June 29, 2009

UPDATED: Mr. Ritholtz has a question

In this afternoon's comments on my morning post offering to debate him on whether or not "Diversity was a major factor in the mortgage meltdown," investment adviser, blogger (The Big Picture), and author of Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy Barry Ritholtz asks:
Ritholtz said...

How about some evidence, hard data, facts?

Or are you more comfortable with nudges, hunches and squishy junk.

Show me some hard evidence!

Mr. Ritholtz apparently hasn't been paying attention here, but I also fear I've overloaded my regular readers so much on the topic of diversity and mortgages over the last couple of years that many would rather hear that I'm about to start a new 9-part series on track & field statistics (my all-time least popular obsession) than hear the same old same old about diversity and the mortgage meltdown.

So, I'll just link to a few highlights in chronological order. The data piles up as we get closer to the present, but it's helpful to understand how my thinking evolved from the point when I had no idea what I was talking about regarding mortgages.

Let's begin with my first blog post on the subject on August 12, 2007, a couple of weeks into the subprime collapse, where you can see my hesitancy to get involved in a topic where I didn't know anything, but I did remember a few things that almost everybody else seemed to have forgotten:
A trillion here, a trillion there, pretty soon we're talking about real money
I'm sure the private financial markets were quite capable of blowing up a big bubble by themselves in the eternal see-saw struggle between greed and fear, but this political pressure for lending to minorities with doubtful credit must have exacerbated the problem. About half of all mortgages for blacks and Hispanics are subprime, versus about one-sixth for whites.

A reader has sent me some links to articles from 5 to 9 years ago to show me I'm not hallucinating about what I remember. The first are from early in this decade about Fannie Mae's big plans for boosting mortgages for minorities. Now, I don't pretend to understand what Fannie Mae is (but does anybody?). It's some kind of quasi-governmental publicly-traded for-profit thinga-ma-bob, but Fannie Mae's past pronouncements do make interesting reading at present.

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...

Next, there's my June 22, 2008 Taki's Magazine article, The Diversity Recession, where I finally began to pull my thoughts together into a semblance of a thesis about just how manifold was the involvement of diversity on the mortgage meltdown:

The Diversity Recession

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

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

The chickens have finally come home to roost...

In VDARE.com on September 28, 2008, I explained how one central element in the housing bubble, President Bush's message to federal regulators to loosen up on zero down mortgages and liar loans in the name of increasing minority homeownership by 5.5 million households at his October 15, 2002 White House Conference on Minority Homeownership, was tied to the Karl Rove's grand strategy of wooing Hispanic voters to the GOP:
... some of the conservative talking heads tended to put forward na├»ve, self-serving, or unpersuasive versions of this theory—such as that the banking crash wasn't the fault of greed in the financial industry, it was the result of the Democrats in Congress passing the anti-redlining Community Reinvestment Act in 1977.

The reality is that blame is very widely shared: among Democrats and Republicans, businesspeople and politicians, Congress and the Executive Branch, borrowers and lenders, and whites, blacks and Hispanics.

There's one man, however, who has so far escaped any blame. Few have realized something that turns out to have been staring us in the face all along: that the mortgage mess was, in sizable measure, an outgrowth of the primary political goal of the Bush Administration.

That man's name is Karl Rove.

And the primary political goal of President George W. Bush's political strategist: to bring Hispanics into the Republican Party.

As you'll recall, Rove's best-known tactic to appeal to Latino voters was repeatedly pushing "comprehensive immigration reform" (i.e., an amnesty for illegal immigrants).Rove, though, had other arrows in his quiver. One was a plan to turn Hispanics into Republicans by providing them with loose credit so they could become homeowners...

Then, "Tino" introduced me to the key source for numbers, the Federal Home Mortgage Disclosure Act database. The federal government carefully tracks how much minorities are getting in mortgage dollars (but not, of course, whether they are paying them back). I blogged on October 10, 2008:
Tino has added up all the subprime mortgage dollars for the entire disastrous 2004-2007 period. Among borrowers whose ethnicity is unambiguous, he comes up with $900 billion subprime dollars going to non-Hispanic whites, $887 billion to minorities. So, that's 50% of subprime dollars during the worst years of the Bubble went to minorities.

