2010 May 17 Monday
White-Black Wealth Gap In America Widens
In spite of racial preferences in favor of blacks the black-white gap in assets widened considerably over a 23 year period. Barack Obama is in favor of more racial preferences. Think more will work? Or will more preferences just rack up bigger costs to the economy?
WALTHAM, Mass. – The wealth gap between white and African-American families increased more than four times between 1984-2007, and middle-income white households now own far more wealth than high-income African Americans, according to an analysis released on Monday by the Institute on Assets and Social Policy (IASP) at Brandeis University.
IASP, in a research brief, also reported that many African Americans hold more debt than assets and at least 25 percent of African-American families had no assets to turn to in times of economic hardship. The fourfold increase in the wealth gap, it said, reflects public policies, such as tax cuts on investment income and inheritances, which benefit the wealthiest and persistent discrimination in housing, credit and labor markets.
"Our study shows a broken chain of achievement. Even when African Americans do everything right -- get an education and work hard at well-paying jobs -- they cannot achieve the wealth of their white peers in the workforce, and that translates into very different life chances," said Thomas Shapiro, IASP director and co-author of the research brief.
If one group more readily saves and another group more readily spends and goes into debt is the first group at fault ? Think about this. How likely is it that discrimination in credit markets contributed to this difference in outcomes? Any group in America denied consumer credit would have an advantage in wealth accumulation because absent credit they'd have a much harder time living beyond their means. Credit cards are more akin to a temptation than a tool for advancement.
During the recent real estate bubble period starting back in the 1990s the US government's national policy was to extend more credit to blacks and Hispanics to counter supposed (but really just imagined) discrimination in the home loan market. But the ability to go into debt to buy a house that is beyond the means of the buyer has been a disaster for blacks. Easy credit means easy losses and burdensome debt. Blacks had their net worths harmed by this easy credit.
If blacks were discriminated against in lending then we should expect to see blacks default at lower rates than whites. Yet a 1992 study by the Boston Fed found that blacks do not have lower default rates. This is prima facie evidence of a lack of discrimination against blacks in lending.
Randall, do you have a link to that post you made a couple months ago about a respected journal of philosophy that had an article arguing that race was not a social construct? AT that time only the abstract was free online.
You are forgetting something. I will give you an example. I purchased a home last year with 22% down payment (which people were shocked by for some reason), this was in October, right as the bubble started to burst in the housing market. I got the house as a foreclosure, it was owned by Fanny Mae, so I ended up paying about 10K under market. The house was in pristine condition, unlike most foreclosures I looked at. Due to circumstances, I might be forced to sell the house in this market, BUT, even in this market it has appreciated due to its location. It is now worth 12%. At housing prices here in the D.C. area that is pretty good consider it is firmly a buyers market. That is after ONE YEAR. So how can you say the credit market is unimportant. There is a gap in savings, you are correct, blacks spend much more income, however they also own far less property, that is the biggest gap. Property ownership in America is key to most people's financial success. If you don't have access to credit, yes you will be hurt in the overall numbers, even if you are not "poor" as compared to your co-worker, who owns property (on average).
"If blacks were discriminated against in lending then we should expect to see blacks default at lower rates than whites. Yet a 1992 study by the Boston Fed found that blacks do not have lower default rates. This is prima facie evidence of a lack of discrimination against blacks in lending."
LOL That's nonsense. That does not prove or disprove. The biggest issue is not "can blacks get a loan" (that is a side issue) but at what interest rate!! There is more than enough evidence that shows that blacks (and Hispanics) are often charged higher interest rates than whites with the same income. Higher interest rates for the same amount of money and income obviously will affect default rates.
“LOL That's nonsense. That does not prove or disprove. The biggest issue is not ‘can blacks get a loan’ (that is a side issue) but at what interest rate!! There is more than enough evidence that shows that blacks (and Hispanics) are often charged higher interest rates than whites with the same income. Higher interest rates for the same amount of money and income obviously will affect default rates.”
Hispanics and blacks may be charged higher interest rates than whites with the same income, but do these Hispanics and blacks have the similar credit scores, debt to equity ratios, etc., to whites?
Blacks and Hispanics have worse credit scores than whites on average. Credit scores are one determinant of a loan’s interest rate. This may explain the disparity.
Bad Credit 'More Likely' For African-Americans.
National Mortgage News | September 27, 1999 | THOMAS, KAREN
"Higher interest rates for the same amount of money and income obviously will affect default rates."
It should, shouldn't it? If blacks and hispanics were being charged higher interest rates for no reason, you'd expect them to have higher default rates. But... they don't?
Blacks and Hispanics have worse credit scores than whites on average.
Blacks and hispanics have worse scores in everything.
Re credit scores et al, default rates certainly have an impact. Look at the situation with regard to educational loans:
"An analysis of NCES data by Education Sector, an independent education policy think tank, found that Black graduates had an overall default rate that was more than five times that of White graduates and nine times that of Asians."
Rasfarengi, The higher interest rates are the result of higher default rates. Creditors need higher interest rates to cover the cost of higher default rates.
The interesting thing about the education loans: The loans which have interest rates set by government also get defaulted on at much higher rates by blacks. So the argument that higher interest rates cause the defaults fails to explain outcomes where interest rates are the same.
No, property ownership is not key to financial success. Saving and not spending is far more important. Living below one's means is far more important.
What interest rate you have on your credit cards does not matter at all if you pay off the cards every month. If you save to buy a car then car loan interest rates do not matter. If you rent a cheap place and save to buy a house them mortgage rates do not matter.
