June 22, 2008

Sailer: "The Diversity Recession, or How Affirmative Action Helped Cause the Housing Crisis"

Here's just the beginning of my long article on the mortgage fiasco in Taki's Magazine:

The Diversity Recession, or How Affirmative Action Helped Cause the Housing Crisis

Posted by Steve Sailer on June 22, 2008

Uncovering the roots of the disastrous home mortgage bubble that popped last year will keep economic historians busy for decades. Yet, one factor has so far been largely overlooked: the bipartisan social engineering crusade to drive up the rate of homeownership by handing out more mortgages to minorities.

More than a negligible amount of the blame for the mortgage meltdown can be traced back to multiculturalism: government-mandated affirmative-action lending, demographic change, illegal immigration, and the mind-numbing effects of political correctness.

The chickens have finally come home to roost.

About half of all mortgages for blacks and Hispanics are subprime, versus roughly one-sixth for whites. Not surprisingly, the biggest home price collapses have occurred in heavily Hispanic cities such as Las Vegas, Miami, Phoenix, and Los Angeles.

The mortgage bubble was essentially a bet on the purportedly increased creditworthiness of the bottom half of the American population. After three decades of the home ownership rate stalled at around 64 percent, a series of federal initiatives to increase minority and low-income ownership helped push the rate up to just below 70 percent.

As this graph from a 2006 article by three economists with the Federal Reserve Bank of St. Louis shows, the great bubble of the last dozen or so years was driven by bets on marginal households well below the median.

Economist William T. Gavin, a vice president at the St. Louis Fed wrote in 2006:

"One of the stated goals of current and past administrations since the Great Depression has been to increase home ownership. After remaining relatively stable around 64 percent, the rate of home ownership has risen to 69 percent in the past decade. This uptrend has been driven by a sharp rise in the rate of home ownership among young, minority and low-income households."

In contrast, at least the previous bubble, the Internet stock boom of the 1990s, had a bit of prima facie credibility. It was a largely a wager on a three-phase business plan:

1. The smart fraction of American society would invent amazing new online services.
2. ?
3. Profit!

As it turned out, bright young people really did start up lots of websites that did things that almost nobody in 1994 had imagined. The problem turned out to be getting from Phase 1 to Phase 3. So many of them became competent at website creation that few (with the huge exception of Google) ended up with the kind of lucrative quasi-monopoly of which investors dreamt.

The housing bubble, on the other hand, never made much sense. The lower half of American society, where the new homeowners had to come from, isn’t getting better educated, is not settling down to more stable family structures, and is not developing a more rigorous code of honor about paying debts.

Nor was the government doing much of anything to help the bottom half earn more in order to afford home ownership. Indeed, by not enforcing the laws against illegal immigration, the Clinton and Bush Administrations were flooding the country with unskilled workers who competed down the wages of blue-collar Americans.

The home construction industry lured in Mexicans to build new exurban houses for Americans trying to get their children away from public schools overrun by the children of illegal immigrants—in effect, a Ponzi scheme that had to break down eventually.

It turned out, not surprisingly, that contrary to the assurances of the Great and the Good of both parties, many of these marginal homebuyers should have continued to rent.

Pushing black and Hispanics into buying was risky for all concerned. Economist Edward N. Wolff calculated that in 2004 the median net worth of black households was only $11,800, exactly one order of magnitude less than the median net worth of whites. (Hispanics were similar to blacks.)

Yet, pointing out that expanding credit to minorities was likely to lead to a debacle is not the kind of thing a prudent corporate manger would put in an email--too great a chance it would be discovered in a discrimination lawsuit.

