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I have received several emails from wingnuts that blame the Democratic Congress and minorities for the subprime mortgage mess.

I won't bother with the specifics of the emails, they all boil down to three essentials:

  1. Democrats were responsible for loosening mortgage underwriting standards, because they want more minorities to be able to get loans;
  1. The current crisis has been caused by minorities defaulting on subprime loans; and
  1. Democrats in Congress obstructed Republican reform attempts.

If you, like me, have nutty uncles, you'll be getting this emails as well. Some facts you can use to rebut them are below. If you can think of other useful things I have overlooked, please let me know and I will update.

First: mortgage underwriting standards. The Democratic Party policy has never been opposed to lenders denying credit on the basis of bad credit or an inability to pay. The issue has always been "redlining" - assuming that if you live in such-and-such an area, or have such-and-such a skin color, or have a funny-sounding last name, that you shouldn't even be considered for a loan.

Opposition to redlining has nothing to do with the subprime crisis.  With subprime lending, standards were relaxed because the Fed WANTED to create a housing bubble in order to give the masses the illusion of prosperity. It was the Bush Administration that stood by while investment banks went into the business of making no-documentation-needed, no-money down adjustable-rate mortgages on McMansions in the suburbs. That is hardly the same thing as urban renewal. There is a world of difference between flexible underwriting criteria and no criteria at all.

Second: minorities have caused the subprime crisis. Most subprime loans didn't go to minority borrowers. The highwater mark of subprime lending was 2006. Middle- and upper-income borrowers accounted for more than two-thirds of high-rate mortgages issued in that year. And more than 55 percent of such loans went to white borrowers. During the period of 2004 to 2006, whites had more subprime rate loans than all minorities combined.

A bit of anecdotal information:
Rapid City, SD is massively white - 88%, according to Wikipedia. But it pops on lists of hardest hit metros. Also on that list: Napa, CA, Manchester-Nasuha, NH, and Bay City, MI, all places that are >85% white.

Another interesting tidbit, from the WSJ: wealthy white folks were binging on subprime loans to buy second homes.

even as the housing market was weakening, some lenders still were eager to make riskier loans. Banks and thrifts grabbed 52% of the market for high-rate loans last year, up from 44% in 2005. SunTrust Banks Inc., of Atlanta, long known as a conservative lender, more than doubled the number of high-rate loans made by its mortgage unit. Smaller banks such as First National Bank of Arizona, part of First National Bank Holding Co. of Scottsdale, Ariz., also revved up their riskier mortgage lending last year.

Joel Gottesman, chairman of First National's mortgage division, says much of the jump reflects borrowers who got second mortgages.

Higher-income home buyers began using such loans for larger purchases. Among borrowers characterized in the data as white with annual income of at least $300,000, the number of high-rate loans jumped 74% last year, the numbers show.

If confronted with the above, your typical wingnut will say that the affluent white borrowers are paying their subprime loans off. Show them this item from Reuters, "Foreclosures come to McMansion country. Leesburg, VA, 84% white:

One out of every 69 households in the county was in foreclosure in the last three months of 2007, well above the national average of one filing for every 555 households, according to RealtyTrac.

Third: the Democratic Congress is to blame for this mess. Hank Paulson himself points to 2006 as the highwater mark of the subprime flood tide. In that year the Republicans controlled Congress, as they had for 12 years!.

I'm inclined to think that an easily-understood fact such as that is all that is needed to refute the idea that the Congressional Democrats are to blame for the current situation. However, if you need more:

  1. In 1999 the Republican-controlled Congress undid the Glass-Steagall act - undoing the the banking system that had existed in this country since the New Deal, without any thought for how to regulate the new regime it created. That law was authored by John McCain's good friend and putative Treasury Secretary, Phil Graham.
  1. In 2000 the Republican-controlled Congress  passed the Commodity Futures Modernization Act which excluded derivatives - including credit default swaps - from regulation. (This is also the source of the "Enron loophole".)
  1. Alan Greenspan's too-loose monetary policy created the housing bubble while at the same time he (1) claimed that real estate couldn't experience a bubble, and (2) refused the idea that the Fed should have been warning banks about their imprudent lending standards. Moreover, Bush encouraged the bubble-inflating policies, becasue it was the only part of the economy that seemed to be doing well under his care.

Updated: WSJ link added - thanks to Kossack Sweetness and Light. Also added the Reuters link.

Originally posted to SantaFeMarie on Sun Sep 28, 2008 at 03:14 PM PDT.

