Genes being incorporated in federal longitudinal social studies

The federal government runs a number of gigantic multi-decade human sciences studies of Americans, with the best known being the 1979 National Longitudinal Study of Youth, which was featured prominently in The Bell Curve in 1994, but is still going on, with IQ scores now available on thousands of the children of the original sample.

Newer studies are including genetic data. In the Chronicles of Higher Education, Christopher Shea reports in "The Nature-Nurture Debate, Redux:"

What has led to the new genetic turn in sociology, at least among a minority? In part it has to do with the availability of important new data sets. The National Longitudinal Study of Adolescent Health, aka Add Health, for example, at Chapel Hill, was designed from the start to incorporate both sociological and genetic information. It was begun, in 1994, by Bearman, J. Richard Udry, and Kathleen Mullan Harris. The idea was to capture as much information as possible about the social circumstances, friendship networks, and family conditions of 21,000 teenagers in 132 schools, from grades 7 through 12. The survey included a disproportionate number of twins, both fraternal and identical, full- and half-siblings, and adopted kids, allowing preliminary analyses of the heritability of traits. Follow-up interviews were conducted a year later.

Then, for the third wave of the study (in 2002), 2,500 siblings were asked for DNA samples (via cheek swabs). In wave four, now in progress and run by Harris, DNA is being sought for all participants (now they can just spit in a tube.) Many of the papers in the AJS issue draw on the Add Health study.

Various findings on the influence of genes, such as The Gene for Not Getting Any, but I don't like to trumpet early research on behavioral genetics since so much of it doesn't pan out. The important point is that we are slowly developing the tools to answer nature-nurture questions fairly definitively. Of course, this raises the question of whether the results are slanted in favor of those who possess The Gene for Agreeing to Have Your Genes Sampled. (Just kidding).

It should be possible to ask the best known tracked sample, the NLSY79 participants, for genetic samples in an upcoming re-interview, but I don't know of any plans for doing that. The cost of genetic sampling is dropping rapidly but it's still awfully high for doing full scans on thousands.

The upcoming National Children's Study will be gigantic: 100,000 kids (including 3000 pairs of twins), tracked from before birth up through age 21, with participation of mothers and, sometimes, fathers. It will be primarily focused on environmental impacts on kids' health, but it appears that they will have to do both genetic and IQ testing ("cognitive") to answer their questions, such as whether chronic exposure to insecticides hurts cognitive function.

So, as the evidence rolls in, expect persecution of realists by Blank Slate Creationists to rise to new heights.

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

Black Swan Sighting

Jill Claman of Fox News interviews investment guru David Swensen, who has guided Yale's endowment ($20 billion last summer) to (until recently) consistently (and, to my mind, suspiciously) gigantic returns (17.8% per year for ten years):

Claman: Isn't it fair to say right now we face what some call a Black Swan event? This term "Black Swan" indicates that something we rarely ever see. Has it taken you by surprise?

Swensen: You're absolutely right to characterize it as the Black Swan event. By the nature, the events have to take people by surprise.

Don't blame me, it was a Black Swan!

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

Black Swans and Tournaments

A point I want to make more clearly is that one major reason that accurately predicting events that people are particularly interested in is so hard is because many of those events are the result of some kind of tournament.

We are fascinated by tournaments. (Just look at all the complaints that tonight's college football championship game only represents a quasi-tournament rather than an explicit tournament like the NCAA basketball championships).

So many of the things we most want experts to predict for us are explicit tournaments (e.g., the Super Bowl playoffs) that have been carefully designed to create maximum uncertainty in the later, more climactic rounds by matching the best contestants against each other.

For example, in about 90 or 100 tries, a #16 seeded team in the men's NCAA basketball team has never upset a #1 seeded team in the opening round, so basketball games are actually quite predictable when there is a fair-sized difference in quality between teams as determined by their seasonal performance. But subsequent round games become less predictable as the quality gap narrows, so public interest builds.

Or, the things we are interested in can be semi-explicit tournaments (e.g., the Presidential primary/general election process).

Or, unplanned events take on some of the nature of tournaments.

For example, people in the 19th Century were utterly fascinated by the Battle of Waterloo (June 18, 1815), which determined the basic political arrangements of Europe up through 1914. It was often remarked that the next century of European dominance was determined by the events of a few minutes in the crisis of the battle in which Napoleon's hitherto-undefeated Imperial Guard nearly broke through the British lines, but were stopped just short. Then, they faltered, broke, and ran.

