Academic

Bailout Passes: The New Color of Financial Failure

By Emma Coleman Jordan

On Friday, October 3, the House of Representatives changed its mind and voted to pass the modified bailout plan, 263 to 171, with 91 Republicans joining 172 Democrats in favor. I discuss the economic and financial regulatory consequences of the bailout with Bill Moyers, on Friday, just hours after the vote.  Today, I focused on the racial blame narrative taking shape in the bailout debate on TheRoot.com

Now that the intensely unpopular $850 Billion  ( $700 + $150 in earmarks for wooden arrows, rum, movies, alternative energy, and alternative minimum tax repeal) Financial Bailout has passed, a target beyond Wall Street has been identified.   The Community Reinvestment Act and Fannie Mae and Freddie Mac have become the focus of cable talking points seeking to deflect the popular rage, now aimed at Wall Street CEOs.  I look first at the Community Reinvestment Act claim below.

The offensive new vogue in cable talking points asserts that the entire financial crisis was caused by the government forcing banks to make loans to poor people especially poor minorities. These cable-talkers claim that the entire weight of the global financial collapse rests on the shoulders of unqualified poor, minority borrowers who got loans as a form of economic affirmative action.  The evil institutions in the talking points scenario are the formerly quasi-government secondary home mortgage-lending creatures Fannie Mae and Freddie Mac.

For several days, I had been hearing a diluted version of these talking points around the edges of various cable news shout-fests.  It wasn?t until Larry Kudlow, cable host, former Reagan administration official and former Bear Stearns principal appeared on Morning Joe, on MSNBC that I was smacked into full alertness.  My jaw dropped as he began talking about the subprime mortgage crisis.  In just 4 minutes and 22 seconds, Kudlow claimed that Congress forced banks to make low income loans with no documentation of ability to repay, the “liberal guilt-driven consciences” of lenders led them to comply with government coercion to make bad loans, ?not everybody can own a home, some people have to rent, that?s just the way it is?, Countrywide, the notorious subprime lender was ?forced to make loans to neighborhoods that used to be quote redlined.?

The co-hosts rejected this nonsense, arguing that most of the loans were made to rich and middle class people who were buying second and third homes, in warm climates, for which they did not qualify. They escorted Kudlow from the set, not completely in jest. As Kudlow was escorted off, Joe Scarborough could be heard saying incredulously ?watch the Kudlow Show where you will probably hear that poor people are responsible for the assassination of President Kennedy.?

The cable talking points have now morphed into an orchestrated campaign of ?homemade? videos by white males glaring into the camera, while their eyes dart back and forth to a script off-camera. This band of outraged Joe Six-packs uses the example of a beneficiary of an Extreme Makeover new home, who used the home as collateral for a loan for a small business that failed.  The house went into foreclosure and was sold at auction.  This is a sad story that has absolutely nothing to do with the subprime loan crisis.  The story does however introduce the trope of the irresponsible welfare queen who was given a house, but who was so stupid and unthankful as to lose it all in an entrepreneurial misadventure. The argument then descends into standard racial farce.

One Mr. Six pack shouts that the entire financial crisis was caused by a Congress ?hell bent on affirmative action, using mob style extortion tactics to threaten? banks into making bad loans to ?predatory borrowers?, without documentation. This is a lie and a milder euphemism for lying would not be effective. Willie Horton, convicted murder, raped a Maryland woman and stabbed her boyfriend while he was out on a weekend furlough from the State of Massachusetts, where Michael Dukakis was then governor.  In 1988, during the winning presidential campaign of George H.W. Bush, Lee Atwater, the predecessor to Carl Rove, announced, ?by the time this election is over, Willie Horton will be a household name”.  The ad became infamous because it never mentioned Horton?s race.  It just featured a picture of Horton?s close up prison mug shot looking fearsome and war-like with uncombed, nappy hair, a beard and an ice-cold stare.

The infusion of inflammatory racial stereotypes into a sensitive national debate manipulates our attitudes about race, the ultimate wedge issue, for political advantage.  We have made remarkable progress today from the long history of racial violence, segregation and exclusion. When Republican strategist, the late, Lee Atwater chose to take Willie Horton and make him a household name, he affixed a black face to the national problem of crime.  This Machiavellian manipulation distorted the fact that 16 whites and only 2 blacks had been furloughed under the program.

In the case of the financial crisis, the campaign to racialize a global financial meltdown operates in a fact-free zone.  A national study of the performance of Community Reinvestment Act (CRA) covered banks  concludes, ?CRA Banks were substantially less likely than other lenders to make the kinds of risky home purchase loans that helped fuel the foreclosure crisis. CRA Banks were significantly less likely than other lenders to make a high cost loan.  The average APR on high cost loans originated by CRA Banks was appreciably lower than the average APR on high cost loans originated by other lenders;  CRA Banks were more than twice as likely as other lenders to retain originated loans in their portfolio.

The problem of subprime lending was a problem of independent, unregulated brokers who pushed inappropriate loans to poor borrowers, and to the large volume of American middle class and wealthy consumers who could not qualify for their second or third vacation home and who took ?liars loans? from brokers, not covered by CRA. These loans were then sliced and diced into mortgage-backed securities by Wall Street investment houses that then sold them to the financial institutions of the world, using highly leveraged 30-1 ratios to finance the acquisition of the loans originated by brokers, who were not regulated by anyone, and who took their generous commissions and ran.  The brokers were not accountable for fraud, misrepresentation or other coercive tactics.  Thus, a system of non-accountability flourished outside of the regulated financial system, in what Floyd Norris, Chief Financial Editor of the NYT calls the ?shadow banking system.?  This crisis arose from a perfect storm of the loose money era of rate cuts by then- Fed Chairman Alan Greenspan, a burgeoning unregulated financial sector, international financial integration and complex and new financial instruments that older CEOs did not really understand and had no incentive to reign in because they brought huge profits, and golden parachutes when things collapsed.

Racializing a complex global financial panic is an unforgivably incendiary tactic that has special significance because Barack Obama is the first black nominee for President of the United States, of any national party.  This campaign, unlike Michael Dukakis? campaign in 1988, is more vulnerable to crude racial manipulation.  We have witnessed the claims that he is a Muslim, an unpatriotic, American-hating radical, with a wild-eyed wife, and a raving black pastor. The Lee Atwater Alumni Club does not remember that Lee Atwater, of Willie Horton infamy, recanted these tactics and apologized to Dukakis before Atwater died.  He died of brain cancer less than 2 years after the bare-knuckled tactics that live on in the sub-slime tactics being used now to inject race into a global financial panic.

The American democratic project faces a severe test with the convergence of the worst financial crisis in more than 70 years and a close presidential election. This election year gives the rest of us an opportunity to push these base, racial polarization tactics back into the racial Stone Age where they belong.  ENOUGH!

ShareThis

Full post as published by BlackProf on October 07, 2008 (boomark / email).