruption and had nothing and i repeat nothing to do with poor people and the CRA. All the CRA demanded of the banks was to be location and race blind in there offering of a loan. If I'm a poor person in a bad neighborhood but have worked hard to get a 750 credit score why should I pay a higher interst rate then somebody from a wealthy neighborhood with a 650 score, the bank/mortgage company still retained the right to set spending limit and terms. Their greed to sell shitty loans to any and everyone foolish, ignorant or greedy enough to take them is what got them into this mess.

The funny thing is the only real cause of this crisis from a regulatory perspective (besides lack of regulation) was the daily capitializtion requirements for banks. If the account laws were to allow future capialization of securities versus daily capitalization this crisis would have never occured. I personally agree with daily capitialization because it causes banks to be honest in their accounting. Personally I dont trust the bastards and given a chance to lie(future asset accounting) to increase their take, I know what they would do.

[NYBURBS]

Ya I am well aware that many middle and higher income people took retarded loans, such as ARM, balloon payment, etc. That's why I think they should all lose their homes, just as these businesses should have been allowed to fail. The homes would eventually be purchased at a price that would help reset the market (instead of the absurdly over-inflated prices they were going for) and the assets of the failed businesses would have eventually been gobbled up also.

If you work in banks than I can submit that you know far more than I about the inner workings here. However, if you reread my original post than you'll see I didn't say any one act was the cause of it but rather undue government interference. I'm well aware there is greed, there always will be and nothing can legislate it out. There is one single ethic among markets, and that is risk. This bailout just did away with the only thing that eventually keeps people honest (that and there should also be people in prison for the rest of their lives).

Either way, I have read much about this over the past few weeks, including the effect that Freddy and Fannie and the reinvestment act had in making this disaster possible. I feel like a broken record with my government is the problem statement but I really do feel that way.

[Gh0strider]

The problem is balance. The government can be tool of good as well as evil. Regulations are great but excessive regulation is problematic. There needs to be balance and that takes sound judgement and leadership.

The economic crisis happened for a number of reasons, government intervention is a but a small very small part of the issue.

Example: we would all agree that the interstate highway system is great thing but that is government interfering in business (they could just as easily all be privately owned toll roads). we would all agree that regulations banning the use of lead paints is good for everyone but that is government intervention (lead paint if you want to go cheap who cares). On the flip side the US government signing an idiotic trade agreement with China during the Clinton years helped to lose millions of US jobs is just as easily an example of bad government.

Balance is the key, but free market everything is not the answer just like socialism isnt the answer either.