Someday, we'll get a count of defaulted dollars by race.

On January 21, 2009, I posted a graph I had made up from data of a Boston Fed study of every subprime default in Massachusetts showing that Non-Asian Minority subprime default rates average about twice the white rate over the years.

So, in Massachusetts, the Non-Asian Minority foreclosure rate on subprime mortgages was about twice the white rate. That didn't change too much over the years, but the proportion of mortgages that were subprime and the proportion of mortgage dollars going to minorities changed radically in the Bush years, contributing sizably to the disastrous mortgage meltdown that began in 2007 and triggered the more general crash of 2008.

If that two to one minority to white foreclosure ratio seen in Massachusetts holds true nationally, where minorities took out half the subprime dollars, then minorities would account for two-thirds of all defaulted subprime dollars.

However, Asians probably have a lower default rate. On the other hand, they largely stayed away from subprime mortgages, so it's not a big issue. So, it's likely that minorities accounted for at least 60% of the subprime dollars defaulted.

In VDARE.com on February 1, 2009, I finally got around to focusing on the Community Reinvestment Act, using Washington Mutual, which had pledged $375 billion in CRA lending as a case study of how the CRA subtly changed the culture of the lending business.

Two weeks later, I graphed data from the National Community Reinvestment Coalition showing over $4 trillion in CRA pledges by covered institions between 1996 and 2005, with $1.6 trillion pledged in 2004 alone.

On May 17, 2009 in VDARE.com, I focused on HMDA data on lending in California, where a great majority of defaulted dollars are found. I found that according to federal data, minorities got 77% of subprime dollars loaned out for home purchases in California in 2006, the worst year for subsequent defaults. Within California's 20 biggest metropolitan areas, there was a 0.89 correlation between minority share of subprime dollars in 2006 and default rates in Q1-2009.

And in VDARE.com on June 22, 2009, I profiled the largest lender not officially covered by the CRA -- Angelo Mozilo of Countrywide. And showed that Countrywide had been told by the Clinton Administration that they would be brought under the CRA if they didn't act like they were under the CRA. But, Mozilo quickly became a true believer, which accounts for Countrywide's $1 trillion dollar CRA-style pledge in early 2005.

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


Anonymous said...

OT, but Ross Douthat is stealing ideas from Charles Murray and you again without giving either of you two credit (I think ole' Ronnie Raygun had something to say about situations like this):

The Way We Love Now

When it comes to divorce rates and out-of-wedlock births, Americans with graduate degrees are still living in the 1950s. It’s the rest of the country that marries impulsively, divorces frequently, and bears a rising percentage of its children outside marriage. Indeed, if you’re looking for modern-day Percy Shelleys or Mary Wollstonecrafts (to pluck a pair of Nehring’s romantic risk-takers), you’re more likely to find them in Middle America than among the environmental lawyers and documentary filmmakers who populate Tsing Loh’s depressing social world.

Better, perhaps, if this dynamic were reversed. Our meritocrats could stand to leaven their careerism with a little more romantic excess. (Though such excess is more appropriate in the young, it should be emphasized, than in middle-aged essayists and parents.) But most Americans, particularly those of modest means, would benefit from greater caution and stability in their romantic entanglements.

Anonymous said...

Youve offered a great deal of evidence Mr. Sailer, and he no doubt knows it. Debate on "sensitive" issues is so unpleasant because so few are willing to be the bad guy and mention the unmentionable elephants in the room, and if you do, they act as if you hadn't and go on the way they were anyway.

The "truth" these days is just a lie that enough of the right people agree on

Anonymous said...

Haven't read much of this actual post yet - just wanted to say I like the track and field stuff!

Anonymous said...

Steve -- you should also mention that even though we don't have mortgage default rate breakouts by race (which points to a colossal and intentional failure by our media corps), we DO have student loan default rates by race...which occur in the same pattern you'd expect. One of your old posts or comments has something on this.

Anonymous said...

Barry is going to be unconvinced. The problem here is there is no proving that "those loans" (CRA-coerced and/or influenced) were the EXACT same ones that defaulted.
It's like AA - you can't prove anyone lost a job to a lesser qualified candidate, but we all know it happens, because that's the only point of AA. That's how these programs keep from being openly controversial, they work obliquely, and keep no victims lists for the world to see.


