around these high interest loans and in the housing construction sector around new construction is related to practices like these. Here is the most damning statistic in my mind:
Even more troubling, real-estate industry analysts say, is an alarming proportion of blacks and Hispanics who received subprime loans by predatory lenders even when their credit picture was good enough to deserve a cheaper loan.
In six major U.S. cities, black borrowers were 3.8 times more likely than whites to receive a higher-cost home loan, and Hispanic borrowers were 3.6 times more likely, according to a study released this month by a group of fair housing agencies.
"Blacks and Latinos have lower incomes and less wealth, less steady employment and lower credit ratings, so a completely neutral and fair credit-rating system would still give a higher percentage of subprime loans to minorities," said Jim Campen, a University of Massachusetts
economist who contributed to the study.
"But the problem is exacerbated by a financial system which isn't fair," he said. In greater Boston, 71 percent of blacks earning above $153,000 in 2005 took out mortgages with high interest rates, compared to just 9.4 percent of whites, while about 70 percent of black and Hispanic borrowers with incomes between $92,000 and $152,000 received high-interest rate home loans, compared to 17 percent for whites, according to his research.
The article says that this is largely because the predatory lenders felt they could more easily prey on black and latino buyers because they had less knowledge about the process. The GAO of the US realized this many months ago but instead of regulating these kinds of loans, decided that they would just create an information sheet. I have a longer discussion of this on the lbo list here. In short, the GAO was less concerned with the fact that this might make a bunch of people lose their homes and incur massive amounts of debt from which they would never recover. It was more concerned that this might create instability in the banking sector: they do have a certain class interest to look out for, after all. Thus it is likely that stories such as this Reuters piece will get far less play than the news last week about New Century Financial Corp, which seems be the kind of thing the GAO was actually worried about: that investors wouldn't get their money out of the securities markets fast enough.
Poor, poor investors. They really do have it rough. Now Fannie Mae and the state of California are fueling the flames by banning New Century Mortgages. I smell a bailout coming if this thing gets much bigger. People might be kicked out of their homes, they might have to live in privately funded (mostly church) shelters for years trying to dig themselves out of this, but they will get little help from the government: that would defy the free market logic that we are now told is the essence of human interaction. Besides, as many of my students say, the poor are always with us--even the poor who weren't poor a few years ago but will be soon because they got scammed by inethical lending practices and the nascent racism of US society. It's just the breaks and, if we try hard enough, we can probably figure out a way to place most of the blame on the people who are the most fundamentally fucked by the meltdown. As Hayek says, this system of the market is a moral system and therefore we can always assume some proper morality to the dispossession of the poor, so much so that it is hardly news.
But if the investor class faces a slight chance of having a fraction of their assets liquidated, well that, my friends is news. And though just a few months ago the government regulation of these subprime lenders would have been an unjust meddling in the economy by the state, as the crisis widens there will inevitably be a call for government intervention in the form of bailouts. The poor (and newly minted debtor nation) can be blamed for their moral failures, but investors just got a bad break. Besides, the story goes, if these investors don't get bailed out, who's going to run the economy? Where's the capital going to come from? Surely not the government! Why that's inefficient and creates incentives for people to abuse their power and exploit the uninformed--things the market, in all its phantasmic, orgasmic ideal perfection, protects us against.
If it sounds like a bedtime story for the upper class that's because it helps them sleep better at night.
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