Village Voice endorses my reading of the mortgage meltdown

For a year now, I've been pointing out that the mortgage meltdown is partly related to the Establishment's long campaign to loosen traditional standards of creditworthiness for lower income and minority households. This national priority gave the get-rich quick artists in the business world the perfect excuse for doing what they'd always wanted to do: take the money and run and let the taxpayers and savers pay for the clean-up.

Now, others are starting to pick up on that insight, including the Village Voice. Via Arnold Kling, Edward Barrett writes in a hit piece on the New York attorney general, "Andrew Cuomo and Fannie and Freddie:"

Perhaps the only domestic issue George Bush and Bill Clinton were in complete agreement about was maximizing home ownership, each trying to lay claim to a record percentage of homeowners, and both describing their efforts as a boon to blacks and Hispanics. HUD, Fannie, and Freddie were their instruments, and, as is now apparent, the more unsavory the means, the greater the growth. But, as Paul Krugman noted in the Times recently, "homeownership isn't for everyone," adding that as many as 10 million of the new buyers are stuck now with negative home equity—meaning that with falling house prices, their mortgages exceed the value of their homes. So many others have gone through foreclosure that there's been a net loss in home ownership since 1998.

It is also worth remembering that the motive for this bipartisan ownership expansion probably had more to do with the legion of lobbyists working for lenders, brokers, and Wall Street than an effort to walk in MLK's footsteps. Each mortgage was a commodity that could be sold again and again—from the brokers to the bankers to the securities market. If, at the bottom of this pyramid, the borrower collapsed under the weight of his mortgage's impossible terms, the home could be repackaged a second or a third time and either refinanced or dumped on a new victim.

Those are the interests that surrounded [Clinton HUD secretary Andrew] Cuomo, who did more to set these forces of unregulated expansion in motion than any other secretary and then boasted about it, presenting his initiatives as crusades for racial and social justice. ...

In 2000, Cuomo required a quantum leap in the number of affordable, low-to-moderate-income loans that the two mortgage banks—known collectively as Government Sponsored Enterprises—would have to buy. The GSEs don't actually sell mortgages to borrowers. They buy them from banks and mortgage companies, allowing lenders to replenish their capital and make more loans. They also purchase mortgage-backed securities, which are pools of mortgages regularly acquired by the GSEs from investment firms. The government chartered these banks to pump money into the mortgage market and, while they did it, to make a strong enough profit to attract shareholders. That created a tug-of-war between their efforts to maximize shareholder value, which drove them toward high-end mortgages, and their congressionally mandated obligation to finance loans for those who needed help. The 1992 law required HUD's secretary to make sure housing goals were being met and, every four years, set new goals for Fannie and Freddie.

Cuomo's predecessor, Henry Cisneros, did that for the first time in December 1995, taking a cautious approach and moving the GSEs toward a requirement that 42 percent of their mortgages serve low- and moderate-income families. Cuomo raised that number to 50 percent and dramatically hiked GSE mandates to buy mortgages in underserved neighborhoods and for the "very-low-income." Part of the pitch was racial, with Cuomo contending that Fannie and Freddie weren't granting mortgages to minorities at the same rate as the private market. William Apgar, Cuomo's top aide, told The Washington Post: "We believe that there are a lot of loans to black Americans that could be safely purchased by Fannie Mae and Freddie Mac if these companies were more flexible." ... Cuomo wasn't shy about embracing subprime mortgages as a possible consequence of his goals. "GSE presence in the subprime market could be of significant benefit to lower-income families, minorities, and families living in underserved areas," his report on the new goals noted.

The politics of it all was amusingly complex:

While fashioning these final rules, Cuomo wrestled with the octopus-like reach of Fannie and Freddie, which spend tens of millions each year on lobbying firms. The GSEs hired 88 lobbying firms over six years, three of which were friendly enough with Cuomo to give to his campaign committee later. ...

But Cuomo was closer to the GSEs' most formidable opponents—namely, the Mortgage Bankers Association (MBA), regarded as the most influential private real-estate finance lobby in Washington, and the upstart FM Watch, a new coalition of heavyweights from Chase to AIG. Both of these groups wanted Cuomo to put as much affordable-housing pressure on the GSEs as he could, and they said so in their releases and newsletters. They opposed what they called Fannie and Freddie's profit-driven "mission creep," which they saw as a publicly subsidized invasion of their high-end mortgage market. Their goal was the same as Cuomo's: to push Fannie and Freddie deeper into low-end mortgages, consistent with the mission statement in their charters.

The background is that Fannie and Freddie can borrow at lower interest rates than other for-profit businesses because of the "implicit" government guarantee of their debt, so they have licenses to print money. Thus, there is a tug of war in Washington over which direction Fannie and Freddie's firehose of money would be pointed. The big guys in private lending wanted them to stay away from million dollar mortgages to anesthesiologists and instead back $200,000 mortgages for dry-wallers, a self-interested argument that the private bankers were happy to justify in terms of political correctness.

These groups clearly had Cuomo's ear, but he was also being pushed to commit the GSEs to more affordable and, in some cases, riskier loans by consumer organizations—groups like ACORN, which has considerable clout in New York elections.

ACORN has been closely linked to Barack Obama since he ran its 1992 black voter registration effort that got Carol Mosely Braun elected U.S. Senator.