Anonymous said...

What I really dislike about Ross Douthat is that he knows he's lying. He's even softer than Brooks. He's the safe house conservative who defends Obama and bashes Republicans just like the rest of the media -- why else bring up Sanford and Ensign when you can talk about ANYTHING in the world?

He admitted at one point on his blog that he shades all his stuff to the left as that's the only way he can climb the ladder. Makes me gag. It's one thing to know where the line is, and to constantly skirt it -- Tierney and Buchanan do this in very different ways, and have advanced pretty far. It's another to lick the very pavement on which the NYT writes the line, and help to uphold it.

4chan is the future of conservatism said...

MOAR track and field NAO!!!

Kidding. Ritholtz is playing checkers, Sailer is playing beer pong with naked co-eds, it's not even close.

Anonymous said...

Ritholtz reminds me of the guys who on the one hand make universities hide the racial breakdowns by SAT (Grutter had to sue to see them)...yet on the other hand scream at the top of their lungs for the evidence that AA means reduced standards.

Data on ethnic aspects of the mortgage crisis (among both lender and lendee) is not just hard to find, it is actively suppressed! Anyone who looks at such things is called "obsessed". And then they have the gall and turn around and ask for data!

This is such a common pattern that I bet the ex-Soviet bloc has a name for it. Hide the data, spout conventional wisdom, and then accuse you of ignorance. It worked very well before the internet. But now there are a few people like Sailer who are smarter than the purveyors of conditional wisdom, and are capable of marshalling facts and digging through public databases on their own.

Think about it -- Steve has on his lonesome outreported stacks of NYT reporters. Sure, they were suppressing the story. But still.

Anonymous said...

Wild prediction - he won't be convinced.

Anonymous said...

Who are these people who don't want to see track and field statistics and how they relate to human biodiversity? Steve, I've always found such posts fascinating.

FuturePundit said...

Propose types of evidence.

Ask if he seriously expects banks to admit that CRA caused them to lower their lending standards.

Ask if he thinks evidence of equal default rates between races is evidence of lack of discrimination. If so, if CRA increased NAM lending starting from a point of equal default rates how could CRA not be a cause of the debacle?

To put it another way: Does he admit that CRA caused increased NAM lending? Gotta see if he admits this.

Jason said...

So you're saying $4 trillion dollars worth of easy credit might have had something to do with distortions in the market?

Sounds pretty far-fetched to me. Possibly even racist.

FuturePundit said...

Since the Boston Fed found almost identical default rates between whites and NAMs back in the early 1990s that's very strong evidence that before CRA there was no discrimination against black mortgage applicants. Since blacks now sport much higher default rates (as do Hispanics) something caused financial institutions to lower standards for NAMs more than for whites. Mr. Ritholtz should provide some convincing evidence that that something wasn't financial regulators.

Anonymous said...

i think the fact that banks made $1.6 trillion in CRA pledges in 2004 would be enough to win the case. what's the point of discussing it?

a $10,000 debate decided by a "jury of experts" seems like a lame proposition. opinions, feelings...bullshit.

judging is for sissies, like ice skating, diving and gymnastics. you can't argue with the market; you shouldn't be able to argue with the decision on a $10,000 bet either.

of course, ritholtz is all about histrionics and self-righteousness, which might play well in a jury trial.

diffbox said...

Think about it -- Steve has on his lonesome outreported stacks of NYT reporters. Sure, they were suppressing the story. But still.

Even if they genuinely tried they couldn't come up with the quality of Steve's reporting. That's the scary part. The NYT in its self-righteous, arrogant manner thinks that having had all that money and prestige - which were built up before the internet and thus very much based on deliberately telling lies - automatically translates into quality journalism. I doubt any of their staff can openly compete with Steve. But that should not be so, so the NYT (ST) will make sure that people like Steve are silenced.

Peter Lehmann said...

Here is some topically relevant coverage of Japanese housing.

"Anaemic exports, a struggling domestic economy and a dramatic plunge in summer bonuses could cause Japan’s version of the sub-prime mortgage crisis to explode, a leading think-tank has warned. A housing loan default problem is looming and likely to begin in the next few weeks. It amounts to the detonation of a ten-year time bomb that, researchers at the Tokyo Foundation say, started ticking around 1999 in the immediate aftermath of the Asian financial meltdown. This is the result of flawed government policy, whereby the state housing loan agency offered mortgages to families that they knew were unable to pay.