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Comment Preferences

    •  this is wonderful (0+ / 0-)

      I first got this from a friend/co-worker who is a DEMOCRAT, of all things.  He's a generation older than me, and while I don't think he's racist per se, he's probably got a little of the old south in him.

      My jaw was on the floor when he told me that Democrats were responsible for the mortgage mess, because they made it so that banks were afraid to turn down the mortgage applications of minorities, for fear of lawsuits.  

      I was speechless, which is rare for me!

      I just c/p'd most of your diary and sent it to him.  He's a smart guy, he'll probably appreciate the information.  THANK YOU!

      Join us in the Grieving Room on Monday evenings to discuss mourning and loss.

      by Dem in the heart of Texas on Sun Sep 28, 2008 at 04:22:50 PM PDT

      [ Parent ]

    •  PS - this should be on the rec list (0+ / 0-)

      if people have any sense at all.

      Join us in the Grieving Room on Monday evenings to discuss mourning and loss.

      by Dem in the heart of Texas on Sun Sep 28, 2008 at 04:27:26 PM PDT

      [ Parent ]

  •  Flailing about widlly (2+ / 0-)

    Expect this sort of crap, and far worse, for the 37 days left.  This claim and the one that Obama is turning the MO Police into his personal hit squad (see Newsmax for that one) are just the first in a long line of increasingly bizarre BS we'll see..

    "Polls are like crack, political activists know they're bad for them but they read them anyways."-Unknown

    by skywaker9 on Sun Sep 28, 2008 at 03:18:21 PM PDT

  •  The repubs are pros at.... (3+ / 0-)

    Pontification, denial, minimalizing, projecting, triangulating and all other forms of personality pathology.

  •  Heard a caller mention this in CSPAN (3+ / 0-)

    And I wanted to rip her racist head off.

    Almost more than anything else, this is why I want Obama to win.  It will stick in their throats, and cause them so much pain and suffering.  Racism will only be ended when the younger generations kick out the ideas their parents' refused to give up.  

    •  Which they are (1+ / 0-)
      Recommended by:
      Dem in the heart of Texas

      If you look at the primaries for example, young southern white dems voted more like young voters elsewhere while the older generation was set against Obama in places like KY and MS...

      "Polls are like crack, political activists know they're bad for them but they read them anyways."-Unknown

      by skywaker9 on Sun Sep 28, 2008 at 03:31:02 PM PDT

      [ Parent ]

  •  Thanks, I may need this as my boss (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    has already said this and he invests money for people!! Thank god the people who actualy decide on the deals we do and stocks we buy, understand finance. they vote GOP but they wouldn't blame some black people for tanking some of the biggest banks in the wordl1

  •  The % of white loans in hardest hit areas (2+ / 0-)

    should be given to everyone in the press so they don't spread this BS.

    And Obama will need it for the next debate because Mcame might try it

  •  Spin Doctors on Call (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    I've been watching coverage on MSNBC for about an hour and while I didn't catch the name of the current water carrier, he is one of the most churlish and obnoxious people to be first out of the gate.  He, too, was spouting Dem blame because they have had control of Congess for two years as well as stating something to the effect that while McCain was working, Obama was out in public with his 'adoring fans' (that is a direct quote).  These people do make their points to their 'adoring fans' and it is extremely frustrating.

  •  Great diary - thx n/t (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas
  •  superb diary! thank you (2+ / 0-)

    way to cut to the chase and disseminate the stuff we all need to know.  I am going to read it 5 more times.

    "No way, no how, no Palin war with Russia." --KariQ

    by andrewj54 on Sun Sep 28, 2008 at 03:22:56 PM PDT

  •  and my white parents (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    told me that when they bought their house in Phoenix, they were told that they could afford something FAR beyond their means.  They didn't go for it, thankfully.

    "No way, no how, no Palin war with Russia." --KariQ

    by andrewj54 on Sun Sep 28, 2008 at 03:23:57 PM PDT

    •  we were told the same thing in Houston (0+ / 0-)

      We moved from NYC, and had made a tidy profit on our apartment.   We could probably have purchased our home without a mortgage at all, but took a small one for the tax relief, and so we could use some of the capital gains we'd gotten on paying off other debt, buying a car, and funding some college savings accounts.

      This was 2005, btw.  The mortgage officer tried her damndest to get us to put less money down, and to buy a house that cost $200K more - despite the fact that we were buying a house that was four times bigger than the apartment we were used to!

      TOTALLY ridiculous.   BTW, I'm white (though my husband is hispanic).

