We Still Need the Dream

A Republican friend of mine sent this to me:

Only, the risk-taking was her idea — and the idea of all the other Democrats, along with a handful of Republicans, who over the past 30 years have demonized lenders as racist and passed regulation after regulation pressuring them to make more loans to unqualified borrowers in the name of diversity.
They were the ones who screamed — "REDLINING!" — and sent banks scurrying for cover in low-income neighborhoods, where they have been forced to lower long-held industry standards for judging creditworthiness to make the subprime loans.
If they don't comply, they are threatened with stiff penalties under the Community Reinvestment Act, or CRA, a law that forces banks to make home loans to people with poor credit risks.
No fewer than four federal banking regulatory agencies are responsible for enforcing the law. They subject lenders to racial litmus tests and issue regular report cards, the industry's dreaded "CRA rating."
The more branches that lenders put in poor neighborhoods, and the more loans they make there, the better their rating. Those lenders with low ratings can not only be fined, but also blocked from mergers and other business transactions needed to expand.
The regulation grew to monstrous proportions during the Clinton administration, obsessed as it was with multiculturalism. Amendments to the CRA in the mid-1990s dramatically raised the amount of home loans to otherwise unqualified low-income borrowers.
The revisions also allowed for the first time the securitization of CRA-regulated loans containing subprime mortgages. The changes came as radical "housing rights" groups led by ACORN lobbied for such loans. ACORN at the time was represented by a young public-interest lawyer in Chicago by the name of Barack Obama.
HUD, in turn, pressured Fannie Mae and Freddie Mac to purchase more subprime mortgages, and Fannie and Freddie, in turn, donated to the campaigns of leading Democrats like Barney Frank and Pelosi who throttled investigations into fraud at the agencies.
Soon, investment banks such as Bear Stearns were aggressively hawking the securities as "guaranteed." Wall Street's pitch was that MBSs were as safe as Treasuries, but with a higher yield.
But they weren't safe. Everyone in the subprime business — from brokers to lenders to banks to investment houses — absolved themselves of responsibility for ensuring the high-risk loans were good.
The mortgage lenders didn't care, because they were going to sell the loans to other banks. The banks didn't care, because they were going to repackage the loans as MBSs. The investors and traders didn't care, because the MBSs were backed by Fannie and Freddie and their implicit government guarantees.
In other words, nobody up and down the line — from the branch office on main street to the high-rise on Wall Street — analyzed the risk of such ill-advised loans. But why should they? Everybody was just doing what the regulators in Washington wanted them to do.

Here is my response:

It is interesting that there is one point of consensus between McCain and Obama and that is this is a crisis of regulation, or lack thereof. The Bush line is that it is not our fault, we have no control over this, and that this is due to a lack of personal responsibility. This editorial goes a bit further and pins the blame on regulators, ostensibly Congress, and community organizations led by people like Obama, for pushing banks to go into poorer areas. Lets not conflate the virtuous goal of bringing the dream of home ownership to poorer areas (after all if we want them to be self-sustaining isn't home ownership part and parcel of that?) with banks seeking a quid pro quo of predatory lending practices for going into these areas (and lets not forget the practice of redlining that precipitated the need to eliminate discriminatory lending practices). There are legions of stories of banks moving into these areas not out of the goodness of their hearts but to exploit the situation as an untapped market with lack of government oversight. The price of getting these loans for those with poor credit (and lest we not forget that the whole notion of credit rating is slanted to encourage indebtedness, e.g., you need to have credit, and you need to have available credit to raise your score, as opposed to zeroing your expenses every month) were supracompetitive rates and exorbitant and duplicative loan fees and closing costs. Give the banks an opportunity to exploit and they will (see credit card lending terms). So the real problem is not the lack of personal responsibility of the poor but these derivative financial instruments that were impossible to value and impossible to discern the fundamentals of this product. And not just the banks that did the literal lending in those markets, but the investment banks that lapped up those mortgage-backed securities and palmed them off on their clients because this was a way to demonstrate revenue building.

Also let’s not kid ourselves that the consumers who over-extended themselves were those in poor areas or the lower middle class. This overextension pervades all segments of society -- there are million dollar homes going into foreclosure as well.

The above exchange, if nothing else, demonstrates that there is still so much more to be done in terms of bridging gaps of race and class. It also exposes the fallacy of the Supreme Court’s reasoning that a discriminatory animus needs to be showed against the particular individual. This socially-pervasive discrimination, cloaked under the argument of “free market principles,” is as invidious and insidious a form of discrimination as any other.