You can single out individuals for blame, but the bottom line is that many of America's powerful interests were in on it. And they were able to use political correctness as a weapon for their own purposes. A few unpopular folks like me were pointing out that immigration policy is lowering the creditworthiness and productive capacity of the population, but such heretical thoughts were "the soft bigotry of low expectations."

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

Pipeline politics

The neocons traditionally pooh-poohed the idea that the American forward policy in the Caucasus had anything to do with the new 1100 mile BTC (Baku-Tbilisi-Ceyhan) pipeline for getting oil out of the Caspian Sea that runs from Azerbaijan north to Georgia then south to a Turkish port in the Levant. Instead, it was all about democracy! But for the last two weeks, we've been hearing from them about the pipeline as justification.

One question I've had is why wasn't the pipeline built on the most direct route, bypassing Georgia and running through Armenia instead? (Here's a map.) After all, Armenia has a ferocious lobby in America, making it unlikely the Russians would mess with Armenia. Wikipedia explains:

"The choice of a Turkish route meant oil export from Azerbaijan via either Georgia or Armenia. For several reasons a route through Armenia was politically inconvenient, due to regional tensions over Turkey's refusal to recognize the Armenian Genocide^{[6] [7]}, as well as the unresolved military conflict between Armenia and Azerbaijan over Nagorno-Karabakh.^[8] This left the circuitous Azerbaijan-Georgia-Turkey route as politically most expedient for the major parties, although it was longer and more expensive to build than the other options."

Ah, the intricate joys of Caucusus politics! Apparently, Armenia sides with far-off Russia because it hates its neighbors so much and vice-versa.

Anyway, the whole BTC pipeline cost $3.9 billion to build, which is really not that much these days, so the cost of building a bypass through Armenia would be affordable, if there was some necessity.

Multiple routes would encourage better behavior on the part of all concerned.

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

Circular logic

Here's part of my new VDARE.com column:

Trying to think about the causes of the mortgage meltdown is reminiscent of the infinitely recursive children's song Yon Yonson, which was memorably featured in Kurt Vonnegut's Slaughterhouse-Five :

"My name is Yon Yonson / I live in Wisconsin / I work in a lumber mill there / The people I meet / When I walk down the street / They ask me my name and I say: / My name is Yon Yonson / I live in Wisconsin..."

Similarly, in trying to explain this decade's socioeconomic logic, you end up with thought processes like this:

Q. Why did we need so many illegal immigrants?
A. To build all those McMansions out in the distant exurbs.
Q. Yes, but why did so many Americans want to move to the exurbs?
A. To escape all the illegal aliens flooding their neighborhoods and schools.
Q. Okay, so then why did we need so many illegal aliens?
A. To build all those McMansions out in the distant exurbs.

Etcetera etcetera ...

Everything just spins around and around, like those chrome wheel rims, those insanely expensive hubcaps that were the signature useless extravagance of this decade. Neely Tucker wrote in the Washington Post in 2005:

"Today rims are a $3.1 billion industry that stands at the revolving heart of two American obsessions: automobiles and finding ever more expensive ways to buy things you already have and don't need."

Some economist should calculate what proportion of all the money spent on blinged-out rims came out of home equity loans taken out on houses bubbling up in nominal value.

Similarly, it's hard for most people to grasp the interrelatedness of multiculturalism and greed in fostering the housing bubble. "Diversity" gave the big guys an excuse for doing what they had always wanted to do: debauch credit standards and take the money and run, leaving the mess to be cleaned up by taxpayers (through direct bailouts) and savers (through Fed-created inflation eating away their capital).

More

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

Temporary ban on new fast food restaurants in South Central LA

Recently, the LA city council voted to ban for one year the opening of new fast food restaurants in South Central Los Angeles (which, by the way, we're not supposed to call South Central anymore, due to the unfortunate events of April 1992 -- it's just South Los Angeles now, officially speaking).

Interestingly, the recent proliferation of chain fast-food restaurants and retail outlets in South-Central LA is actually the solution to an older problem.

As you'll recall, South Central LA witnessed vicious racial pogroms in April 1992 against immigrant (typically Korean) entrepreneurs operating within the black community. Korean shopkeepers tended to treat black customers brusquely and would seldom hire and almost never promote local blacks.

Since then, corporate America, often in partnership with black entrepreneurs like Magic Johnson, has greatly expanded the number of chain outlets in South Central. These are more willing to employ local residents than immigrant mom-and-pop establishments, and promote them too.

For example, the Florence-Normandie neighborhood where the 1992 riot broke out now has a quite decent chain-run supermarket with a first rate fresh produce section.

In general, the Stuff White People Like coterie sees immigrant-dominated retail streets as "vibrant" and chain-dominated retail streets as "boring," but the latter are better for African-Americans looking for jobs.

On the other hand, Hispanics are slowly pushing blacks out of South Central, so a lot of businesses tip to all Hispanic employees. Once you reach a certain percentage of Spanish-only employees, you have practical reasons to start demanding that new employees all speak at least Spanish. And there are virtually no bilingual African-Americans in LA. (Among the 900 black LAPD officers, I was told on good authority in 2001 that only four spoke Spanish -- and LA cops have plenty of career reasons to learn Spanish.)