      Join us in the Grieving Room on Monday evenings to discuss mourning and loss.

      by Dem in the heart of Texas on Sun Sep 28, 2008 at 04:26:19 PM PDT

      [ Parent ]

  •  Superheated Housing Market Jacked Prices (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    It’s also a fallacy to say that this was all sub-prime, as if people with decent credit didn’t play a substantial role and default on their mortgages. Medical bills and sickness played a role in people losing their homes. It played the major role in my house being sold. Wages didn’t rise with the costs of housing and that played a major role, because when incomes are squeezed as they have been under Bush, it makes it harder for people to make their mortgage payments. The housing market became saturated with buyers when banks starting making mortgage loans for 4% interest back in the 2002-2005 period.

  •  They blame the Democratic... (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    ...congress for everything.

    Of course, Republicans play the victim better than anybody.

    Anybody with 1/2 a brain knows that Republican de-regulation is responsible for this mess.

    "The thought of [McCain] being president sends a cold chill down my spine."-Senator Thad Cochran, Mississippi Republican.

    by wyvern on Sun Sep 28, 2008 at 03:28:16 PM PDT

  •  Another Source in Support of #2 (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    I diaried about just issue #2 a few days ago (not here to pimp it, just to provide another link in support):

    WSJ Article on Subprime Borrowing

    Great diary -- thanks!

  •  More nonsense only nitwit racists would believe. (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    Most people are experiencing this directly or through somebody they know. Most people know who got 100% value loans. Most people know they paid too much for their homes due to an inflated market.

    The other thing is, in time, most intelligent people will realize that if it wasn't for the deregulation of credit by the financial industry, home prices would not have exploded. Which means that they would have been able to afford the house that they bought anyway, and now risk losing, but with a $200,000 loan, which they could repay, not a $400,000 one.

  •  Blacks and Hispanics are responsible for (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    and democrats crashed the banking industry ????? So much for intellectual honesty.

    In these people's eyes, a minority can do no right and does not deserve or has not earned anything he/she has.

  •  You could ad links to McCain advisor's who... (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    ... lobbied for and profited from from deregulation other than Phil Gramm

    here are a couple links:

    McCain Aide's Husband Headed Trade Group Lobbying on Bailout

    A Freddie Mac Money Trail Catches Up With McCain


    McCain-Palin (Davis Manafort)

    Why the Republican answer to the Bailout is more of the same:

    House Republican Bailout Plan Would Be Totally Ineffective

    And this goodie about McCains gambling & lobbyist ties:

    For McCain and Team, a Host of Ties to Gambling

  •  Of course, focus on this: (2+ / 0-)

    In 1999 the Republican-controlled Congress undid the Glass-Steagall act - undoing the the banking system that had existed in this country since the New Deal, without any thought for how to regulate the new regime it created. That law was authored by John McCain's good friend and putative Treasury Secretary, Phil Graham.

    In 2000 the Republican-controlled Congress  passed the Commodity Futures Modernization Act which excluded derivatives - including credit default swaps - from regulation. (This is also the source of the "Enron loophole".)

    While it does point the finger at Republicans, it does not exonerate Dems.  

    On Graham-Leach-Bliley

    The bills were introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA). The bills were passed by a 54-44 vote along party lines with Republican support in the Senate and by a 343-86 vote in the House of Representatives. Nov 4, 1999: After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final bill resolving the differences was passed in the Senate 90-8-1 and in the House: 362-57-15. This veto proof legislation was signed into law by President Bill Clinton on November 12, 1999[1]

    On The CRMA (wiki):

    The "Commodity Futures Modernization Act of 2000" [H.R. 5660 was introduced in the House on Dec. 14, 2000 by Rep. Thomas Ewing [R-IL] and cosponsered by Rep. Tom Bliley (R-VA) Rep. Larry Combest (R-TX) Rep. John LaFalce (D-NY) Rep. James Leach (R-IA) and never debated in the House.[1]

    The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Charles Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD)
    and never debated in the Senate.[2]

    Dems could have, but did not, stop the legislation, and a Dem president signed both into law.  

    And, just as you point to these two pieces of legislation, the Republicans are pointing to this:  

    In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[6] The new rules went into effect January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to target to groups to collect a fee from the banks.[4][7]

    The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were "risky mortgages." Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance. Established and new community groups began marketing such mortgates. The Senate Banking Committee estimted that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million.[4] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.[8][9]

    Related rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market.[5] Due to massive financial losses, on September 7, 2008 the Federal Housing Finance Agency (FHFA) put Fannie Mae and Freddie Mac under the conservatorship of the FHFA.[10]

    This whole exercise of trying to lay the blame entirely on one party is just silly, and a useless exercise on both sides.  This crisis has been building for years.  There is plenty of evidence to blame both parties.  

