Blaming the Victims

The following is an excellent excerpt from the book “DEBTORS’ PRISON: The Politics of Austerity Versus Possibility” by Robert Kuttner from Chapter 8 titled “A Home of One’s Own” on page 233 and I quote: “Blaming the Victims – Readers may dimly recall the origin of the Tea Party movement. It happened on February 19, 2009, on the cable network CNBC, when a former commodities trader and on-air reporter named Rick Santelli went on a now-famous rant about “losers” who had taken out high-risk mortgages. Santelli, speaking from the floor of the Chicago Board of Trade to whoops and cheers from nearby traders, attacked Obama’s just-released HAMP plan, accused the government of “promoting bad behavior,” and called for a “Chicago Tea Party” to protest policies that caused irresponsible mortgage borrowing. Irresponsible lending was not part of Santelli’s rant, and Wall Street came in for no blame. The organizing of local Tea Parties followed, backed by a lot of right-wing billionaire financing.
It is fitting that the Tea Party movement began, of all places, on the floor of a financial exchange and that it started with a former trader blaming the victims rather than the perpetrators of the most damaging financial scam in nearly a century. But such is the pseudopopulism and inverted responsibility that characterizes the politics of the continuing economic collapse. Santelli was echoing a conservative counter-narrative about the roots of the financial crisis. Free-market ideologues could not very well admit that the crisis was caused by a catastrophic failure and corruption of private financial markets. It had to be the government’s fault.
In this far-fetched counter-narrative, the housing collapse occurred because politicians, mostly Democrats, had put pressure on banks and thrifts to lend to unqualified borrowers, many of them minorities. It supposedly began with the Community Reinvestment Act of 1977, which required federally regulated lenders to serve low-and moderate-income communities as well as affluent ones. The pressure increased under the Clinton administration, with its programs of affordable home finance. Even George W. Bush fanned the flames with his vision of an “ownership society” to turn more low-income American into homeowners.
This story line was disseminated in papers by think tanks such as the American Enterprise Institute and repeated endlessly on right-wing talk radio and Fox News and in speeches by Republican congressmen. Peter Wallison of the AEI, in his dissent to the report of the Financial Crisis Inquiry Commission, contended that the U.S. Government, through the Community Reinvestment Act and other means, “sought to increase homeownership in the United States through an intensive effort to reduce mortgage underwriting standards.” As a consequence, he added, lenders and secondary market institutions such as Fannie Mae “were compelled to compete for mortgage borrowers who were at or below median income in the areas in which they lived. This competition caused underwriting standards to decline, increased the number of weak and high-risk loans. . . and contributed importantly to the 1997-2007 housing bubble.”
But everything about his story is untrue. First, the preponderance of subprime loans were originated by mortgage brokers, who are not covered by the Community Reinvestment Act, which requires sound underwriting standards. Most community banks and thrifts covered by the act maintained normal standards, stuck with conventional mortgages, and had far lower default rates. A research study by the Federal Reserve, no less, found that in 2006, at the peak of the subprime madness, only 6 percent of high-yield, high-risk (subprime and alt-A) loans were made by institutions covered by the act.
Second, the investment bankers and mortgage brokers who dreamed up subprime had no government mandate to increase low-income homeownership and could not have cared less about it. The subprime scam was simply a way to maximize the profits of lenders and middlemen. Indeed, studies have found the roughly half of the borrowers who were persuaded to take out high-profit subprime loans could have qualified for conventional loans. African American loan applicants were especially targeted for subprime loans, and many borrowers were refinancing paid-up mortgages in order to meet the expenses of old age. They were manipulated into taking on loans whose risks they didn’t comprehend.
Third, the legitimate programs to expand homeownership had high underwriting standards and exemplary records. President Clinton, impressed by the work of the South Shore National Bank, a pioneering lending institution serving small businesses and homeowners in a depressed Chicago neighborhood, sponsored legislation in 1993 to create other “community development financial institutions” to meet the needs of those whom banks tend to avoid. These institutions carefully evaluate and ongoing counseling. Studies of one such model institution, the Center for Community Self-Help, based in Durham, North Carolina, found that while subprime borrowers with adjustable-rate mortgages suffered default rates of about 40 percent, Self-Help borrowers with comparable economic characteristics had default rates of only 8.5 percent, and many of those defaults were due to the recession.
America’s history of homeownership is punctuated by broken promises to African Americans: the failure to block the extension of slavery to states carved out of the Louisiana Purchase, the forty-acres and a mule that never materialized after Emancipation, the replacement of slavery with something more like serfdom. Against that history, the steady increase in black homeownership rates in the late twentieth century was a rare, if aborted, success.
Black homeownership peaked in 2004 at 49.1 percent, some twenty-two points below white rates, but them started falling. By 2012, the black rate had dropped by nearly six points, while the white rate had declined by just two points. But that only begins to convey the devastation in black America. Among black and Latino households, one in four had either lost their homes to foreclosure or were seriously in default, compared with one in eight for non-Hispanic whites.
The gap between black and white wealth has long been far greater than the income gap. Financial assets are crucial to economic success because they provide a cushion against reverses, the wherewithal to become entrepreneurs, savings for retirement, and a legacy for children. As a consequence of the lingering aftereffects of slavery and segregation, most blacks did not get on the ladder of asset ownership until well into the twentieth century.
Between 1984 and the boom year of 1995, the black-white wealth gap slowly declined from a ratio of 12 to 1 to a (still-extreme) low of 7 to 1. But all of the recent progress was obliterated by the housing collapse. To a much greater extent than whites, black net worth is concentrated in home equity. Most blacks simply do not have the discretionary income to accumulate substantial financial wealth. In just the four years between the homeownership peak in 2005 and the bottom of the recession in 2009, the black-white wealth gap nearly doubled. In 2004, the ration of white to black median household wealth was 11 to 1. By 2009, it had increased to 20 to 1.
Blacks lost more than half of their net worth. In 2009, median white net worth was $113, 149. Median black net worth was just $5,766, and one black household in three had negative net worth. Whites, with more wealth in financial holdings such as stocks, mutual funds, pensions, and 401(k) plans rather than in housing, lost only 16 percent. For Hispanics, two-thirds of whose net worth was in home equity and who are concentrated in states hardest hit by the housing collapse, including Florida, Nevada, Arizona, and California, the loss was even worse.
The devastation of African American communities extended to the financial institutions that served them. The South Shore National Bank, founded in 1973, did not go in for subprime lending. In the predominantly black South Side of Chicago, the bank made conventional fixed-rate loans, and it had very low default rates. Renamed ShoreBank in the 1980s, it was hailed as a national model of how to serve low-income communities and maintain high standards. When the subprime collapse hit, ShoreBank refinanced $32 million worth of local subprime mortgages with fixed-rate “rescue loans.” But as the crisis deepened, housing values in the community it served plummeted. Unemployment rates rose. In 2008, the bank was profitable. By 2009, many of its loans, which had been perfectly sound before the recession hit, were in trouble. The bank booked a $100 million loss on the year, about half of its equity capital.
ShoreBank applied for TARP assistance. It needed $72 million in aid from the Treasury, a pittance compared with the hundreds of billions that the government found for Wall Street’s biggest banks. At the request of regulators, the bank enlisted investors to pump in what eventually totaled an additional $146 million in new capital, exceeding the initial target. Though its prime regulator, the FDIC, voted to approve the TARP assistance, the Treasury refused to concur, and on August 20, 2010, ShoreBank closed its doors.
Citigroup, Bank of America, and Goldman Sachs, which had underwritten the subprime debacle, were too big to fail and received hundreds of billions in government aid. But exemplary ShoreBank was too small to matter. The government’s failure to support this pioneering bank serving responsible low-income borrowers was one more emblematic double standard in the politics of debt and property.”