The impending meltdown, which the Tokyo Foundation believes could affect some hundreds of thousands of households, will be focused initially on the country’s industrial heartlands, where corporate bankruptcy rates are rising. The residential zones around Toyota’s home territory of Nagoya could become ghost towns, Kazuo Ishikawa, the think-tank’s senior research fellow, said.

The alarming prediction comes amid clear signs of upheaval in the micro economies of Japanese households. With Toyota, Panasonic and other groups expected to finish the current financial year in the red, the system of company bonuses has been shaken. The Japan Business Federation calculates that June bonuses will suffer an almost 20 per cent cut across the board, and a dip from which there appears little immediate prospect of recovery. Because those twice-yearly bonuses amount, on average, to about a quarter of the annual salary package of mortgage-payers, the effect is likely to be severe. Mr Ishikawa said: “The next six months are going to see a sharp increase in housing refugees. People are first going to try to defer payments, but then they will default and be forced to abandon their homes and head somewhere cheaper.”

Admittedly this report talks about events about to happen rather than the recorded and documented past. Just assume, though, that the quoted predictions will come true - what's the "race-realist" interpretation going to be? That Japanese finance surely must be in the hands of admirably intelligent, yet evil Jews?

The paleo-conservative shtic is that economics must be about race rather than class, because everything is - no exception allowed. Ritholtz, on the other hand, is just a semi-liberal, semi-libertarian guy with some rigidly Kantian convictions about how to properly run the finance sector of an economy.Get over it and accommodate your sensory system to reality.

AMac said...

Ritholtz doesn't deserve near as much scorn as most of the Usual Suspects. Yeah, he's spouting the Conventional Wisdom on this point, but overall on his finance-focused blog, he tries to think and write like an actual intellectual (rather than as an apologist for Wall Street's failures).

One thing that's unfortunate is that Ritholtz and his commenters are essentially unaware of the only clear source of fact-based analysis on this subject. Which would be Sailer's writings. (By "this subject" I mean "the role of diversity-favoring mortgage-lending policies," not "the role of the 1977 CRA.")

As of 8am EDT on 6/30/09, the sole relevant comment at Ritholtz's original post was by "Engineer" (June 30th, 2009 at 3:34 am) (search for "Sailer".)

--- begin "Engineer's" comment ---

Steve Sailer has already completely dismantled your entire argument. It’s also quite clear he’s done far more research on this issue than you (or any other blogger).
[Ritholtz responds]: Then he should have no problem assembling some data to prove his case, n’est pas? Selective perceptive isn’t too expensive in politics, but its deadly in investing.

--- End "Engineer's" comment ---

Ritholtz has also posted a followup (Who is to Blame, 1-25, ending with "Note: I hope this will be my final CRA post for the foreseeable future . . ."). Interesting that some of his villians relate to Sailer's concept of "Predatory Securitization," though Ritholtz doesn't have Steve's gift for turning a phrase.

No appearance of "Sailer" in that post or its comments at this time.

Perhaps if one of iSteve's readers is registered at Ritholtz's "The Big Picture," they could submit a comment containing a hyperlink over there to this post. Barry seems like too much of a Big Man to change an already-set opinion, but some of his readers might benefit from exposure to the data.

Lucius Vorenus said...

ACORN Rent-A-Mob Thugs to Harass Lenders in 14 Cities Tuesday
By Matthew Vadum on 6.29.09 @ 11:05PM

ACORN, which played a starring role in creating the subprime mortgage crisis, plans to add insult to injury by harassing lenders across the nation with protests tomorrow in an effort to coerce them into supporting President Obama's Making Home Affordable foreclosure-avoidance program.

Austin King, director of ACORN Financial Justice, sent out a press release today advising of the demonstrations that are planned as part of its "Homewrecker 4" campaign. The four financial companies targeted are Goldman Sachs, HomEq Servicing, American Home Mortgage, and OneWest. Read the whole document here...

