Sunday, October 12, 2008

Greedy Rich White People

One of the ugliest yet most enduring tropes in American politics is blaming every problem on the poor, the marginalized, all those who are the victims rather than the perpetrators of socio-economic crimes.

Thus Reagan blamed the budget deficit not on corporate welfare and bloated defense contracts, but on single mothers on welfare.

Republicans blame job losses not on corporations shipping jobs overseas, but on affirmative action giving "undeserving" minorities the college spots and jobs whites needed.

They even blame the economic squeeze hurting small businesses not on the lack of universal health care, but on disabled people using the Americans with Disabilities Act.

So it's no surprise that the repugs and their corporate masters are blaming the financial crisis on poor people and minorities who believed mortgage brokers who assured them sub-prime loans were a good deal. Bonus blame to "big government" in the form of Fannie Mae and Freddie Mac.

But Daniel Gross in Slate exposes the real guilty parties: Greedy Rich White People.

(More after the jump.)

We've now entered a new stage of the financial crisis: the ritual assigning of blame.... On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there's a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so.


Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it's the fault of Jimmy Carter, Bill Clinton, and poor minorities?


The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren't regulated banks.... the CRA didn't force mortgage companies to offer loans for no money down, or to throw underwriting standards out the window, or to encourage mortgage brokers to aggressively seek out new markets. Nor did the CRA force the credit-rating agencies to slap high-grade ratings on packages of subprime debt.... many of the biggest flameouts in real estate have had nothing to do with subprime lending....

(L)ending money to poor people and minorities isn't inherently risky. There's plenty of evidence that in fact it's not that risky at all. That's what we've learned from several decades of microlending programs, at home and abroad, with their very high repayment rates. And as the New York Times recently reported, Nehemiah Homes, a long-running initiative to build homes and sell them to the working poor in subprime areas of New York's outer boroughs, has a repayment rate that lenders in Greenwich, Conn., would envy. In 27 years, there have been fewer than 10 defaults on the project's 3,900 homes. That's a rate of 0.25 percent.

On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it's even more risky, since they have a lot more borrowing capacity.


Look: There was a culture of stupid, reckless lending, of which Fannie Mae and Freddie Mac and the subprime lenders were an integral part. But the dumb-lending virus originated in Greenwich, Conn., midtown Manhattan, and Southern California, not Eastchester, Brownsville, and Washington, D.C. Investment banks created a demand for subprime loans because they saw it as a new asset class that they could dominate. They made subprime loans for the same reason they made other loans: They could get paid for making the loans, for turning them into securities, and for trading them—frequently using borrowed capital.


Lending money to poor people doesn't make you poor. Lending money poorly to rich people does.

Read the whole thing.

Cross-posted at They Gave Us A Republic.