Monte Kuligowski
Liberal policy didn't cause the mortgage crisis, racism did
By Monte Kuligowski
October 12, 2010

"Predatory lending aimed at racially segregated minority neighborhoods led to mass foreclosures that fueled the U.S. housing crisis, according to a new study published in the American Sociological Review." That's how the Reuters story of Oct. 4th, "Racial predatory loans fueled U.S. housing crisis: study," opens.

The "new study" is an academic article titled, "Racial Segregation and the American Foreclosure Crisis," which was written by a graduate student at Princeton and his professor.

Inasmuch as the "new study" further diverts from the real reasons for the foreclosure crisis, and advances racism as a cause, the piece is becoming a smashing success within the "mainstream" media. Not only was the banking industry greedy, but new evidence shows that its "predatory lending" policies were in fact racist as well.

During the primaries and race leading to the 2008 presidential election gas prices happened to skyrocket and shortly thereafter the giant housing bubble burst. It was like the breaking of a piņata, scattering candies everywhere for Candidate Obama. With a little help from the news media, the bubble's burst couldn't have happened at a better time.

Acting with lightning speed the Democrats and their media created the non sequitur narrative. It was Bush's fault! The free markets failed because the reckless cowboy refused to regulate the banking and financial industries.

Never mind that those were already highly regulated industries — and no one has yet revealed the regulations that Bush opposed that would have prevented the bursting of the artificial bubble.

Also pay no attention to the fact that the Democrats had controlled Congress since 2006 and had resisted repeated requests for tighter accounting of Freddie Mack and Fannie Mae. The likes of Barney Frank assured us that everything was hunky-dory with the government-backed lending system.

And, lastly, if we are to accept the narrative, we must forget about Jimmy Carter's Community Reinvestment Act, the instrument from which the government created the artificial bubble. The Act is little more than liberal feel-good, social engineering that levels the playing field for low income minorities. According to liberal thought (see the words of former HUD Secretary Andrew Cuomo) institutional racial discrimination was the reason banks were not approving enough loans for minorities.

The federal government therefore had to intervene. The Clinton administration revived and enforced the Act in the1990s with vengeance; and with a little help from groups like ACORN, minority loan approvals reached all time highs.

Application of the Act was done in the name of the right to "affordable housing." Affordable housing really meant that everyone has a right to get a mortgage on a home. At the threat of ACORN members getting crazy in bank lobbies and with the coercion of federal law, traditional qualifications for getting loan approvals (verifiable income levels, sufficient down payments, standard credit histories, etc.) were thrown out the window.

What the federal government forced upon the mortgage industry was like the screeching of fingernails on a chalkboard to the principles of the free market system. No businessman in his right mind would approve loans, in the name of social justice, for those who couldn't afford them. So ridiculous was the practice that the government had to create an entire system to back the devalued mortgages generated by liberal, economic justice policy.

Prior to the bubble's burst the bankers were the good guys so long as they were lending to people who really couldn't afford homes. The government's manipulation of the markets led to trading in worthless paper and derivative hedging by greedy Wall Street investors. But in the heyday of easy loans, easy money and rampant corruption at Freddie and Fannie, the Democrats were happy and content.

So long as home prices were going up and equity was accruing the artificial markets seemed almost real. The subprime loans seemed to work. It went on for many years. But after gas prices began hovering at $4.00 per gallon waves of mortgage defaults crashed throughout the country. Once the system collapsed a new set of facts was needed — and reality was quickly turned upside down.

Even though the mortgage industry was forced to make "risky loans" to meet government quotas the bankers became the bad guys. Risky loans were blamed on the free market system. Capitalism had failed.

The mortgage people were suddenly guilty of selling "predatory loans" to innocent minorities. Liberal Democrats had authored, implemented and maintained the irresponsible lending policies which led to the financial crisis. But after the burst, we saw the most culpable Democrats, Obama, Dodd and Frank, et al, blaming the Republicans and capitalism.

The best fiction novelist in the world couldn't make this stuff up. How the establishment left was able to turn the entire situation on its head is beyond belief (in the aftermath, we even witnessed a surreal Dodd-Frank reform bill). And now we have a "new study" to show that the practice of "predatory loans" was likely based on racial discrimination!

In the piece (the new study) the authors first note that the Fair Housing Act of 1968 didn't work out so well and minorities continue to "live under conditions of hyper segregation" in the big inner cities. Declines in the black population in communities in "New York, Chicago, Detroit, Atlanta, Houston, and Washington," have been "minimal or nonexistent."

I guess we're supposed to attribute the "segregation" problem to racial discrimination and not the government welfare policies that have crippled an entire segment of the black population.

From there the authors tell us that "a careful reading of recent scholarship on segregation and mortgage lending shows that racial discrimination occurred at each step in the complex chain of events leading from loan origination to foreclosure."

You see, "high levels of segregation create a natural market for subprime lending and cause riskier mortgages, and thus foreclosures, to accumulate disproportionately in racially segregated cities' minority neighborhoods."

Hmm. Why do you suppose "segregation" creates "a natural market for subprime lending?" A subprime mortgage happens to be a type of loan for people with poor credit histories. Think there's any connection between poor credit ratings and government dependency? Perish the thought.

Prior to the politicizing of the mortgage industry, people with poor credit histories were turned down for home loans. "Pay your bills, stay at your job, save your money and come back and see me in a few years," was the advice of the banker before ACORN and social justice came along. Subprime loans were an accommodation for people who shouldn't have gotten loans in the first place.

Perhaps the most disturbing part of the "new study" is the section in which the authors essentially call blacks in the inner cities stupid. We're supposed to believe that because "pawn shops, payday lenders, and check cashing services that charge high fees and usurious rates of interest," exist in "minority areas . . . minority group members are accustomed to exploitation and [are] frequently unaware that better services are available elsewhere."

So, the mortgage crisis was not caused by the government forcing lenders to grant loans to those who really didn't qualify, but by "predatory lenders" who targeted inner city minorities who were just too dumb to know that better services were available elsewhere.

The level of dishonesty associated with the liberal media (and academic) narrative of the mortgage crisis is astounding and if the general public ever gets the facts the Democrat Party will be in peril for decades to come.

© Monte Kuligowski


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Monte Kuligowski

Monte Kuligowski is an attorney and writer whose legal scholarship, including "Does the Declaration of Independence Pass the Lemon Test?" (Duke Journal of Constitutional Law & Public Policy), has been published in several law journals... (more)

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