ACORN Home Defenders to Confront "Home Wrecker 4" in 14 Cities
Will Demand Participation in Obama's Foreclosure Prevention Program from Goldman Sachs' Litton, Barclay's HomEq, American Home Mortgage, and OneWest

ACORN Rent-A-Mob Thugs to Harass Lenders in 14 Cities Tuesday

Ritholtz said...

My bad -- I guess I am not clearly defining what I mean by "Data".

Allow me to present an example:

The Federal Reserve Board data shows that:

* More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions. These firms are not covered by the CRA

* Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

* Only one of the top 25 subprime lenders in 2006 was directly subject to the CRA.



amongst others

This is what I mean by data, from reputable sources, relating to the actual issue at hand.

My apologies for any prior confusion...

Evil Sandmich said...

This is one of the problems I have with Karl Denninger in that he really wants to avoid a discussion on this topic, maybe because the clean issues he focuses on get rather sticky in that context.

I thought you put a solid case forward that even if NAMs didn't bring down the economy on their own, that the loophole opened up by CRA which allowed every type of corruption to fly through did. Much like how you pointed out that the loophole of diversity based random hiring for the Chicago fire department allows for the hiring of white political criminals.

Pat Shuff said...

CRA and the Credit Crisis

So the CRA was a tactic by nonprofits looking to redistribute wealth to their constituents. Classic politics. But then the CRA was used to gather pledges for lending targets, and aid to non-profits, which were then used to pay the measly down payments needed, and then the bank lenders (like Golden West) and homebuilders would profit. They in turn, would give grants to nonprofits, and legislators encouraging these activities. The naked self-interest in this game, all under the pretext of helping the little guy, is pretty obvious.

The CRA was insignificant in the following sense. I'm sure that without the CRA, another vehicle for promoting a political patronage system, focused on race and masked as justice, would have been found. That home buyers, investors, rating agencies, academics, legislators (Rep and Dem), and regulators, all agreed that this initiative was a good idea highlights how the real common factor was the idea that pure, inefficient discrimination was prevalent. That's the only way you can change an equilibrium level of homeownership without causing a mess.


Anonymous said...

Ritholtz knows where his bread is buttered. He'll simply lie, deny, accuse, distort and refuse to engage. Soon this mendacious blowhard will hurl the Ultimate Answer: "Racist!"

"Races Are Equal" and the extension of "Humanoids Are Equal" is the foundation of the current regime. Its ahderents cannot tolerate anything that contradicts that and maintain their power. Just like Communism and Marxist dogma previously, of which they're an outgrowth.

The contradictions between Theory (humanoids are equal) and Results (humanoids are not equal) are leading to systemic collapse, just as they did in the USSR. But from the regimeists' viewpoint, better to brazen it out to the end rather than surrender.

Bill said...

I'm about to start a new 9-part series on track & field statistics (my all-time least popular obsession) than hear the same old same old about diversity and the mortgage meltdown.

Your track and field articles are some of my favorites. I had no idea they were not popular here (nor does that make any sense to me).

Steve Sailer said...

Dear Barry:

We're discussing whether or not "Diversity was a major contributor to the mortgage meltdown." I realize you wish to confine the discussion to the narrowest possible technical question of legal coverage of the Community Reinvestment Act, but you should also realize from doing your reading of my articles (you have read them by now, haven't you?), that I'm well aware of that and have emphasized that the CRA was only one component in a much vaster web.

As for the statistics you cite, you should realize that the nonbank mortgage lenders, such as Countrywide, were told in no uncertain terms by the Clinton Administration that either they could start behaving like they were covered by the CRA or the CRA would be extended to them. Thus, Countrywide made pledges identical in form the pledges to loan more to minority and low income borrowers made by CRA-covered institutions up to Countrywide's collapse. To quote from one of your assigned readings:

The roots of Countrywide’s catastrophic trillion dollar [in January 2005] pledge go back to the early years of the Clinton Administration. As Steve Malanga explained in the Spring 2009 City Journal:

"Pressuring nonbank lenders to make more loans to poor minorities didn’t stop … If it didn’t happen, Clinton officials warned, they’d seek to extend [Community Reinvestment Act] regulations to all mortgage makers. … To rebuff the criticism, the Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown." [Obsessive Housing Disorder]

Interestingly, the Secretary of Housing and Urban Development who signed that 1994 deal with Countrywide was Henry Cisneros, who later served on Countrywide’s Board of Directors from 2001 to 2007, the Bubble Years. Cisneros made over $6 million from Countrywide fees and stock options.

