Did regulatory pressure and other forms of government intervention into the mortgage market (e.g. government sponsored entities Fannie Mae and Freddie Mac) cause the real estate bubble? Steve Sailer argues that government policies aimed at increasing non-Asian minority (NAM) home ownership caused a lowering of mortgage standards, the housing price bubble, and the resulting financial crisis. Steve presents additional evidence for this view.(full article here)
The conventional wisdom that emerged from the crisis of the Great Depression dominated American ideology until almost 1980. Similarly, the reigning ideas that congeal in the next few weeks about the causes of this crash may determine the course of politics for decades to come.
The truth is, we were never as rich as we thought we were. The last decade’s growth was largely driven by huge flows of lending dollars to dubious borrowers. At the bottom of an unknown but frightening number of convoluted new-fangled debt instruments were homebuyers who had no chance in hell of paying the mortgages back when the music stopped and the price of houses in California (and a few similar states) stopped heading toward infinity.
Federal Home Mortgage Disclosure Act data dug up by reader Tino suggests that the recent American Housing Bubble was, more than anything else, a Hispanic Housing bubble, as total mortgage dollars handed out to to Hispanics more than septupled from 1999 to 2006! (Is "septupled" even a word?)
Moreover, in 2006, according to Tino, 51% of subprime and other "higher priced" mortgages (for purchasing homes and for refinancing older mortgages) went to minorities. The higher priced mortgages are, of course, where most of the unexpected defaults have shown up.
UPDATE: Tino has added up all the subprime mortgage dollars for the entire disastrous 2004-2007 period. Among borrowers whose ethnicity is unambiguous, he comes up with $900 billion subprime dollars going to non-Hispanic whites, $887 billion to minorities.
Someday, we'll get a count of defaulted dollars by race.
Lowered lending standards brought a large group of people into the home buyer market in a relatively short period of time. They didn't have the buying power and job stability needed to keep up with their mortgages. The lowered standards also brought in con artists and novice investors.
I couldn't find usable numbers in the database on subprime dollars alone, although a more assiduous researcher may well be able to tease out the facts. But if minorities in 2006 accounted for 35% of all mortgages (see above), they would have accounted for a higher share of subprime dollars mortgages. Defaults so far have been concentrated in subprime adjustable rate mortgages. They accounted for 6% of mortgages and 39% of defaults.
Therefore, it's likely that it will turn out that the majority of unexpected default dollars, above normal trend lines, in 2007 were from defaults by minorities.
The conventional wisdom that emerged from the crisis of the Great Depression dominated American ideology until almost 1980. Similarly, the reigning ideas that congeal in the next few weeks about the causes of this crash will determine the course of politics for decades to come. Right now, the elite consensus (as in the 1930s) is that the free market failed. The truth, to which we blinded ourselves in an orgy of political correctness, is that the America of 2008 doesn't have the human capital to justify the valuations of wealth it thought it had.
It took decades (and lots of research by Milton Friedman, Anna Schwartz, and others) for a more accurate interpretation of the causes of the Great Depression to gain widespread acceptance. Even today many ideologues in the Democratic Party still tout the Great Depression as a great failure of capitalism and a justification for larger government.
Karl Rove, George W. Bush, and other Republicans along with a large contingent of Democrats pressed for higher minority (non-Asian minority or NAM) housing ownership. They blinded themselves to the reasons why this was a bad idea. Elite unwillingness to confront The Bell Curve and its implications for housing policy does not help.
|Share |||By Randall Parker at 2008 October 11 11:12 AM Economics Housing|