Waterloo -- which Wellington called "a damn nice thing -- the nearest run thing you ever saw" -- was seen as evidence against large-scale deterministic theories of history, since so much depended upon something so close.

Contributing to Waterloo's fame was its numerous tournament-like aspects. For example, Bonaparte was the old champion making a stunning comeback. Wellington was the challenger who had never faced Napoleon before, but had worked his way up to the top by defeating his best marshals.

Finally, much that interests us are forged by vaguely tournament-like processes. For example, stock prices are the result of, in effect, competitions between those who think the price is too low and those who think it is too high.

On the other hand, the kind of phenomena that the social sciences (and much of public policy) are concerned with -- crime rates, test scores, and the like -- tend not to be very tournament-like at all, and thus tend to be fairly predictable.

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

The Brown Swan

My critique in VDARE.com of Nassim Nicholas Taleb's bestseller "The Black Swan: The Impact of the Highly Improbable" tries to walk the delicate line of giving the book credit while explaining some of the ways it will be misinterpreted -- especially its title phrase.

In From Dawn to Decadence, 94-year-old historian Jacques Barzun offered a dozen dictums on pp. 655-656 summarizing what he's learned from three quarters of a century of scholarship. One was:

"The potent writings that helped to reshape minds and institutions in the West have done so through a formula or two, not always consistent with the text. Partisans and scholars start to read the book with care after it has done its work."

(By the way, this is certainly true of Barack Obama's autobiography, which has "done its work" without being carefully read!)

A reader explains how Taleb's new catchphrase "Black Swan" is being rapturously greeted on Wall Street by the very people who poured billions into subprime mortgages in Compton. Hey, it's not their fault they didn't see all those defaults coming: it was a Black Swan!

I would emphasize, that in my opinion the Black Swan is a timely rationalization for the gross incompetence seen across finance (both the more private part and their governmental overseers) regarding very predictable events. That is, it is wrong in principal, because, and as you state, the disaster(s) should have been expected (or rather, the ‘black swan’ event would have been loaning to bad credit risks and having them actually paying the loans back, not the other way around).

Furthermore, you focus on residential mortgages and minority ownership (i.e., given VDare’s emphasis), but, of course it also applies to commercial mortgages, credit card debt, etc. In short, Taleb has given incompetent and/or corrupt finance types (especially “quants”) an easy out. For example, let’s say you are a risk manager at [gigantic but inept financial institution] (which I was), and you missed seeing, as you point out, that based on a normal distribution the default rate for Mexicans is on average X% (which is significantly more than for your typical founding stock American). Basic probabilities based on normal distributions would suggest you were a fool for not seeing a wave of defaults coming, but then you now have Taleb’s ‘black swan’ event to explain yourself.

I will now give you personal insight into this. I worked at [humongous Wall Street money pit] (until February of 2008) on what was called a “credit specific risk” add-on to their Value-at-Risk model. My focus was covering Credit Default Swaps (“CDSs”) and related credit derivates (CDOs, CDO-squareds, etc.) and non-derivatives. After the financial markets began their meltdown (which continues predictably to this day, and beyond) in late July/early August of 2007, the head of the Market Risk asked me if I had read The Black Swan. I told him that I had not, and asked if he had read [Taleb's earlier book] Fooled by Randomness. ... By Thanksgiving almost every high level risk manager on Wall Street had read (or said they had read) The Black Swan. In hindsight, it is all so clear, here is a book that essentially goes on and on about what is normally a true but normally trivial point, by definition.

In effect Taleb gave the elites that screwed up on a monumental scale an easy out For example, “yes, I’m head of risk for Merrill and some say I should have seen it coming, but surely you have read ‘The Black Swan’ and now understand how that would have been impossible.” In short, Taleb has given all of finance the copout they need when they most needed it (i.e., everyone - practitioners, academics, regulators, etc.).

Attributing the worthlessness of your mortgage-backed security full of 2006-vintage Sand State subprime loans to a "Black Swan" is, in effect, a lot like blaming it on "Sh*t Happens," but it makes you sound erudite rather than stoned.

