Was the mortgage meltdown the fault of Republicans or Democrats? Was it caused by the ideology of deregulation or of regulation?
Questions like that are fun to debate because they follow the usual fault lines that divide the country into fairly equal and thus intensely rivalrous halves.
But let's think about the Housing Bubble from a more general standpoint for a moment. Is it terribly likely that a disaster that long gestated and then ran amok in plain sight for over three years (from 2004 into early 2007) would turn out to be overwhelmingly the fault of a single party or ideology?
Why wouldn't the opposition have sounded the alarm? Don't the Republicans and Democrats, as well as the free marketers and the leftists, all have well-oiled publicity machines for pointing out the shortcomings of their enemies?
Isn't it more plausible that a vast, slow-motion catastrophe would be the result of a noncontroversial bipartisan consensus?
In particular, the more everyone agrees that dissent on a particular topic is unspeakably evil, if not unthinkably unimaginable, the more likely the country is to stumble over exactly that blind spot.
In recent decades, "diversity" has become one of America's sacred mantras, propagandized relentlessly in the schools and the press. Expressing skepticism about the diverse within internal business communications has become, in effect, a civil offense, punishable in anti-discrimination lawsuits.
Not surprisingly, self-interested manipulators learned to play the race card to justify their machinations.
Thus, the universally-endorsed societal necessity of lending more money to minority homebuyers was used to justify both regulation (such as the Community Reinvestment Act) and deregulation (such as the hands-off approach to subprime bucket shops). Any practice positioned as helping minorities achieve their fair share of the American Dream had the wind at its back.
Consider, for example, three huge Southern California originators of dubious debt—Ameriquest, New Century, and Countrywide—all of which collapsed in recent years when Wall Street and the big banks finally wised up to the mortgage-backed securities they peddled.
Yet, on the retail side, these were not new-fangled scams. As Elvis Costello pointed out, there's no such thing as an original sin. They operated old-fashioned boiler rooms employing high-pressure salesmen to talk people who had no business being homeowners into taking out huge high-interest loans.
Laissez-faire lending is like a zero down payment mortgage: there's no margin for error. Fraud and even forgery always loom as temptations. E. Scott Reckard and Mike Hudson reported in 2005 for the Los Angeles Times on Ameriquest, then the biggest subprime originator:
"Borrowers were told what their income had to be to qualify, these ex-workers said, and they were often coached to invent fictitious side jobs, such as home-based computer consulting, to hit the mark. Nearly one out of every six Ameriquest mortgages sold to Wall Street investors in 2004 was a stated-income loan, according to a Times analysis of 90,000 Ameriquest mortgages listed in filings with the Securities and Exchange Commission."[Workers Say Lender Ran 'Boiler Rooms', February 4, 2005]
We've been down this path of fishy finance before. That's why most states have usury and other laws on the books to prevent lenders from targeting marginal borrowers. Whether these laws are kept up to date and whether they are enforced are different questions, however.
It doesn't matter whether you call them anti-predatory lending laws or pro-prudent lending laws. The point is that loans that are unlikely to be paid off hurt everybody. Wise public policy attempts to balance off Type I errors of excessive credulity versus Type II errors of excessive skepticism.
So, surely, the rise and fall of the subprime peddlers demonstrates the iniquity of the rightwing ideology of deregulation? We needed more regulation, not less!
Wrong! Please notice that minority lending regulations primarily pushed in what turned out to be the wrong direction: too much gullibility. When it came to mortgage lending to minorities, as regulated by the Community Reinvestment Act and other anti-discrimination laws, excessive skepticism was made illegal. Lenders and investors were only allowed to err in one direction.
Not surprisingly, excessive credulity came to dominate the system.
By no means were all the subprime peddlers sincere believers in the dogmas of multiculturalism. Instead, they knew they could wield political correctness like a club to scare off regulators.
Thus, to avoid inconvenient investigations, the owners of subprime mortgage originators tended to present themselves to politicians and the press as financial statesmen, moral leaders in the war on bigotry against minority borrowers.
Sue Kirchhoff reported in USA Today on April 17, 2007 in Subprime lenders' big gifts helped lawmakers:
"The nation's top subprime lenders, including New Century Financial (NEWC), which has filed for Chapter 11, have lavished generous donations on homeownership programs sponsored by black or Hispanic members of Congress. The paid sponsorships give lenders an entree to lawmakers and their constituents. Along with New Century, backers include Countrywide Financial (CFC), which settled a New York fair-lending investigation in 2006 by agreeing to compensate black and Latino borrowers for improper loans and set up a $3 million consumer-education program. Another is Ameriquest Mortgage, which in 2006 agreed to a $295 million settlement with state attorneys general who charged it with improper lending practices."