By the way, the ban on fast food restaurants is hardly unprecedented. It's just that they are usually banned in upscale neighborhoods. For example, Avalon, the quaint little tourist town on Catalina Island, had, as of my last visit in 1997, absolutely no national chain restaurants, retailers, or hotels of any kind. Similarly, on Martha's Vineyard, McDonalds famously waged an epic battle trying to get permission to open an outlet.

So, what's different about this is that it's happening in a poor neighborhood, where fast food restaurants have typically been welcome since they provide jobs to poor people. I'm just speculating, but perhaps what has happened in South Central is that black politicians in LA have turned against fast food outlets because so many tipped to workforces that are all Hispanic, because once you have a certain fraction of Spanish-only employees, it makes sense to get rid of all your English-only employees. And African-Americans in LA are almost never bilingual.

The Latino employees are frequently illegal immigrants who don't vote, so the black politicians' electoral base doesn't benefit as much from fast food employment anymore.

In general, black politicians in LA represent districts where most of the voters are black but most of the residents and workers are Latino. This can make for some unusual policies.

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

Reagan's Protectionism

It's interesting to compare the different American policy responses to the rise of Japanese industrial might in the 1970s and 1980s to the rise of Chinese industrial might in the 1990s and 2000s. The Reagan Administration negotiated a "voluntary export restraint" agreement with the Japanese government that limited the number of Japanese cars imported into America. The limitation stayed in place until 1994. In the meantime, Japanese automakers built numerous car factories in the U.S., which have proved highly successful.

Today, most mass market Japanese cars like the Honda Accord and Toyota Camry sold in the U.S. are of majority North American content. The Japanese sell their Japan-assembled versions of these models in the U.S. under their luxury nameplates (e.g., Infiniti and Lexus) with a price premium of something like $5,000.

This strike me, and, I would guess, most Americans, as a reasonable outcome -- at the cost of 13 years of protectionism, Americans wound up with a long-run solution in which American consumers now get quality cars at reasonable prices built primarily by American workers, while fashion-conscious Americans can buy even higher quality cars at less reasonable prices made by Japanese workers.

And yet, despite all these huge factories providing good paying jobs to large numbers of Americans, this bit of recent history has disappeared down the memory hole, so complete is the victory of the free trade ideology. While the U.S. government took effective action in the early 1980s regarding Japan, doing anything about the rise of China to industrial dominance has simply been off the intellectual table over the last 15 years.

Back in 2004, I blogged:

Why I'm a true believer in utterly free trade -- The theory of free trade has never been contradicted by history. For example, as we all know, the tremendous growth of the American economy in the 19th Century was due to Alexander Hamilton's insistence that free trade be the absolute cornerstone of our economic policy. Every schoolboy knows Abraham Lincoln's 1860 campaign slogan: "Free Labor and Free Trade!"

In contrast, Britain's slow, sad decline from its position of economic supremacy after 1846 was due to Prime Minister Peel's betrayal of Britain's traditional free trade policy in favor of protectionism.

Likewise, Bismarck's insistence on zero tariffs enabled outnumbered Germany to almost conquer Europe in WWI using its free trade-nourished industrial might.

And who can forget how contemptuously Ronald Reagan rejected a plan to impose quotas on Japanese car imports to get Toyota and Honda to build car factories in the U.S.?

Oh, wait a minute... Excuse me. Those were the policies of America, Britain, and Germany in the Bizarro reverse world.

Never mind...

On National Review's Corner, two normally level-headed people attacked me for daring to joke about the sacred ideology of free trade:

Ramesh Ponnuru answered, "I respect Steve Sailer's intellect too, Derb, but it's sad to see him embracing every bit of paleocon dogma."

Yup, there's nothing more dogmatic than satire.

Former Reagan speechwriter Peter Robinson, author of "How Ronald Reagan Changed My Life," jumped in to attack my examples. I particularly admired his alternative explanation of how Bismarckian Germany became an industrial powerhouse: "Industrialization." Now I've often expressed my taste for nearly-tautological explanations, such as "survival of the fittest," but this one might be a tad too tautological even for me.

It's hard to say exactly why the dogma of free trade has triumphed so completely, but status striving can't be ruled out. Economists are terribly proud that Ricardo's Law of Comparative Advantage is both significant and not trivial, so showing that you understand has become a major status marker.

Comparative Advantage theory should have starring role in the sequel to Stuff White People Like.

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

They're all whores

From the Washington Post:

Rick Davis, McCain's campaign manager, was president of the Homeownership Alliance, which advocates the expansion of homeownership through low-interest mortgages funded by Fannie and Freddie. Arthur B. Culvahouse Jr., who is heading McCain's vice presidential vetting panel, was a lobbyist for Fannie Mae. Mark Buse, a longtime McCain aide, lobbied for Freddie Mac before returning to McCain's Senate staff.

And the list of Republican Fannie and Freddie lobbyists includes some of its most notable rogues -- including Tony Rudy, Edwin Buckham, Kevin Ring and David H. Safavian, all of whom were linked to the Jack Abramoff lobbying scandal -- as well as some of its leading power brokers, from Reagan White House chief of staff Kenneth M. Duberstein to uberlobbyists Vin Weber and Tom Korologos. Alberto R. Cardenas, one of McCain's top fundraisers, has lobbied for Fannie Mae, as have former Montana governor Marc Racicot and tax-cut advocate Grover Norquist.