As today's WSJ article "Housing Push for Hispanics Spawns Wave of Foreclosures" suggests, the mortgage meltdown wasn't an unpredictable Black Swan at all. That rapidly Hispanicizing regions (the great majority of defaulted mortgage dollars came from just four states -- California, Arizona, Nevada, and Florida) turned out to be full of people who couldn't pay back their giant mortgages wasn't impossible to forecast: instead, it was, to coin a term, a Brown Swan -- a predictable disaster that goes unforeseen due to pervasive political correctness.

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

Gaza and Barrage Balloons

When a war broke out between Israel and Hezbollah in South Lebanon in the summer of 2006, war fever in the America press reached frightening levels. For a few weeks, there seemed a very real threat that this frenzy would push America into war with Hezbollah's supporter Iran.

So, that month I spent a lot of time writing about how ridiculous this all was, how it's not 1938 again, how the Middle East is less a powder keg than a powder thimble, how America has roughly half the defense spending in the world, how Iran barely has an air force, how war is decliningly profitable, etc etc. In the indirect way my writing works, I may have helped deflate that dangerous war bubble.

This time around, fortunately, there doesn't seem to be as much media mania in the U.S.

I wonder why?

Perhaps it's just the even more extreme one-sidedness of the conflict; or the lack of a credible Muslim sponsor country for the enthusiasts to demand that America bomb; or the sense of deja-vu, the feeling that this is just depressing and boring business as usual. Weirdly, I have a vague hunch that the lack of insanity in the press is in some way connected to Bernie Madoff, ridiculous as that sounds.

All that said, Gaza is an important worst case stress test of the advantages of separatism. The Israelis built a fairly effective fence around Gaza that more or less prevents suicide bombers from getting into Israel. They've removed the Israeli settlers from Gaza. Now, their main problem is Gazans lobbing explosives over the fence into Israel. It's in everybody's interest to help them come up with an effective solution for that.

We know that the long term solution is, in the words of newspaper magnate Lord Copper in Waugh's Scoop, "the Beast stands for strong, mutually-antagonistic governments everywhere." Nobody in Jordan or Syria shoots stuff at Israel anymore because the governments of Jordan and Syria know that the Israelis will come and break the government's shiny war weapons, so the governments keep their hotheads under control. I'm not sure how they do it, and I'm not sure I want to know. But, they do it.

Unfortunately, that's a long way off in the case of Gaza, the West Bank, and Lebanon. The problem is that the political process by which strong governments will eventually emerge in these lands will no doubt be through a long struggle with Israel in which various bravos demonstrate their courage and patriotic bona fides by attacking Israel, bringing about Israeli reprisals, which in turn stoke anti-Israeli fanaticism, etc.. Presumably, somebody will eventually come out so securely on top that he can then call it off and start living above ground again, but that could be a long, long way off.

So, I've been trying to think of a technical solution to the problem of people in the Gaza Strip shooting locally-made unguided missiles at Israeli towns nearby. From 2001 through 2008, 15 people have killed by Qassam rockets fired from Gaza.

This has not been a gigantic problem so far for Israelis, in part because most of the missiles are so short range that they can only reach a single Israeli town, which the government of Israel has been fortifying. The Israelis have the technology to track a rocket back to its launch site and place an explosive on that spot within a few minutes. This means that the Palestinians typically shoot and scoot, which in turn means that they can't calibrate their fire. With unguided high trajectory weapons, such as mortars, artillery, and the Gazans' rockets, to actually hit your target, you need to stay in one place and, taking guidance from forward observers, fire again and again, methodically walking the impacts up to the target. But the Gazans are terrified of dying from Israeli counter-fire, so they prop up their missile in an orchard, point it in the general direction of that Israeli town, and drive away. So, their accuracy doesn't improve.

If the Gazans were to get a guided missiles (with longer ranges), this could prove to be a much larger problem for Israel. On the other handed, those are expensive, and the Gaza Strip doesn't currently have the industrial base to make them so they'd have to be imported. But Israel's fear of Palestinians importing better missiles encourages Israel to keep a clampdown on Gaza imports, with much economic pain inflicted, which just encourages Gazans to fire missiles at Israel.

So, an effective Israel anti-missile defense system would be beneficial.