In his 2005 “$1 Trillion We House America Challenge” press release, Mozilo announced:

"We have also called upon one of our esteemed directors, the Honorable Henry Cisneros … Henry will put to use his long and respected experience as an advocate for affordable housing who understands the benefits to communities of homeownership."

Cisneros chimed in:

"Countrywide's $1 trillion commitment is very tangible proof of this company's commitment to fair, affordable and responsible lending. This company is leading the industry in closing the homeownership gap …"

An October 18, 2008 New York Times article about Cisneros by David Streitfeld and Gretchen Morgenson, Building Flawed American Dreams, recounts:

"But until recently getting a mortgage was a challenge for low-income families. Many of these families were minorities, which naturally made the subject of special interest to Mr. Cisneros, who, in 1993, became the first Hispanic head of the Department of Housing and Urban Development. He had President Clinton’s ear, an easy charisma and a determination to increase a homeownership rate that had been stagnant for nearly three decades. Thus was born the National Homeownership Strategy, which promoted ownership as patriotic and an easy win for all."

Cisneros rationalized to the NYT:

"It was, he argues, impossible to know in the beginning that the federal push to increase homeownership would end so badly. Once the housing boom got going, he suggests, laws and regulations barely had a chance. 'You think you have a finely tuned instrument that you can use to say: 'Stop! We’re at 69 percent homeownership. We should not go further. There are people who should remain renters,' he says. 'But you really are just given a sledgehammer and an ax.' "

Mozilo was hardly a victim of the politicians, however. They were co-conspirators.

So, you are drawing a technical distinction without a difference.

Anonymous said...

"Admittedly this report talks about events about to happen rather than the recorded and documented past. Just assume, though, that the quoted predictions will come true - what's the "race-realist" interpretation going to be? That Japanese finance surely must be in the hands of admirably intelligent, yet evil Jews?"

How about something simple like failing to fully populate the next generation. Demographics of decline.

Anonymous said...

"But most Americans, particularly those of modest means, would benefit from greater caution and stability in their romantic entanglements."

What about women's lib?
Don't you know that kind of advice is oppression?
Marriage is oppression for women!
Paternalistic pig!!!!!

CaptiousNut said...

Barry's going to come back, right?

I'll check this thread every day!

I like how Barry's stock response to everyone is *Where's your data?*.

Then he takes an irrelevant number (84%), from a single, blowout peak year (2006) in purported *private lending*, from an institution (Fed) that's not only politicized, it's run by complete criminals and morons.

I'm left wondering *Where's his logic?*

The ultimate and tragic irony is that he thinks he's calling out bigots when in fact he's providing cover and carrying water for the real race-baiters. He's abetting the people and misbegotten ideas that caused this in the first place.

CaptiousNut said...

To my point that Fed (and FDIC), Barry's gold mine for relevant *data*, is full of morons:

In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.

"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."

In a book on the sub-prime lending collapse published in June 2007, the late Federal Reserve Governor Ed Gramlich wrote that only one-third of all CRA loans had interest rates high enough to be considered sub-prime and that to the pleasant surprise of commercial banks there were low default rates. Banks that participated in CRA lending had found, he wrote, "that this new lending is good business."


There you have it. Fed apparatchiks saying that CRA fomented a *responsible*, *good business*!

Asking the State to assess itself honestly is not only an exercise in futility, it's a demonstration of ignorance.

Next up I want to see University studies on the question of whether or not college is overpriced!

Ritholtz said...

I think we are approaching this from two entirely different universes.

I am looking for cause and effect; I want to see data that supports or detracts from the proposition at hand. PROVE TO ME that X caused Y (including actual statistics).

Your proposal of Diversity causing the housing crash reads to me as a soft philosophical argument that is by definition unprovable -- and undisprovable.

At the very least, I see no proof in your writings. They are cogent arguments that leap from A to B to C -- but they lack the rigorous statistical evidence to demonstrate something convincingly to people who insist on hard data.

In my belief system, I use as few assumptions as possible. I try to avoid things that are unquantifiable. Statistical back testing is just on way to do that.

