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:
- Democrats were responsible for loosening mortgage underwriting standards, because they want more minorities to be able to get loans;
- The current crisis has been caused by minorities defaulting on subprime loans; and
- 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:
- 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".)
- 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.