Israel intends to implement by 2010 in the Gaza neighborhood the "Iron Dome" anti-missile missile, but there are some drawbacks. First, it won't be able to protect the Israeli town closest to the border, since it takes 15 seconds to get launched and the total flight time to that local target is less than that. Second, each Iron Dome anti-missile missile costs about $100,000, so it's an expensive solution to use against home-made rockets.

I've long wondered if guns wouldn't be more cost-effective anti-missile weapons than missiles. The usual advantage of a rocket is that it continues to accelerate after launch, allowing it to achieve higher ultimate speeds, whereas a gun's projectile achieves its maximum speed as it leaves the barrel and subsequently declines. When you need very rapid response, however, perhaps guns are the better technology, perhaps combined with some sort of guidance system for the projectile? One downside of guns is that they tend to have high fixed costs, while missiles have high variable costs, but this kind of chronic situation seems ideal for a few fixed high-tech guns. Also, in the Gaza area, they could be aimed so that their projectiles that miss could come down in the sea harmlessly.

Anyway, I don't know whether current gunpowder guns would work at all, or whether this kind of anti-missile gun defense would be dependent on the final development of a practical railgun, which was one of those war-winning wonder weapons the Germans tinkered with way back in WWII instead of developing a tank with the cost-quality effectiveness of the Russian T-34.

However, there's another old defensive technology that might be updatable with modern electronics to be even an better solution: barrage balloons. During the Blitz in 1940, the British launched 1,400 balloons anchored by heavy cables to damage German airplanes flying under 5,000 feet who collided with their metal cables. They were modestly effective against the plague of V1 buzz bomb cruise missiles that Germans fired at London later in the war, destroying 231 of them. The Germans, however, cleverly built wire cutters into the wings of the V1.

My thought is that high-tech barrage balloons could defend Israeli towns against missiles in a different way than simply relying upon impact with the cable (a method that assumes the flying attacker has wings, which missiles don't). Instead, they could be used to pre-position anti-missile shrapnel charges at various altitudes. As a missile from Gaza is launched, Israeli radar could choose which of the floating charges to detonate.

Does that make any sense?

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

My review of Taleb's "The Black Swan"

Here is my new review in VDARE.com of Nassim Nicholas Taleb's influential book on risk, "The Black Swan."

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

WSJ: "Housing Push for Hispanics Spawns Wave of Foreclosures"

From the Wall Street Journal:

"Housing Push for Hispanics Spawns Wave of Foreclosures"

By SUSAN SCHMIDT and MAURICE TAMMAN

California Rep. Joe Baca has long pushed legislation he said would "open the doors to the American Dream" for first-time home buyers in his largely Hispanic district. For many of them, those doors have slammed shut, quickly and painfully.

Mortgage lenders flooded Mr. Baca's San Bernardino, Calif., district with loans that often didn't require down payments, solid credit ratings or documentation of employment. Now, many of the Hispanics who became homeowners find themselves mired in the national housing mess. Nearly 9,200 families in his district have lost their homes to foreclosure.

For years, immigrants to the U.S. have viewed buying a home as the ultimate benchmark of success. Between 2000 and 2007, as the Hispanic population increased, Hispanic homeownership grew even faster, increasing by 47%, to 6.1 million from 4.1 million, according to the U.S. Census Bureau. Over that same period, homeownership nationally grew by 8%. In 2005 alone, mortgages to Hispanics jumped by 29%, with expensive nonprime mortgages soaring 169%, according to the Federal Financial Institutions Examination Council.

An examination of that borrowing spree by The Wall Street Journal reveals that it wasn't simply the mortgage market at work. It was fueled by a campaign by low-income housing groups, Hispanic lawmakers, a congressional Hispanic housing initiative, mortgage lenders and brokers, who all were pushing to increase homeownership among Latinos.

What about President Bush and his 2002 White House Conference on Minority Homeownership, where he called for adding 5.5 million Hispanic and black homeowners via cutting back on barriers to the American Dream, such as down payments?

The network included Mr. Baca, chairman of the Congressional Hispanic Caucus, whose district is 58% Hispanic and ranks No. 5 among all congressional districts in percentage of home loans not tailored for prime borrowers. The caucus launched a housing initiative called Hogar -- Spanish for home -- to work with industry and community groups to increase mortgage lending to Latinos. Mortgage companies provided funding to that group, and to the National Association of Hispanic Real Estate Professionals, which fielded an army to make the loans.