But even softer analyses such as war-gaming and alternative scenarios have to have some reasonable basis for proceeding. It cant be all assumptions, beliefs guesses and hunches.

Steve Sailer said...

"They are cogent arguments ..."


Anonymous said...

they lack the rigorous statistical evidence to demonstrate something convincingly to people who insist on hard data.

Barry. I have read your blog for quite some time and I respect your writing generally. Is there rigorous statistical evidence for your rank ordering of 25 causes? No. It is based on your reading and synthesis of the evidence. Which is fine.

But with all due respect, I've seen a lot more relevant numbers from Steve than I have from you in this particular thread. These include:

* [From HMDA data]: $900 billion subprime dollars going to non-Hispanic whites, $887 billion to minorities. So, that's 50% of subprime dollars during the worst years of the Bubble went to minorities [from HMDA]. Someday, we'll get a [national] count of defaulted dollars by race.

* in Massachusetts, the Non-Asian Minority foreclosure rate on subprime mortgages was about twice the white rate...if that two to one minority to white foreclosure ratio seen in Massachusetts holds true nationally, where minorities took out half the subprime dollars, then minorities would account for two-thirds of all defaulted subprime dollars.

Those are the two most important numbers: 50% of loans and likely 2/3 of defaults went to minorities. That right there proves to me that "Diversity caused the Housing Crisis." It was probably the single most important factor among many other factors.

Here are some more important numbers:

* $1 trillion: dollars pledged by Countrywide to low income mortgages


* Washington Mutual, which had pledged $375 billion in CRA lending

* according to federal data, minorities got 77% of subprime dollars loaned out for home purchases in California in 2006

* Within California's 20 biggest metropolitan areas, there was a 0.89 correlation between minority share of subprime dollars in 2006 and default rates in Q1-2009.

AMac said...

Anonymous ("Barry. I have read your blog for quite some time...") --

That's an excellent compilation of some important data.

More-recent related iSteve post here. I posted a follow-up comment to yours on that thread; it's currently in the queue.

CaptiousNut said...

Barry Ritholtz deprecates counterarguments as *soft* and *philosophical*. He wants comers to statistically:

PROVE that X caused Y.

But what precisely are X and Y? And how exactly could one PROVE causation?

Here’s his own wording:

"Is the CRA significantly to blame for the credit crisis?

Let’s go term by term:

CRA = narrow, but treatable in debate.

significantly = vague and hardly mathematically defined.

blame = loaded, subjective term.

credit crisis = also amorphous and thoroughly subjective.

So Barry has the gall(or gap?) to stand before us and demand *actual statistics* to address his own fuzzier-than-a-Sicilian-backside question!!!

Mr. Ritholtz,

Economics is a SOCIAL SCIENCE. Macroeconomics is a JUNK SCIENCE. And political science is a misnomer!

(BTW, what exactly is the statistical, scientific basis of the term *wingnuttery* in your analyses? Mentally trapped in *binary*, huh? It must be a real intellectually superior universe that you hail from.)

It’s bad enough that you frame a subjective question and then rule out *cogent*, subjective responses...

But what kills me is you stickling for *causation* when you are a freakin’ quantitative trader. You so-called quants traffic in CORRELATIONS all day long and bet gobs of, well, other people’s money thereupon. So not only is your universe an unfit perspective for this debate – it’s unclear whether or not you understand your own livelihood.

Now, if Barry Ritholtz insists that the massive subsidization of our nation’s least creditworthy homebuyers had an insignificant effect on the overall housing market...

Then I guess Barry believes the subsidization of underperformers (via quotas and race-based financial aid) hasn’t significantly affected national academic standards or costs.

And I guess he believes that the subsidization of our most unhealthy (i.e. the aged via Medicare) hasn’t significantly affected healthcare in this country in terms of cost, efficiency, research direction, etc,...either.

Alright I was just kidding. I know he probably doesn’t have well-developed positions on those subjects - nor should he.

He really ought to limit himself to his wheelhouse – stockpicking; which he seems quite good at. Listening to him on wider socio-economic issues is like bearing a 22 year old Hollywood starlet on geopolitics.

The empirical fact is that the CORRELATION between Big Government and severe economic distortion remains the same as it's been throughout history - 100%.