Obama also has ties to the firms. James A. Johnson, the former head of his vice presidential vetting panel, was a chief executive of Fannie Mae, as was Franklin D. Raines, who said this week that he has been consulting with the campaign on housing issues. Maria Echaveste, a top Clinton White House official whose husband, Christopher Edley Jr., is a close Obama friend and adviser, has lobbied for Freddie Mac, and former commerce secretary William M. Daley, a top Obama backer, was an in-house lobbyist.

Other Democratic luminaries who have advocated for the mortgage giants include strategist Steven Elmendorf, Rep. Doris Matsui (Calif.), former Al Gore aide Ronald A. Klain, former Clinton aide Steve Ricchetti and former congressman Harold E. Ford Jr. (Tenn.), now the head of the Democratic Leadership Council. Jamie Gorelick, a deputy attorney general in the Clinton administration, was also vice chairman of Fannie Mae.

That payroll has cost Fannie and Freddie nearly $200 million in lobbying and campaign contributions over the past decade, according to lobbying reports and Federal Election Commission disclosures. It has also won them plenty of protection from calls for greater regulation, less federal protection, and even nationalization.

From Robert Novak's column:

As financial storm signals appeared the past 18 months, some Bush officials urged drastic reform of Fannie Mae and Freddie Mac. But, according to internal government sources, Treasury Secretary Henry Paulson objected because it would look "too political." The Republican administration kept its hands off the government-backed mortgage companies that are closely connected to the Democratic establishment.

Paulson is a Republican, but as head of the Goldman Sachs investment bank he had close ties with Democratic-dominated Fannie Mae.

After prominent Democrat James A. Johnson's departure from Fannie following eight years as chairman and chief executive, and after Johnson joined the ZymoGenetics biopharmaceutical firm, he was named head of Goldman Sachs's compensation committee, helping to set Paulson's abundant salary there.

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

Not not The Onion

From The Onion, although it didn't take a lot of imagination to come up with this:

Recession-Plagued Nation Demands New Bubble To Invest In

WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

Clearly, the next bubble will be alternative energy. We're all going to get rich off investing in start-ups that will build automobiles powered by phosphorescent bacteria.

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

Treasury announces bailout plan for Fannie Mae and Freddie Mac

Normally, financial crises happen because really, really rich people screw up, because they're the ones who have most of the money. Yet, the mortgage meltdown is much more egalitarian in origins than the typical collapse. For instance, until a few months ago, mortgages backed by the now tottering Fannie Mae and Freddie Mac were capped at $417,000. Certainly not all, but some of the blame should rest on the bipartisan consensus to social engineer the home ownership rate above the 64 percent level, where it had been stuck since the 1960s.

Here are some excerpts from my June 22 article in Taki's Magazine on "The Diversity Recession:"

In 1992, Congress passed the Government Sponsored Enterprises bill, which set “targets” (i.e., quotas) for Fannie Mae and Freddie Mac, which are quasi-governmental publicly-traded for-profit thing-a-ma-bobs, to encourage “affordable” and “underserved” (more or less minority) home loans.

Both the Clinton and Bush departments of Housing and Urban Development raised the quotas repeatedly. For example, initially, the Clinton Administration required 21% of these quasi-governmental mortgages must go to ”underserved areas” (which are officially defined as “low-income census tracts or in low- or middle-income census tracts with high minority populations"), but the quota for 2008 established by the Bush Administration is 39 percent.

Reuters reported October 13, 1999:

"The mortgage industry intends to pursue minorities with greater intensity as federal regulators turn up the heat to increase home ownership in underserved groups. ‘We need to push into these underserved markets as much as we can,’ said David Glenn, president and chief operating officer of Freddie Mac. …

"In September, Freddie Mac launched a new lending program, based on research done in collaboration with five black colleges, to bring more African-Americans into the market.

"The federal government in the meantime has increased pressure on lenders to seek out minorities, as well as low-income groups and borrowers with poor credit histories.

"Fannie Mae recently reached an agreement with the U.S. Department of Housing and Urban Development to commit half its business to low-and moderate-income borrowers. That means half the mortgages bought by Fannie Mae would be from those income brackets."

Now, even the head of Freddie Mac has protested that the quotas have become “perverse.” On March 12, 2008, Bloomberg News reported:

"Freddie Mac Chief Executive Officer Richard Syron said he’s urging changes in federal rules that enabled too many low- and moderate-income Americans to buy houses they can’t afford. It’s ‘perverse’ that Freddie Mac and Fannie Mae, the two biggest providers of money for U.S. home loans, have been encouraged ‘to put people into homes that they end up losing,’ Syron said at a meeting with analysts and investors in New York."

Ironically, Syron helped get us into this mess when he was head of the Boston Fed. His Freddie Mac biography boasts, “Syron also was sponsor of a landmark study on racial discrimination in mortgage lending …”

… Straightforward tax-and-spend programs were out of favor in the 1990s, but lean-on-lenders for the benefit of your political constituents is always in season.

For instance, an article entitled “Fannie Mae Bending Financial System to Create Homeowners, Says Raines” reported in 2000:

"Yet home ownership is unevenly distributed in society, [Fannie Mae head Franklin] Raines said. He quoted the famous pronouncement by W.E.B. Du Bois, in The Souls of Black Folk in 1903, that the problem of the 20th century is the problem of the color line. Du Bois also observed that the size and arrangement of people’s homes is an index of their condition…

"In the early days of the movement, he said, there was a significant commitment of government funds. … Now, said Raines, more money is being invested in community development through private mechanisms, including Fannie Mae, which works through mainstream lenders to reach out to underserved communities.