In years past, minority borrowers seeking loans were often stopped cold by a practice called red-lining, in which lenders were reluctant to lend within particular geographical areas, often, it appeared, on the basis of race. But combined efforts to open the mortgage pipeline to Latinos proved successful.

"We saw what we refer to in the advocacy community as reverse red-lining," says Aracely Panameno, director of Latino affairs for the Center for Responsible Lending, an advocacy group. "Lenders were seeking out those borrowers and charging them through the roof," she says.

Ms. Panameno says that during the height of the housing boom she sought to present the Hispanic Caucus with data showing how many Latinos were being steered into risky and expensive subprime loans. Hogar declined her requests, she says.

A very large fraction of the people steering Hispanics into risky and expensive subprime loans were Hispanics, so it's hardly surprising that their political representatives weren't interested in hearing about predatory lending abuses. Hispanic mortgage brokers, real estate agents, and construction workers were making a killing off easy credit, so why kill the goose that laid the golden egg?

When the national housing market began unraveling, so did the fortunes of many of the new homeowners. National foreclosure statistics don't break out data by ethnicity or race. But there is evidence that Hispanic borrowers have been hard hit. In part, that's because of large Hispanic populations in areas where the housing bubble was pronounced, such as Southern California, Nevada and Florida.

And why was the Housing Bubble pronounced in those areas with large Hispanic populations? In the propaganda of the time, population growth was constantly cited as justifying rising home prices, but there was no mention of whether these new people had the earning capacity to pay back their mortgages.

In U.S. counties where Hispanics account for more than 25% of the population, banks have taken back 6.7 homes per 1,000 residents since Jan. 1, 2006, compared with 4.6 per 1,000 residents in all counties, according to a Journal analysis of U.S. Census and RealtyTrac data.

Hispanic lawmakers and community groups have blamed subprime lenders, who specialize in making loans to customers with spotty credit histories. They complain that even solid borrowers were steered to those loans, which carry higher interest rates.

In a written statement, Mr. Baca blamed the foreclosure crisis among Hispanics on borrowers' lack of "financial literacy" and on "lenders and brokers eager to make a bigger profit." He declined to be interviewed for this story.

But a close look at the network of organizations pushing for increased mortgage lending reveals a more complicated picture. Subprime-industry executives were advisers to the Hogar housing initiative, and bankrolled more than $2 million of its research. Lawmakers and advocacy groups pushed hard for the easy credit that fueled the subprime phenomenon among Latinos. Members of the Congressional Hispanic Caucus, who received donations from the lending industry and saw their constituents moving into new homes, pushed for eased lending standards, which led to problems.

Mortgage lenders appear to have regarded Latinos as a largely untapped demographic. Many were first or second-generation U.S. residents who didn't own homes. Many Hispanic families had multiple wage earners working multiple cash jobs, but had no savings or established credit history to allow them to qualify for traditional loans.

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. A Washington Mutual vice president served as chairman of its advisory committee. Companies that donated $150,000 a year got the right to place a research fellow who would conduct Hogar's studies, which were used by industry lobbyists. For donations of $100,000 a year, Hogar offered to provide news releases from the Hispanic Caucus promoting a lender's commercial products for the Latino market, according to the group's literature.

Hogar worked with Freddie Mac on a two-year examination of Latino homeownership in 63 congressional districts. The study found Hispanic ownership on the rise thanks to "new flexible mortgage loan products" that the industry was adopting. It recommended further easing of down-payment and underwriting standards.

Representatives for Hogar declined repeated requests for comment.

The National Association of Hispanic Real Estate Professionals, one of Hogar's sponsors, advised the group, shared research data and built a large membership to market loans to Latinos. By 2005, its ranks had grown to 16,000 agents and mortgage brokers.

The association, called Nahrep, received funding from some of the same players that funded Hogar. Some 22 corporate sponsors, including Countrywide and Washington Mutual, together paid the association $2 million a year to attend conferences and forums where lenders could pitch their loan products to loan brokers.

While home prices were rising, the lending risk seemed minimal, says Tim Sandos, Narhep's president. "We would say, 'Is he breathing? OK, we'll give him a mortgage,' " he recalls.