"There is more than enough evidence that shows that blacks (and Hispanics) are often charged higher interest rates than whites with the same income."
There are only two reasons why anyone would be paying "higher interest rates" - either the individual has bad credit or is a moron.
The idea that this can result from discrimination is mind-bogglingly stupid. I can just imagine these greedy bankers talking over a loan application: "Hey, why don't we charge this guy 100 basis points higher than we could?" "No, he's a white guy - I'd hate to make extra commission charging higher interest to a white guy. Let's only charge higher rates to blacks and Hispanics." The idea is just preposterous.
Aren't most lending decisions made at the loan officer level? And isn't it very common for blacks and hispanics to seek loan officers they "trust" (i.e, "they're one of us")? I know of a now defunct loan operation in Paterson, NJ which made BIG bucks selling dodgy loan/financial products to poor minorities who didn't trust gringo. Fish/barrel/etc.
I recall a television program a couple of years ago on car dealership practices in dealing with blacks. Salesmen, many of whom were black themselves, would consciously "goad" black shoppers into buying models that were more expensive, with higher profit margins for the dealers/salesmen, by appearing to persuade them away from luxury cars and suggesting that "the payments on this baby are pretty high, and not a lot of people can swing so much." Their customers, especially black males, took this as a sort of challenge, often refusing even to consider more economical models. So they got approved for the more expensive models, generally at higher interest rates because they had lower credit ratings than whites and in many cases didn't have as much for a down payment as many whites, and as a result ended up paying considerably more in overall interest payments than most white customers, who tended to have a relatively more utilitarian and less emotional approach toward buying cars.
The program interviewed some salesmen who'd engaged in this practice, and who said it was very common, as black customers, especially men, were widely known to see the car purchase process as a validation of their status or even manliness. People can debate whether this is a "racist" practice, but it does show at least a difference in behavioral patterns between the two races, with blacks being disadvantaged financially due to their own behavioral tendencies. (I don't think other groups were mentioned in the program; it dealt only with blacks and whites.)
"Aren't most lending decisions made at the loan officer level? And isn't it very common for blacks and hispanics to seek loan officers they "trust" (i.e, "they're one of us")?"
Yes, and that leads to bad things, because these loan officers/sharks use this trust/gullibility to steer their customers/saps into higher interest paying loans. It's like a car dealer - they're going to charge the highest price they can get away with. This is why intelligence is such a big factor in wealth accumulation - knowing what the going rate is and recognizing a bad deal when presented.
"Randall, do you have a link to that post you made a couple months ago about a respected journal of philosophy that had an article arguing that race was not a social construct? AT that time only the abstract was free online."
Neven Sesardic, "Race: a social destruction of a biological concept".
Are you the same Tristero that posts at digby's blog?
Sorry, but no; I don't know what digby's blog is...
IMO the issue here is not Black vs. White one but rather a reflection of the well known fact that conservative Christians are prone to be incompetent. Since most Blacks are conservative Christians the Black race appears to be less capable in many areas than the White race. Coming out of the womb Black children have as much potential as do White children. But decades of mind washing by conservative Christians wreaks the potential of much of the Black race. The same thing happens to a minority of Whites as shown by many Tea Party members.
Prediction - if one were to look at college loan defaults in terms of conservative Christians vs. mentally healthy people they'd find a much higher default rate for the Christians, Black and White.
Thanks for your opinion. Of course it is easy to say something absurd and arrogant like that without presenting any evidence.
Prediction: "Mentally healthy" people have higher rates of suicide than conservative Christians.
Oh Wait... I don't need to speculate:
The difference in wealth between Afro- and Euro-Americans is mainly due to historical limitations placed on African-Americans. African-Americans were sent to the US lacking "European wealth"; i.e. European money, metals, etc. Most of the descendents of this initial generation were forced to work for 100-400 years (depending on family history) for free. In addition, African-Americans were systematically excluded from specific high-earning professions after enslavement. Many modern European-Americans receive this thing called an "inheritance", some of which derives from wealth (a) aquired >150 years ago in America, (b) made before said ancestors reached America, and (c) profits from homestead lands in America. Ever heard of the saying "you need money to make money"? Some of our current wealth differential can be attributed to Afro-Americans
starting out with less, and thus having less wealth to invest to increase our present wealth. I am a 30 y.o. Afro-American woman with a scientific Ph.D. from a top 10 university. While my earning power is potentially the same as my Euro-American counterpart, on average, my inheritance will add much less to my personal acquired wealth. This is just the reality in the US, and as a result, I take full responsibility (along with my husband) for future wealth building.
Gery: My parents received next to nothing; my grandmother's estate went to pay for her nursing-home care and she died on Medicaid. My grandfather on the other side left a house that was next to worthless because of what the neighborhood had become; he also died in a nursing home. The entire material inheritance I got was amassed during my parents' lifetimes by their own work. My immaterial inheritance, however, includes things like respect for work and a love for books. It looks like yours includes a penchant for nursing grievances. Which do you think is likely to yield better?
Sophia: I would refer you to the Minnesota Transracial Adoption Study, but from your words it looks like your mind is impervious to anything that would make you reconsider your position.
It's so obvious that I have a disrespect for both hard work and books. But somehow I have a Ph. D. in chemistry. How does that work again? Anyway, I have no grievances. Just stating the facts (on average).
It's so obvious that you never took basic statistics otherwise you'd understand the differences between population averages vs individual characteristics.