For four decades, political leaders have viewed subsidizing minority home buying as insuring social peace. The Wall Street Journal reported on white flight from a Chicago neighborhood on March 2, 1977:

The whites in Marquette Park are particularly embittered over the Federal Housing Administration mortgage insurance program, which they claim is causing neighborhood deterioration by subsidizing home purchases by blacks too poor to maintain them. Long conservatively run and an engine of the post-World War II suburban housing boom, the FHA program was liberalized shortly after the 1968 urban riots to encourage lower-income black home ownership (‘if they own it they won’t burn it’ was the maxim of the time).

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My published articles are archived at iSteve.com -- Steve Sailer

18 comments:

Anonymous said...

Terrific article.

Trouble is, you're not allowed to make policy under the assumption that there is a "bottom half," intelligence-wise. In fact, you're not supposed to even think that way. We're just supposed to... I dunno... slowly kill ourselves with bad idea after bad idea (see immigration reform).

Anonymous said...

This says it all:

"The home construction industry lured in Mexicans to build new exurban houses for Americans trying to get their children away from public schools overrun by the children of illegal immigrants—in effect, a Ponzi scheme that had to break down eventually."

Good God what a country...

Anonymous said...

The mortgage bubble was essentially a bet on the purportedly increased creditworthiness of the bottom half of the American population

No.

The mortgage bubble was the result of people realizing they can make massive amounts of money short-term by selling and repackaging and reselling worthless mortgage paper to unsuspecting idiots. Tyrone and Jose came on board at near the end of the cycle as a source of even more worthless mortgage paper, and extended the bubble maybe a year, but that's it.

For fuck's sake Steve, ITS NOT ALWAYS ABOUT RACE.

Anonymous said...


For four decades, political leaders have viewed subsidizing minority home buying as insuring social peace.


Ummm, no. They have viewed it as a way to but votes with us paying.

albertosaurus said...

You are of course completely correct about the housing policy issue. Its not a new question at all. When I was in graduate school thirty years ago, I supported myself doing econometric models and statistical analyses of housing markets.

It was all rather silly. I was doing obscure math to try to bolster very obvious nonsense.

It had been noticed that home owners behaved better than slum dwellers. So it was decided that the government would just give lower class people a house. They expected them to suddenly reform and join the well behaved middle class. Ha!

This is roughly similar to observing that those students who earn A's are brighter than those who earn F's. But only an idiot would believe we could make people smarter by just giving everyone straight A's.

Wait a second! That's our education policy too - isn't it?

kurt said...

A very good article, Steve. Several friends and I talked about the housing situation about 6 months ago and came to the same conclusions (in much less detail) as to the root cause of the housing bubble as you did.

Once again, you shed truth that noone else will discuss.

Anonymous said...

RE: For fu**'s sake...

I guess you have never been to Houston...

anony-mouse said...

1/ America has long had a history of wanting poor people, period, to own their own houses, even if it made no economic sense. (See: 'Its a Wonderful Life'-I don't recall seeing any Hispanics or Blacks in Bedford Falls, except for the Bailey's maid.)

2/ One of Margaret Thatcher's successes was to give council housing to its residents. And now Britain too has a mortgage crisis-all without any help from anything American.

Anonymous said...

"Sailer: "The Diversity Recession, or How Affirmative Action Helped Cause the Housing Crisis"

Yes, it's called paying for your own dispossession.

It's just one manifestation of the new reality: The white population of America is no longer being represented, protected or sustained by the elites who run the country. In fact, quite the opposite. White America is being purposely dispossessed.

White male America is being outright targeted and attacked.

The British model of making whites second class citizens in their own countries is the blueprint for the primary directive of the "global elite". Of course, to the extent that it is discussed, the entire time we're informed that it is white elites themselves who invented and funded the scheme. Funny that.

Anonymous said...

I was stunned by the stat that the median net worth of black households is only $11,800, so I clicked on the link. That article by Henry Louis Gates Jr seems like alot of nonsense to me. But Gates teaches at Harvard and the article is in the New York Times, so I guess it must be true.

Roger Chaillet said...