"During the 1990s, Fannie Mae pledged $1 trillion in capital over seven years to boost home ownership among underserved populations. Last spring, said Raines, the commitment was completed ahead of schedule, and Fannie Mae pledged a further $2 trillion to assist 18 million families during the next decade." [More]

A trillion here, a trillion there, pretty soon you are talking about real money.

Bill Burnham explains how Fannie Mae and its supposed competitor Freddie Mac work here. Essentially, they figured out in the 1980s that they had a license to print money, as long as Congress didn't take it away:

Fannie Mae’s only significant problem thus became that the supply of mortgage securities would prove insufficient to fund its projected earnings growth (which was well above the projected growth in mortgage debt). As a result Fannie began a series of largely successful political campaigns to increase the volume of mortgage securities available to fund their habit. Theoretically, the easiest way to increase the supply of mortgage securities was to get the federal government to increase the size limit of mortgages that Fannie could buy and guarantee, but this was a very difficult political fight for Fannie to win because commercial and investment banks dominated the so-called “jumbo” mortgage market and, already smarting from Fannie’s dominance of the so-called “conforming” market, they had drawn a line in the sand in the jumbo market and committed most their lobbying resources to keeping Fannie’s size limit as low as possible.

Moral Hazard vs. Mo’ Money
While Fannie still fought to increase its size limits, it quickly found another, much more politically palatable, way to increase the pool of mortgages it could buy: it dropped underwriting standards under the guise of increasing “home ownership” and “affordability”. Traditionally, Fannie had required the mortgages it purchased to be so-called 80/20 mortgages wherein the borrower puts at least a 20% down payment on the mortgage. This was a requirement because residential mortgages in the US are a “no-recourse” loan in which the borrow can generally “walk away” from the loan with no recourse to the lender other than seizing the house and reporting the default to a credit agency. A 20% down payment was generally thought to be enough to dramatically limit the moral hazard of borrowers “walking away” because housing values would have to decline 20%+ for the borrower to be underwater and even then the borrower would still face the prospect of losing their own sunk capital which makes walking away even more difficult from a psychological perspective

The problem with a 20% down payment is for many people it was very hard to come up with that big a down payment and thus it limited the total size of the mortgage market which in turn limited the volume of mortgage securities that Fannie Mae could purchase for its golden goose. While the obvious solution to this problem is just to lower the down payment requirement, Fannie couldn’t do this unilaterally because the government unit that regulated it would see such cuts as needlessly raising Fannie Mae’s risk profile. Far more politically astute that that, Fannie Mae began a campaign to increase “home ownership” and “affordability”. It created a home ownership “foundation” which opened offices in almost every congressional district and promptly set about mobilizing all the local advocates for “affordable” housing to put pressure on their elected representatives to let Fannie Mae offer “affordable housing programs”. Of course, “affordable housing problems” was just a euphemism for allowing Fannie Mae to lower its underwriting standards so that more mortgages could be created and the golden goose could thus kick out more golden eggs.

This proved to be a highly effective political coalition for Fannie Mae. Not only did they build a huge network of grass roots political supporters through their “foundation”, but politicians saw political advantages in supporting the programs because it cast them in the role of trying to help families buy a new home (as opposed to lowering underwriting standards to help a giant corporation keep up its earnings growth by taking a free ride on the US government’s guarantee). Even commercial banks and investment banks signed on to the program because it at least resulted in higher origination fees and an expanded credit market, even if most of the assets ultimately went to Fannie Mae and Freddie Mac.

Fannie Mae's "grassroots" allies are all over the political spectrum, including the far left. Barack Obama's friends at ACORN are in deep with Fannie Mae.

Paul Jackson at Housing Wire writes:

It wasn’t that long ago, after all, that nearly everyone was swept up in “the Ownership Society” — with the White House issuing press release after press release challenging lenders to loosen their credit standards and make riskier loans to minorities in the name of “expanding homeownership.” Consumer groups often even partnered with lenders to make riskier loans to the very minority groups they’re now indignantly suing lenders for lending to.

Let’s take a trip down memory lane, shall we? Consider this press release from Citigroup in September of 2004, which finds ACORN and Citi happily holding hands and pushing “the goals of both organizations to promote homeownership in low- and moderate-income neighborhoods, especially in immigrant communities.”

From the press statement:

“With this agreement, ACORN will be able to expand our mission of strengthening communities by helping low- and moderate-income families, including new immigrants to this country, become homeowners,” said Maude Hurd, National President of ACORN.

It’s not as if Citi and ACORN were the only ones jumping deep into subprime lending together, either. Economic policy research at the time centered on how lenders were denying loans to those with poor credit, often minorities; consider the following conclusion from a September 1999 study:

The Urban Institute report issued today says that “not all Americans enjoy equal access to the benefits of homeownership, in part because of unequal access to capital.”

“Fair lending” essentially became synonymous with a universal lowering of credit standards — and as lenders loosened credit standards, community groups cheered, and the White House lauded the commitment to “expanding homeownership.”