Nahrep's 2006 convention in Las Vegas was called "Place Your Bets on Home Ownership." Countrywide Chairman Angelo Mozilo spoke, as did former Housing and Urban Development Secretary Henry Cisneros, a force in Latino housing developments in the West.

The words "Las Vegas" constantly pop up in these kind of articles.

Countrywide and other sponsors contracted with Nahrep to set up regional events where they could present loan products to loan brokers and their customers. Mr. Sandos says his organization doesn't get paid to promote particular lenders.

At the height of the subprime lending boom, in 2005, banking and finance companies gave at least $2.3 million in campaign contributions to members of the Hispanic Caucus, according to data from the Center for Responsive Politics.

In October 2008, a charitable foundation set up by Mr. Baca received $25,000 from AmeriDream Inc., a nonprofit housing company and Hogar sponsor. Mr. Baca has long backed AmeriDream's controversial seller-financed down-payment assistance program. AmeriDream provided down-payment money to buyers, a cost that was covered by home builders in the form of donations to the nonprofit.

This is a tax evasion scam, often organized through minority charities, such as churches. The Bush Administration tended to push it as "compassionate conservatism."

New housing legislation last fall outlawed the program. Mr. Baca is cosponsoring a bill that would allow AmeriDream and similar nonprofits to resume arranging seller-financed down-payment assistance to low-income Federal Housing Administration borrowers.

Such seller-financed loans comprise one-third of the loans backed by the FHA, and have defaulted at nearly triple the rate of other FHA-insured loans, according to agency spokesman William Glavin.

In a news release, AmeriDream said the donation to Mr. Baca's foundation was intended to fund the purchase of gear for firefighters in his district. Local news reports say the foundation gave away $36,000 in scholarships this year.

Internal Revenue Service records indicate that Mr. Baca's son, Joe Baca Jr., has an annual salary of $51,800 as executive director of the Joe Baca Foundation, which is run out of the congressman's home. Joe Baca Jr. says he currently is taking only about half that listed salary.

Mr. Baca's office declined to comment on the AmeriDream contribution.

Mr. Baca remains opposed to strict lending rules. "We need to keep credit easily accessible to our minority communities," he said in a statement released by his office.

Mortgage lending to Hispanics took off between 2004 and 2007, powered by nonprime loans. The biggest jump occurred in 2005.

If this had been merely a cynical re-election ploy by the Bush Adminstration, Bush could have pulled the plug on it the day after the November 2004 election. But, instead, this was a practically universal delusion among the Great and the Good. To Karl Rove, it was a permanent good idea that would bring about long-term realignment by making Hispanics into home-owning Republicans. To Democrats, it was pork for their constituents.

The 169% increase in nonprime mortgages to Hispanics that year outpaced a 122% gain for blacks, and a 110% increase for whites, according to a Journal analysis of mortgage-industry and federal-housing data. Nonprime mortgages carry high interest rates and are tailored to borrowers with low credit scores or few assets.

Between 2004 and 2007, black borrowers were offered nonprime loans at a slightly higher rate than Hispanics, but the overall number of Hispanic borrowers was much larger. From 2004 to 2005, total nonprime home loans to Hispanics more than tripled to $69 billion from $19 billion, and peaked in 2006 at $73 billion.

Tricks of the Trade

Mortgage brokers became a key portion of the lending pipeline. Phi Nguygn, a former broker, worked at two suburban Washington-area firms that employed hundreds of loan originators, most of them Latino. Countrywide and other subprime lenders sent account representatives to brokerage offices frequently, he says. Countrywide didn't respond to calls requesting comment.

Representatives of subprime lenders passed on "little tricks of the trade" to get borrowers qualified, he says, such as adding a borrower's name to a relative's bank account, an illegal maneuver. Mr. Nguygn says he's now volunteering time to help borrowers facing foreclosure negotiate with banks.

Many loans to Hispanic borrowers were based not on actual income histories but on a borrower's "stated income." These so-called no-doc loans yielded higher commissions and involved less paperwork.

Another problem was so-called NINA -- no income, no assets -- loans. They were originally intended for self-employed people of means. But Freddie Mac executives worried about abuse, according to documents obtained by Congress. The program "appears to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed," said a staff memo to Freddie Mac Chairman Richard Syron. "It appears they are disproportionately targeted toward Hispanics."

Freddie Mac says it tightened down-payment requirements in 2004 and stopped buying NINA loans altogether in 2007.