I used to sell new homes here in Texas. Almost all the construction crews consisted of nothing but illegal aliens. The only time I would see a white American or black American was when an electrician or inspector would arrive, when a truck driver would show up with a load of building supplies.

Left unsaid is that the home builders here donated heavily to Republican candidates. Many threatened to withhold contributions if there was ever a crackdown on illegal immigration. http://bayareahouston.blogspot.com/2008/05/repulican-donors-embracing.html

Yet now the NAHB wants Uncle Sam's assistance. http://bigpicture.typepad.com/comments/2008/02/builders-no-sou.html

Heads I win...

...tails you lose.

Ronduck said...

Long conservatively run and an engine of the post-World War II suburban housing boom, the FHA program was liberalized shortly after the 1968 urban riots to encourage lower-income black home ownership (‘if they own it they won’t burn it’ was the maxim of the time).

Whoever said that should go to Detroit now.

J- said...

"For fucks sake,its not always about race.." I thought Steve made it clear that race was ONE aspect of the problem. One that has been completely ignored by the media,academics and politicians addressing this issue.Maybe thats why he chose to bring it up...?? The comment about the home builders demanding Republicans go soft on illegals is really sickening. Oh,but,arent we ALWAYS blaming the Republican fat cats???

simon newman said...

anony-mouse:
"2/ One of Margaret Thatcher's successes was to give council housing to its residents. And now Britain too has a mortgage crisis-all without any help from anything American."

1. She didn't give them the council housing. They had to buy it, albeit at a discounted rate. Their mortgages weren't subsidised.

2. There has been no spike in defaults in the UK. The UK mortgage crisis is *entirely* due to the US subprime crisis drying up the cheap money supply from the international money markets on which UK lenders depended.


And these two are entirely unconnected. If there's a local UK factor, it's overbuilding of overpriced and often cramped & shoddy flats (apartments) intended for the buy-to-let market.

none of the above said...

Anon:

I think the households are different between blacks and whites in enough ways that the difference in median net worth is probably more complicated than it looks. There are differences in average age, fraction of single-parent families, and number of children, all of which probably make the quoted statistic kind-of meaningless. There's no question that blacks have lower net worth on average, note, just a question of how to measure the difference and what your measure means.

none of the above said...

Is there any evidence of anti-redlining rules/policies having a large impact, here?

It looks to me like there are two causes behind this crisis:

a. With the separation of writing mortgages from owning them, a whole cost-shifting game became possible, between mortgage brokers and ultimate owners of mortgages. The mortgage brokers more-or-less won this game, by managing to get paid for writing mortgages that were very unlikely to be paid back. (The buyers of the mortgages knew the game, too, but appear to have broadly gotten screwed.)

b. Everyone's assessment of default risk was screwy, largely because everyone seemed to believe that up markets would go on forever.

Anonymous said...

The Nation has a cover article out titled "The Subprime Swindle." The subtitle is "How the mortgage industry stole black America's hard-won wealth." Yes, you read that right. The subprime mortgage was a tool devised by the banking industry to raid the oh-so-very deep pockets of black America.

My head is swimming. Yes, I know it's The Nation, but still.

Greg Bacon said...

Gosh, I didn’t know that all of those WALL STREET firms that helped blow up this real estate bubble were owned by shiftless darkies!!

Like at Bear Sterns, who made a ton of money selling those MBO’s back and forth to one another, kinda like a financial version of musical chairs, except when the music stopped, Bear Sterns didn’t have a seat to sit on.

Guess those indolent darkies brought guns along when they applied for home loans--you know how THOSE people are--and forced the bankers to give them “liar loans,” a loan in which the bank doesn’t verify the amount of money the borrower makes.

Yeah, that must be it.

Those hordes of dusky-skinned natives forced their way into firms like Goldman Sachs and Lehman Brothers and forced the owners at gunpoint to give them shaky loans.

Gee, thanks for explaining all of this for me.

Hell, i had thought it was just a bunch of greedy bankers.