(HOW MANY DIFFERENT AUTHORS OF “WHAT’S WRONG WITH OUR ECONOMY?” HAVE TO BE WRITTEN BEFORE CONGRESS STRENGTHENS THE DODD-FRANK BILL UNTIL IT’S AS STRONG AS GLASS-STEAGALL WAS? OR DO WE HAVE TO HAVE ANOTHER BIGGER BUBBLE IN 2016 THAT THOM HARTMANN WARNED US ABOUT IN “THE CRASH OF 2016: THE PLOT TO DESTROY AMERICA—AND WHAT WE CAN DO TO STOP IT”? AND HIS COMMENTS ARE JUST AS ACCURATE? HERE’S SOMETHING ABOUT THE AUTHOR AND I QUOTE:
“ROBERT KUTTNER is cofounder and coeditor of The American Prospect magazine and a senior fellow at the think tank Demos. He was a long-time columnist for BusinessWeek and continues to write columns for the Huffington Post, The Boston Globe, and The New York Times international edition. He was a founder of the Economic Policy Institute and serves on its board. Kuttner is the author of ten books, including the 2008 New York Times best seller, Obama’s Challenge: American’s Economic Crisis and the Power of a Transformative Presidency. His other writing has appeared in The New York Times Magazine, The New York Times Book Review, The Atlantic, The New Republic, the New Yorker, Dissent, Foreign Affairs, New Statesman, Columbia Journalism Review, Political Science Quarterly, and Harvard Business Review. He has contributed major articles to The New England Journal of Medicine. As a national policy correspondent.
H previously served as a national staff writer on the Washington Post, chief investigator of the U.S. Senate Banking Committee, and economics editor of The New Republic. He is the two-time winner of the Sidney Hillman Journalism Award, winner of the John Hancock Award for Excellence in Business and financial journalism, the Jack London Award for Labor Writing, and the Paul G. Hoffman Award of the United Nations Development Program, for his lifetime work on economic efficiency and social justice. He has been a Guggenheim Fellow, Woodrow Wilson Fellow, German Marshall Fund Fellow, and John F. Kennedy Fellow.
Educated at Oberlin College, The London School of Economics, and the University of California at Berkeley, Kuttner holds an honorary doctorate from Swarthmore College and has taught at Brandeis, Boston University, the University of Oregon, University of Massachusetts, and Harvard’s Institute of Politics. He lives in Boston with his wife, Joan Fitzgerald, who is dean of the public policy school at Northeastern. He is the father of two grown children and five grandchildren.”

LaVern Isely, Overtaxed Independent Middle Class Taxpayer and Public Citizen and AARP Members

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About tim074

I'm a retired dairy farmer that was a member of the National Farmer's Organization (NFO). Before going farming, I spent 4 years in the United States Air Force where I saved up enough money to get my down payment to go farming. I also enjoy writing and reading biographies and I write about myself as well as articles and excerpts I find interesting. I'm specifically interested in finances, particularly in the banking industry because if it wasn't for help from my local Community Bank, I never could have started farming which I was successful at. So, I'm real interested in the Small Business Administration and I know they are the ones creating jobs. I have been a member of Common Cause and am now a member of Public Citizen as well as AARP. I have, in the past, written over 150 articles on the Obama Blog (my.barackobama.com) and I'd like to tie these two sites together. I'm also on Twitter, MySpace and Facebook and find these outlets terrifically interesting particularly what many of these people did concerning the uprising in the Arab world. I believe this is a smaller world than we think it is and my goal is to try to bring people together to live in peace because management needs labor like labor needs management. Up to now, that hasn't been so easy to find.
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