"It's very hard to get in front of a train loaded with highly profitable activities and stop it," says Ronald Rosenfeld, chairman of the Federal Housing Finance Board, a government agency that regulates home loan banks.

Regions of the country where the housing bubble grew biggest, such as California, Nevada and Florida, are heavily populated by Latinos, many of whom worked in the construction industry during the housing boom. When these markets began to weaken, bad loans depressed the value of neighboring properties, creating a downward spiral. Neighborhoods are now dotted with vacant homes.

By late 2008, one in every nine households in San Joaquin County, Calif., was in default or foreclosure -- 24,049 of them, according to Federal Reserve data. Banks have already taken back 55 of every 1,000 homes. In Riverside, Calif., 66,838 houses are owned by banks or were headed in that direction as of October. In Prince William County, Va., a Washington suburb, 11,685 homes, or one in 11, was in default or foreclosure.

Gerardo Cadima, a Bolivian immigrant who works as an electrician, bought a home in suburban Virginia for $330,000, with no money down. "I said this is too good to be true," he recalls. "I'm 23 years old, with a family, buying my own house."

When work slowed last year, Mr. Cadima ran into trouble on his adjustable-rate mortgage. "The payments were increasing, and the price of the house was starting to drop," he says. "I started to think, is this really worth it?" He stopped making payments and his home was sold at auction for $180,000.

In the wake of the housing slump, some participants in the Hispanic lending network are expressing second thoughts about the push. Mr. Sandos, head of Nahrep, says that some of his group's past members, lured by big commissions, steered borrowers into expensive loans that they couldn't afford.

Nahrep has filed complaints with state regulators against some of those brokers, he says. Their actions go against Nahrep's mission of building "sustainable" Latino home ownership.

These days, James Scruggs of Northern Virginia Legal Services is swamped with Latino borrowers facing foreclosure. "We see loan applications that are complete fabrications," he says. Typically, he says, everything was marketed to borrowers in Spanish, right up until the closing, which was conducted in English.

"We are not talking about people working for the World Bank or the IMF," he says. "We are talking about day laborers, janitors, people who work in restaurants, people who do babysitting."

Two such borrowers work in Mr. Scrugg's office. Sandra Cardoza, a $28,000-a-year office manager, is now $30,000 in arrears on loans totaling $370,000. "Her loan documents say she makes more than me," says Mr. Scruggs.

Nahrep agents are networking on how to negotiate "short sales" to banks, where Hispanic homeowners sell their homes at a loss in order to escape onerous mortgages. The association has a new how-to guide: "The American Nightmare: Strategies for Preventing, Surviving and Overcoming Foreclosure."

—Louise Radnofsky contributed to this article.

Write to Susan Schmidt at susan.schmidt@wsj.com and Maurice Tamman at maurice.tamman@wsj.com

Well, I told you so.

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

College Football Playoff?

I've never been hugely enthusiastic about the popular idea of instituting a playoff system for the college football season in the manner of the NCAA playoffs in basketball (as recently endorsed by Barack Obama).

Part of the problem is that football is a dangerous and destructive game, so adding intense, hard-hitting playoff games against the best opponents to the best players' college seasons will just cause that much more wear and tear on players who aren't getting paid (at least not paid above the table).

If the average NFL running back has maybe four good pro seasons in him, adding playoffs to the college season could end up reducing a running back at a top college's NFL career by a year, which is a lot. If you have an 8 team playoff instead of bowl games, a USC or Oklahoma running back might wind up playing six or seven more games in his college career, which is pretty close to the equivalent of a full season against mediocre opponents in which stars sit out the fourth quarter of blowout wins. If you have a 16 team playoff, that's more like ten or eleven hard games across four years.

Also, I'm not crazy about how college football has added two or even three games to the season during my lifetime. It's not like the college athletic directors sat down with the College Football Players Guild representatives and negotiated a bigger paycheck for the players in return for more work.

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

Failing Upward via Public School Reform

With the Democratic governor of Illinois' pick for the U.S. Senate getting much publicity, the Democratic governor of Colorado has made sure to appoint the most exquisitely genteel individual imaginable to the U.S. Senate: Denver school chief Michael Bennet, age 44, the former editor of the Yale Law Review. His brother Jim is the editor of the Atlantic Monthly and his father was head of National Public Radio and president of Wesleyan U.