Similarly, Susan Schmidt and Maurice Tamman of the Wall Street Journal reported on January 5, 2009 in Housing Push for Hispanics Spawns Wave of Foreclosures:
"The Congressional Hispanic Caucus created Hogar in 2003 to work with industry and community groups to increase mortgage lending to Latinos. At that time, the national Latino homeownership rate was 47%, compared with 68% for the overall population. Hogar called the figure 'alarming,' and said a concerted effort was required to ensure that 'by the end of the decade Latinos will share equally in the American Dream of homeownership.'
Hogar's backers included many companies that ran into trouble in mortgage markets: Fannie Mae and Freddie Mac, both now under federal control; Countrywide Financial Corp., sold last year to Bank of America Corp.; Washington Mutual Inc., taken over by the government and sold to J.P. Morgan Chase & Co.; and New Century Financial Corp. and Ameriquest Mortgage Corp., both now defunct.
Hogar's ties to the subprime industry were substantial."
Angelo Mozilo of Countrywide, for instance, was a regular keynote speaker at minority conferences, where Tan Man regularly "called for the elimination of the down-payment requirements for low-income and minority borrowers." [Mortgage Banking, January 2005]
Another SoCal subprime legend was the late billionaire and ambassador Roland Arnall, a leader of the Great and the Good as the co-founder of the Simon Wiesenthal Center and the Museum of Tolerance. He was also the owner of Ameriquest, which went out of business in 2007 after agreeing in 2006 to a $325 million settlement with 49 states over its abusive practices.
Arnall was a close personal friend of politicians of both parties. He gave the first $250,000 to Democrat Gray Davis's successful 1998 California gubernatorial campaign. Gov. Davis reciprocated by officiating at Arnall's second wedding. Those investments paid off in 2001 when Ameriquest's friends in Sacramento failed to put teeth in a predatory lending bill.
In 2003, Arnall gave Gov. Davis $230,000, but donated to the man who unseated him, Arnold Schwarzenegger, $1.4 million. Arnall became the top donor nationally in the 2004 election cycle, leaning heavily toward the GOP after decades of favoring Democrats. Yet, according to his obituary in the Los Angeles Times, Arnall "continued to donate to certain Democrats, including many members of the Latino Caucus in the state Legislature."
Arnall put a number of black civil rights leaders on the payroll, who helped him get confirmed as the U.S. ambassador to the Netherlands in 2006. ABC's Nightline reported:
"I think no one has said, for example, that Roland Arnall personally supervised loans in a way that shows that he is not an individual of good character," the Leadership Conference on Civil Rights' Wade Hendersen told "Nightline."
While Hendersen said he is "profoundly disappointed that some of these practices that have now come to light would be associated with Ameriquest," he said that "at the end of the day, I'll stand by the fact that I think Roland Arnall is a man of integrity."
The Leadership Conference on Civil Rights has received hundreds of thousands in donations from Ameriquest.
Similarly, Deval Patrick, now the Democratic governor of Massachusetts, spoke up for Arnall's nomination. Patrick joined the Ameriquest holding company's board of directors in 2004 after suing them for discrimination in the 1990s. As Matthew Richer pointed out in VDARE.com last year:
"Indeed, the curious thing about Deval Patrick is his habit of suing an organization for discrimination, then parlaying the relationship into a coveted position with the same organization later on …"
It's common for minority activists to start out by charging predatory lending, only to eventually announce in triumph that the lender has agreed to make even more loans to minorities.
If you stop and think about it, it's obvious that more lending to minorities makes it mathematically inevitable that there will be even more imprudent loans to marginal borrowers and more foreclosures upon minority homebuyers.
But nobody stops and thinks because we've been told repeatedly that minorities don't get enough loans.
Funny how that works…
Or, in the case of the Minority Mortgage Meltdown, doesn't work, bringing down the entire world economy.
America needs to get real about race—to acknowledge the man behind the curtain—before something even worse happens.
[Steve Sailer (email him) is movie critic for The American Conservative. His website www.iSteve.blogspot.com features his daily blog. His new book, AMERICA'S HALF-BLOOD PRINCE: BARACK OBAMA'S "STORY OF RACE AND INHERITANCE", is available here.]