The Housing Recession

Political Correctness Makes Lenders Stupid

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The American economy is http://www.wvwnews.net/story.php?id=4246 and Freddie Mac. Savers are increasingly finding the value of their assets inflated away as the Federal Reserve Board devalues the dollar to spread around the suffering from bad loans.

Traditionally, markets work by balancing greed and fear. Why was greed allowed to outrun fear so badly this time?

One clue comes from looking at the places with the sharpest decline in home prices, such as California, South Florida, Arizona, and Nevada. For example, the median price of homes sold in California last month was $328,000, down 31.5 percent from a ridiculous $484,000 in June 2007. Almost 42 percent of all homes sold in http://www.wvwnews.net/story.php?id=4700 were in foreclosure.

Why did the housing bubble get out of control in many heavily Hispanic regions?

Because many important people wanted it to.A widely overlooked reason behind this economic disaster is that the politicians, real estate interests, and financiers told the public that they weren’t speculating wildly on the insane hope of home prices rising forever. No, they were actually helping minorities share in the American Dream!

A percipient April 13, 2007 article in the nonprofit San Diego Voice by Kelly Bennett, Foreclosure Wave Said to Hit Latinos Hard, reported:

“This decade, a national push to increase homeownership among Latinos coincided with one of the longest, most dramatic periods of appreciation for home values. Latino mortgage and real estate professionals put forth aggressive outreach campaigns in the community, while lenders reached out to huge, untapped sections of the market by loosening qualifying standards. …

“Because a widened lending gate allowed many more Latinos and other minorities into the housing market than had entered previously, lawmakers and special interest groups championed the lenders’ efforts to extend homeownership to those groups.”

It’s important to understand that practically every politician who comes up through the ranks from state and local government owes favors to real estate interests. (Consider how now-convicted slumlord Tony Rezko sponsored Barack Obama’s career.)

Why? Because developers are more interested in local and state politics than anybody else is. (C’mon, admit it, local politics seem kind of boring.) They’re interested because they have financial interests in land use decisions.

Politicians control developers, so developers control politicians.

Thus, politicians, developers, and financial institutions have developed a vast interlocking system of doing subtle favors for each other by leaning on the lending process. It all works smoothly for years at a time with nobody on the outside the wiser … until there’s a downturn. Suddenly, the public is left holding the bag, paying off both directly and through enduring stagflation.

Diversity served as the perfect politically correct excuse for rampant irresponsibility. It gave insiders a rationale for putting their thumb on the scales of the vast lending market in the sacred name of anti-discrimination. Who dared be so racist as to argue that blacks and Hispanics should get fewer loans per capita because they were less likely to pay them back? That’s “the soft bigotry of low expectations.”

In a June 22 article in Taki’s Magazine, The Diversity Recession, I recounted a few of the countless examples of politicians from Jimmy Carter to George W. Bush pushing for more lending to “underserved” minorities. The Bush Administration, for instance, raised the quota for Fannie Mae and Freddie Mac to 39 percent for “underserved” regions.

Perhaps worse than quotas, though, was the attack on traditional lending standards in the name of expanding minority homeownership. We’ve seen repeatedly over the decades that, bad as they obviously are, racial quotas are often less debilitating than eliminating tests altogether due to their “disparate impact.” At least with a quota you select the best people from each race (although, by definition, not the best overall). When you junk the standards altogether, however, you end up taking at random from all races.

http://www.vdare.com/sailer/080720_housing.htm

2008-07-23