Legislatively, President Bush went so far as to propose eliminating down payment requirements altogether. In a September 2004 press statement, administration officials touted a so-called “Zero-Downpayment Initiative” that would eliminate the statutory requirement of a minimum three percent down payment for FHA-insured single-family mortgages for first-time homebuyers.

Even when we had clear data suggesting that lending to people who couldn’t afford their loans would likely end up badly, we ignored it. Consider this story from April 2004, which noted a Fannie Mae study that found that 49 percent of English-language Hispanics, 46 percent of Spanish-language Hispanics, and 42 percent of African Americans cited “credit concerns” as the primary reason they had not yet bought a home.

Instead of realizing that borrowers’ concerns over their credit and finances might actually be valid, we — and that means everyone, from lenders to legislators, to community and consumer groups — decided to convince them otherwise, out of the belief that being part of the “Ownership Society” trumped small-minded credit concerns. There was a bigger experiment in social progress at stake, after all.

We unfortunately now know all too well how well pursuing “greater access to credit and capital” turned out, not only for ACORN and Citi, but for nearly every lender and consumer group out there that bought into the strange and wonderful ethic of “the Ownership Society.” None more than Countrywide Financial.

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

Spanish language radio stations hit hard by drying up of zero down mortgages

The same days as the news of proposed government bailouts of Fannie Mae and Freddie Mac, the Washington Post runs a revealing article on how the drying up of subprime mortgages has badly hurt the advertising revenue of Spanish language radio stations in the DC area:

But these days the subprime mortgage meltdown has hit many Spanish-language radio stations hard. Real estate companies that targeted the Hispanic community have closed their doors or cut back on advertising and sponsorships. Aragon has lost most of the real estate agents who once advertised with him…

As the housing market took off, Spanish-language radio and real estate companies -- two businesses that are highly locally focused -- became increasingly intertwined. Jose Luis Semidey, a real estate agent who catered to the Hispanic community, ran Radio Latina at 950 AM in Potomac and 810 AM in Annapolis. He's no longer an agent, and he ceased operating the stations in 2006. The realty firm Vilchez & Associates was a principal sponsor of Radio Universal in Manassas at 1460 AM, which no longer exists. It was shut down last year to be reopened this year as La Kaliente, with a new format and a new owner.

Peruvian native Ronald Gordon, whose Arlington-based ZGS Communications operates 11 Telemundo television station affiliates and three radio stations, including VIVA 900 AM in Laurel, said the housing bust has hit Spanish-language radio in the area, much like it has hit the whole Hispanic community.

"I think in terms of the mortgage and real estate industry, we were over-indexed in terms of advertising," Gordon said.

With a pair of headphones over his brushed-back black hair, his lips never far from a suspended microphone, Aragon can be found weekday mornings in his studio, pumping out a steady diet of Spanish-language news, talk, and Mexican and Central American tunes on his show "Buenos Dias Washington."

Aragon began renting his station's signal from JMK Communications of Los Angeles in 2002, changing its format from country to Mexican regional. Those days, the housing boom was just getting underway and an influx of Hispanics that would change the county's demographic mix had begun.

The station began throwing an annual Fiesta Hispana in its parking lot. It promoted Mexican and Central American bands. And when the latest immigration debate heated up, the station served as a place for information about demonstrations and meetings.

At the height of the housing boom, Aragon had as many as 15 real estate agents advertising with him, he said. He got his own Realtor's license three years ago and began advertising his services on his show -- which he still does today. Only one other real estate agent remains as an advertiser.

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

$140 Oil -- Cui Bono?

How much of the current $140 per barrel price of oil is due to Iranian vs. USA / Israel tensions, the fear that the Persian Gulf will get blown up?

Let's just say, for the sake of ease of calculation, that the price of oil would be $100 per barrel in a stress-free environment. So, under that assumption, Iran, which exports 2.5 million barrels per day, makes $100 million dollars per day off squabbling with the U.S. and Israel.

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

Why there's no market for oil price conspiracy theories

Back in the 1970s, it was popular to believe that oil company manipulations were behind the rises in the price of oil. I remember a fellow I played golf with when I was 14 explaining that there was a flotilla of oil tankers lurking beyond San Clemente Island, just waiting for the price to hit $14 per barrel. You heard that kind of thing all the time.

Even though oil prices are an order of magnitude higher, conspiracy theories aren't popular these days. There's no market for conspiracies theories. The left wants high oil prices to prevent global warming, and, more importantly, to punish SUV drivers, while leading voices on the right have all been bought off by The Conspiracy.

No, just kidding! Nobody believes in conspiracies anymore. Not even when there is a 48-year-old international oil conspiracy that has its own website.

Nobody has ever tried to drive up the price of a natural resource. (Well, except for the Hunt Brothers cornering the silver market in 1979-1980. And Jay Gould cornering the gold market in 1869. And, of course, as commenters point out, DeBeers and diamonds.) Nobody has ever used an environmentalist theory to drive up prices. (Well, except for the media panic in the 1990s over how America was about to run out of places to dump trash, which never made any sense -- if there's one thing America isn't in danger of running out of, it's holes in the ground. The frenzy turned out to be a hoax engineered by the PR department of Waste Management Inc. to get higher dumping rates from municipalities.) So, just forget about it!

Seriously, I don't know anything about the oil market. I'm just saying that an era when nobody wants to believe in conspiracies would be the best time to try one.