After Michael Bennet got rich, he then decided, in the mode of the time (e.g., Bill Gates), to fix the public schools. After all, how hard could it be?

A couple of years ago, in an article Across Difficult Country summarizes here, The New Yorker profiled Bennet's travails in trying to close a gang-infested Denver high school with terrible test scores, Manual. It turned out that the all-Mexican student body and their families kind of liked their terrible school, didn't appreciate poor Bennet's meddling, and, not being indoctrinated in the theology of the overclass, didn't expect to do much better at a different school just because it had enjoyed higher test scores before they arrived.

Yet, much in the manner of Barack Obama's unsuccessful chairmanship of the lavishly-funded Annenberg Chicago Challenge, Bennet has managed to fail upward.

Evidently, the point of being a public school reformer these days is to become known as a public school reformer, not to actually reform the public school. What matters is that you publicly proclaim that you believe the public schools can be fixed. Nobody actually expects you to be able to do anything with public school students, at least not enough to hold it against you when you fail, as the skyrocketing careers of Obama and Bennet demonstrate.

Connoisseurs of overclass social markers will enjoy his New York Times' 1997 wedding announcement:

Susan Diane Daggett, a daughter of Patricia B. Palmer of Little Rock, Ark., and Jesse B. Daggett of Marianna, Ark., was married yesterday to Michael Farrand Bennet, a son of Douglas J. Bennet Jr. of Middletown, Conn., and Susanne K. Bennet of Washington. The Rev. Arnold W. Hearn, an Episcopal priest, performed the ceremony at Crystal Lake in Marianna.

The bride, 33, a lawyer, is to join the Earthjustice Legal Defense Fund, formerly the Sierra Club Legal Defense Fund, in Denver next month. Ms. Daggett, who is keeping her name, graduated magna cum laude from Mount Holyoke College, and she and the bridegroom received law degrees from Yale University.

Her mother is a painter and an instructor at the Arkansas Art Center's Museum School in Little Rock. Her father is a partner in Daggett, VanDover, Donovan & Perry, a Little Rock law firm.

Mr. Bennet, 32, was until recently a counsel to the Deputy Attorney General of the United States. He graduated with honors from Wesleyan University.

His father is the president of Wesleyan; he was the Assistant Secretary of State for international organizations in 1993 and 1994 and the president of National Public Radio from 1983 until 1992. The bridegroom's mother is an art historian specializing in Roman antiquities.

This is exactly the kind of background that lets you understand the minds of Manual High School students.

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

Credit Default Swaps and Moral Hazard

In the insurance business, "moral hazard" is famously a problem. Evelyn Waugh describes in Scoop how in his fictionalized version of 1930s Addis Ababa, a taxi ride revealed "numerous gutted sites, relics of an epidemic of arson some years ago back when an Insurance Company had imprudently set up shop in the city."

Help me out here if I'm wrong, but don't credit default swaps, a financial instrument invented in the 1990s, suffer from the usual insurance contract problem of "moral hazard?" If you can make a deal so that you get compensated if your mortgage-backed security defaults, aren't you more likely to bring about a default?

If you are, say, Goldman Sachs and AIG offers to, in effect, insure for a modest price a no-doubt-fraudulent pile of mortgages you are thinking about buying from some dubious firm, why not go for it? AIG is rock solid! And if, perchance, AIG turns out not to be so solid, well, Goldman has friends in high places.

Credit default swaps have a second interesting moral hazard aspect. You don't have to be the owner of the security to get paid if it goes bust. This is kind of like being able to take out a life insurance policy on a complete stranger or your own worst enemy. The murderous marital moral hazard implicit in life insurance is a common theme in crime stories (e.g., Double Indemnity). That's an inevitable problem, but insurance companies have tightened up over the centuries on who can take out a life insurance policy on whom. Still, there was an Arsenic and Old Lace case in LA recently of two elderly women, who had murdered homeless men after taking out multiple life insurance policies on them. (They bribed the men into signing up for one, then forged their signatures on other policies).

It would certainly be interesting to learn more about the impact of both types of moral hazard.

I could see how the second kind (where third parties make bets against the financial health of firms in the securitized mortgage business) could be either bad or good for the economy, in that it could send signals that financial instruments are dubious.

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