  •  Even worse... (1+ / 0-)
    Recommended by:
    Dem in the heart of Texas

    Some of the extreme moronics are suggesting that the mess is the fault of illegal immigrants.  Of course!  Once an immigrant gets deeply into debt to coyotes in coming to America, then has to stand around Home Despots scrounging for work, it's a very easy gravity-defying leap to a subprime mortgage.  Tom Tancredo, who IIRC was one of the most repulsive republicans around, even has a web page devoted to this transparently false claim.  I'm not linking to it -- if you care to dive into the slimepit, be my guest.  

  •  Thanks. (0+ / 0-)

    I've been seeking this information for 10 days.  I first noticed this ridiculous argument in Investors Business Daily.  See diary here.

  •  They are shameless (0+ / 0-)

    I've seen this a lot. They are trying to blame Fannie Mae and Freddie Mac. And then somehow associate that with Democrats.

    Fannie and Freddie weren't allowed to make subprime loans.

    Fannie and Freddie also haven't yet cost taxpayers a dime. And, if there are losses there, they are expected to be very small compared to others.

    Fannie and Freddie also were not in any danger of going under when the government deprivatized them.

    Per BusinessWeek, not long before that action:

    Despite the increased chatter about an impending bailout, most analysts see no pressing need for one as long as the GSEs hold ample amounts of excess capital on their balance sheets. As of last week, Fannie's excess core capital—above the amount required by regulators—was $9.4 billion and Freddie's was $2.7 billion. And with $10 billion in mortgage paydowns a month, each company would be able to free up $1 billion of core capital every quarter if they opted not to reinvest these paydowns, according to a Citigroup report published Aug. 21. A point of further irony: Despite mounting foreclosures, Fannie's and Freddie's profitability has been improving lately with margins between their assets and their borrowing costs the widest they've been in many years, Citigroup said.

    In other words, they weren't really in danger of failing. But taking them over was an easy way for the government to pump more dollars into the mortgage market, which was in trouble. And this is what Fannie and Freddie have been used for over the last year, to make up some of the slack in these markets as private lenders were troubled. They went from around 40% of the mortgage market to around 70% in recent months, as other sources of funds have dried up.

    And, whatever costs taxpayers do pick up will be small in comparison to the $700 billion bailout now being debated, or the $440+ billion in loans the government has already pumped into these markets ($125B repos, $150B TAF, $50B other loans, $30B Bear Stearn, $85B AIG).

    Per Slate:

    So, merely by signaling to the markets that it might back the GSEs' debt, the government has, over the past few decades, helped tens of millions of homeowners save some serious money. Until this week, the cost of this benefit has been effectively nothing—save for some foregone taxes and the cost of regulating the companies. But if Fannie and Freddie exhaust the patience of the private sector—the shareholders—and can't raise capital to make up for losses on the mortgage portfolio—they would have to turn to the government. How much would they need?

    This is a great unknown. But it's hard to imagine it would approach a figure close to $100 billion. Fannie Mae and Freddie Mac didn't make subprime loans, although they do have some exposure to subprime debt through assets they purchased. Rather, they make loans to people who make down payments and who buy houses under a certain price (the maximum loan last year was $417,000). As a result, the companies avoided funding lots of mortgages in expensive, bubbly markets. In the fourth quarter of 2007, the delinquency rates for mortgages on single-family homes were 0.65 percent for Freddie Mac and 0.98 percent for Fannie Mae.

    Let's assume for the moment that 5 percent of the $5.2 trillion in mortgages that Fannie Mae and Freddie Mac hold or insure goes bad, which would represent a massive (and unlikely) uptick from current numbers. Lawrence White says that because of the company's underwriting standards, the losses on those loans would be only about 30 percent. Run the numbers, and the potential losses—i.e., the amount of federal funds needed to make bond investors whole assuming the GSEs can't raise any more outside capital—would be about $78 billion. If 2 percent of the mortgages the GSEs hold or insure goes bad—a much more reasonable guess—the government would have to come up with about $31 billion. Those are big hypothetical costs for taxpayers. But they would still be smaller than the actual benefits taxpayers—or at least the large majority of taxpayers who are homeowners—have already received.

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