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

Local politics explained in one sentence

Politicians control developers, so developers control politicians.

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

Hanna Rosin in The Atlantic: "American Murder Mystery"

My new VDARE.com column is about an Atlantic Monthly article that's entitled:

"American Murder Mystery: Why is crime rising in so many American cities? The answer implicates one of the most celebrated antipoverty programs of recent decades."

Here's an excerpt from my essay:

Social Engineers Move Inner City Crime to Suburbs (Developers Delighted!)

By Steve Sailer

Following the demolition of inner city public housing projects in some cities, the murder rate has dropped in the now-gentrifying downtowns, only to soar in previously peaceful suburbs. In the new July / August 2008 issue of the Atlantic Monthly, a long article by Hanna Rosin, "American Murder Mystery" (not yet online), explains why.

You can probably guess the reason. Yet, needless to say, The Experts never saw it coming. Rosin writes:

"Lately, though, a new and unexpected pattern has emerged, taking criminologists by surprise."

Her article resolves a long public debate over the causes of crime between, on one side, the academic establishment, the Main Stream Media, libertarians, moderates, and liberals—in other words, basically, all respectable members of polite society—versus the limited number of realists who will say out loud that they believe their own lying eyes.

The winners: us realists.

One of the most popular excuses on the center-right for the high black homicide rate (seven times the white rate, according to the federal Bureau of Justice Statistics) is that it’s really the fault of the government for putting up housing projects in inner cities back in the post-WWII era.

Everybody now agrees now that piling up poor people in soulless modernist architecture was bad social engineering. Accordingly, ever since Bill Clinton signed in 1998 the $6.3 billion "Housing Opportunities for People Everywhere VI" (HOPE VI) bill, federal policy has been to fix all that through good social engineering.

Namely: Knock down the projects and give their residents Section 8 rent subsidy vouchers so that they will disperse into the suburbs. There they will, of course, through "the great, slow, mysterious absorptive alchemy of assimilation," turn middle class, just like their suburan neighbors.

Just believe in the magic of the market, baby!

A few killjoys, though, have quietly suggested an alternative theory: while federal housing projects were a bad idea, their worst problem was neither their architecture nor their policies, but their residents.

After all, the Los Angeles area never had high-rise housing projects, and not even that many low-rise projects. Nonetheless, LA was home to the two most feared and emulated black gangs, the Bloods and the Crips. And LA was the site of two of the three most murderous race riots of the second half of the 20th Century. Indeed, in the Florence and Normandie neighborhood, where the 1992 South Central riot broke out, five out of every eight residences is owner-occupied, a higher-than-average rate for LA—typically a small but pleasant-enough single-family home.

Moreover, when I moved from LA to Chicago in 1982, I paid a lot to rent an apartment in a post-WWII Le Corbusier-style high-rise in a neighborhood that was physically similar to Chicago's Cabrini-Green housing project. (Cabrini-Green was the most notorious project in the country because it squatted on potentially invaluable real estate just a 20-minute walk from the Loop). Yet, despite the equally soulless modernist architecture of my 24-story building, remarkably few of my fellow tenants shot each other.

One summer day in 1983, I noticed on the map that Clybourn Avenue, running diagonally through Cabrini-Green, provided a shortcut to my job downtown. Why hadn't any Chicago native, I wondered, bothered to tell me to zip down Clybourn to work?

Unfortunately, when I reached Cabrini-Green, my short cut turned out to be impassable, due to a crowd milling about in the street watching an automobile burn. ...

Rosin should be congratulated for taking 12 pages in the Atlantic Monthly to demonstrate that the fundamental problem with public housing projects was that they were full of public housing project residents. And, when the government finally blows up a housing project, the ex-residents just take their felonious folkways elsewhere.

[More]

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

Can you make money by saber-rattling in the Persian Gulf?

Some analysts are arguing that Friday's $10.75 rise in oil prices was caused by Israeli saber-rattling against Iran. For example, The Hindu of India stated:

The Israeli Transport Minister’s threat that a military attack on Iran could become inevitable has pushed oil prices to record levels.

Oil prices breached the $139 a barrel mark after Transport Minister Shaul Mofaz said on Friday an attack on Iran was “unavoidable” as sanctions had failed to prevent Tehran from developing its nuclear capability.

Leaving aside the question of whether that's an accurate explanation of Friday's events, I'm wondering about the more general theoretical question. Could a government or a politician make money in the financial markets by threatening war in the Gulf?

If you knew that, say, a deputy prime minister of a regional power would make militarily threatening statements on Friday, but then lower the heat later, could you make a near guaranteed profit on oil futures? If so, how much could you make? How often could you get away with it before enough people would figure it out that you couldn't do it anymore?

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

Cuba's Cartoon Economy

Since Cuba barely exports anything, its currency's exchange rate is practically below zero. The Miami Herald reports:

CARDENAS, Cuba -- Loraicys is 27 years old, has never worked, and refuses to take just any job. She is not alone. As Raúl Castro embarks on an ambitious plan to kick-start the communist nation's economy, he faces daunting challenges: Many Cubans simply do not work.

Decades of measly salaries and vast government subsidies have kept many young people off the labor rolls because it's more lucrative to hustle on the street. Others live comfortably enough off remittances from Miami and elsewhere.

Loraicys passes on neighborhood janitor positions in hopes of higher-paying work at nearby resort hotels, where she also would have a chance of earning tips in dollars.

''I am not going to tell you something different: there are jobs here in Cárdenas where I live. Doing what? Cleaning hospitals for 150 pesos ($7) a month,'' said Loraicys, a single mom. ``For 150 pesos, I would rather stay home with my kid. I am willing to work really hard, but not for nothing in return.''

While Cuba struggles to increase productivity, it must also find a way to entice hundreds of thousands of people to get a job. The dilemma is one of the profound systemic difficulties Castro faces as he tries to create a so-called modern socialist economy.

The government says there are plenty of jobs -- just low-paying ones Cubans won't take. Even educated professionals would rather work in the tourist industry as waiters or taxi drivers, which earn far more money than state jobs that usually offer about $10 a month.

Ten dollars a month? That's what the pay would be for a job that Porky Pig applies for in a 1941 Warner Bros. cartoon.

Cubans in Miami probably put all their pennies in a big jar and every January ship it to Havana for their relatives to live off for the whole year.

Cuba has 2000 miles of coastline, and there's nothing golfers like more than playing alongside the ocean, but only one golf course has been built in the country since the Revolution. The smaller, formerly more-backward Dominican Republic has 22 golf courses, and its famous ocean-front Teeth of the Dog course charges outside players $225 per round, which is twice what a Cuban makes in a year.

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

Russian capitalists -- Doing their best to make Trotsky look prescient

From Bloomberg News:

It was the 26 toilets that triggered alarm among residents of Greenwich, Connecticut. "Who needs that many toilets?'' asked Charles Lee, who lives across the street from where Russian millionaire Valery Kogan proposes building a 54,000-square-foot (5,000-square- meter) mansion with that much plumbing.

Kogan, chairman of East Line Group, which operates Moscow's Domodedovo International Airport, plans to raze the 20,000- square-foot home on the site, which he bought in 2005. Kogan and his wife, Olga, seek to erect a house with two wings and extensive subterranean space, including room to park 12 cars.

``It looks like they want to duplicate the Winter Palace here in Greenwich,'' said Leslie McElwreath, 45, who lives one street over. ``It'll be an eyesore.''

McElwreath, Lee and other opponents are urging the Greenwich Zoning and Planning Commission to deny a permit when it votes this evening on what would be the largest single-family home built since the town began reviewing plans in 2001. A hundred and seventy-five people signed a petition against the project.

Greenwich, 27 miles (43 kilometers) north of New York, is the hedge-fund capital of the U.S. More than 60 funds occupy 80 percent of its commercial property, according to real-estate broker CB Richard Ellis. The Greenwich Association of Realtors puts the average price of a home in the town of 65,000 at $2.8 million.

Here in Los Angeles, the Executive Director of the city's Los Angeles World Airports department, which manages both the vast LAX and the lesser Ontario airports, makes $305,000 annually. I don't think she can afford to build a 54,000 square foot house in a foreign country. And yet, LA's airports somehow continue to operate without the boss being paid enough to build a palace. If only we had privatized LAX, then the owner of the company that would run LAX could be building colossal homes around the world to flee to when angry Angelenos finally come after him with pitchforks and torches.

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

WSJ's Jenkins: Knock down surplus new homes

The Wall Street Journal's Holman Jenkins argues that:

"Knocking down surplus homes would be the most efficient and equitable way to spend taxpayer dollars. It can proceed experimentally. It can be turned off quickly when the need evaporates. It would not be a lesson to Americans that housing debt is not real debt and need not be repaid. It wouldn't benefit the most irresponsible lenders and borrowers at the expense of responsible ones. The housing market would still have to hit bottom, but the bottom would be higher (and sooner).

"Have no illusions about the alternative being fashioned in Congress. Behind the fig leaves that will be frantically waving, a lending bailout would be effective in stemming foreclosures and propping up home prices only if taxpayer money were used to put speculators' housing bets back "in the money.""

He may be right. But, after the government pays to knock down all those surplus homes built with illegal immigrant labor, shouldn't the Wall Street Journal be ordered to publicly burn all its old editorials about how crucial illegal immigrant labor was to the economy?

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

The wit and wisdom of Ralph Nader's dad

I don't know how authentic this quote is, but it seems apropos:

"Capitalism will never fail because Socialism will always bail it out"

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

Dept. of "Don't Go There"

While thinking about how we could improve the state of the American economy, the thought just popped into my head: "We've got the world's best military. What can we steal with it?"

Jesus ... I've been up too long.

Fortunately, the answer to that question is: "Nothing worth the trouble."

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

Why Thatcher won

The old British Labour Party suffered a fundamental conflict of interest as a governing party:

- As the Government, it was supposed to run the nationalized industries in the interest of the nation;

- But as the Parliamentary representative of the labour unions, including the huge unions at the bloated and money-losing nationalized industries, it was supposed to help unions extort as much in wages and goldbricking as possible from management (i.e., the Labour Government) and shareholders (i.e., theoretically, the British people).

The result was economic chaos: inflation, strikes, blackouts, garbage heaped up in the streets, bodies left unburied, etc.

By privatizing many nationalized industries and by taming union power in the battle with Stalinist union boss Arthur Scargill's coal miners in the mid 1980s, Thatcher made possible Tony Blair's New Labour Party that, freed from this fatal contradiction, has done so well for itself with the voters.

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