February 22, 2009

Phil Gramm on the Community Reinvestment Act

My new VDARE.com column explains what former Republican Senator Phil Gramm is talking about in last Friday's Wall Street Journal, when he says it wasn't his financial reforms that caused the crash: it was loose money and politicized mortgages:

If you aren’t a regular reader of VDARE.com, you’d need a secret decoder ring to understand what Gramm means by “politicized mortgages”. The closest he manages to come to explaining what he’s talking about in his Wall Street Journal op-ed is his euphemistic reference to Fannie Mae and Freddie Mac’s 35 percent quota that “targeted geographic areas deemed to be underserved”.

You know and I know that “underserved” is Diversity Speak for black and Hispanic neighborhoods. Yet Gramm still can’t come out and say it in public. (In his oral presentation at AEI, he had used the somewhat more revealing term “inner cities and depressed areas”. But he didn’t dare be even that clear in the WSJ, or maybe the editors wouldn’t let him)

Moreover, that raises a fundamental question: How can Respectable Republicans like Gramm ever hope to persuade the public when they are terrified of saying what they mean for fear of being branded a “racist”?

I guess Gramm would prefer to go down in history as the man who blew up the world than to be accused by the SPLC of uttering hatefacts.

For example, it would strengthen Gramm’s case to point out that Crash was kicked off not just by a subprime lending crisis, but one concentrated in merely four states: California, Arizona, Nevada, and Florida. In August 2008, these accounted for 50 percent of all foreclosures and the vast majority of defaulted dollars.

But if Gramm were to mention that, it would also raise the unmentionable specter of Demographic Change.

There was overlending going on all over the world—yet the collapse started in a few rapidly Hispanicizing states in the U.S. Why?

You have to look at both sides of the equation: lending and repayment. In California and Company, not only was too much money being lent relative to past rates (which was happening in lots of other places, too), but, also, the earning capacity of the new homebuyers to pay back their loans was declining—as Americans moved out and Latin Americans moved in.

That double whammy in the Sand States of increasing lending and decreasing human capital is, more than anything else, what blew the gasket on the world economy.

Of course, we also needed a third element—political correctness—to keep investors from noticing what was happening.

And that, judging from Gramm’s timidity, appears to be as strong as ever.

More, including the inside story on how Angelo Mozilo's Countrywide Financial got away with it, here.

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

22 comments:

Thrasymachus said...

I think what you are missing here is that if you don't need to say "minority" or "black" or Hispanic" or in the case of Patrick Buchanan "Zulu" to make your point, don't say it. It doesn't actually make your argument any intellectually stronger and it upsets people. Let's just say "the government should not tell banks who to lend to, they are in the business of lending people money and can be relied on to lend to as many people as they safely can with their depositors' money." Point made. Most people who are not raving leftists will readily agree with that.

Mark said...

No, Thrasymachus, you do have to say it, because if you obfuscate people won't understand. And besides, in this new world where we're all supposed to speak courageously about race, why not?

Where's Jesse Helms when you need him?

Anonymous said...

Perhaps even more important than just the declining ability to repay: The lenders didn't see it coming. Or well, at least the people who bought the mortgages didn't see it coming.

If they had charged appropriate interest rates (very high!) and put money aside for the inevitable credit losses, this wouldn't have happened.

Instead the mortgages ended up as AAA-rated assets in big bank balance sheets, like time bombs ready to blow up at any time. It's a bit like the difference between detonating a bomb against a ship's armour (where they expect the bomb), compared with detonating a bomb in the ship's magazine (they didn't expect *that*!).

Anonymous said...

About the debate: It's good enough to say "poor and underserved areas", etc. for mainstream politicians, if that level of buttcover can give them the bravery to tackle the issue at all.

Indeed, on this side of the pond, that kind of terminology, with "minority" sometimes thrown into the mix has helped make that storyline a relatively mainstream explanation for the subprime debacle.

Anonymous said...

Thrasymachus, it's necessary to explain the role that lending policies to people of color played in the crisis because that is what the other contributing factors, wall street greed, overleveraging, etc., were all centered on. Arguably, the only reason why the government was able to get away with so irresponsibly imposing its lax lending policies on banks was because those policies were in the service of promoting diversity and racial harmony. If this issue is not addressed directly, then the same sort of thing will happen in another decade or two.

I'm beginning to realize that the reason folks are so scared of the "r" word is that it is a very powerful emotional accusation that sounds like it is based on reason. This is a tough accusation to defend against because no amount of reason will suffice. I think the only way to defend oneself is to point out again and again that racism is a vague term and an emotional accusation that leads to no sensible conclusions.

Pat Shuff said...

Phil Gramm's Evisceration

http://market-ticker.denninger.net/archives/817-Phil-Gramms-Evisceration.html

"Woods argues the crash of 2008 was a perfect storm. Other elements included immense government pressure on mortgage lenders to loosen standards and make loans to questionably credit-worthy but politically favored demographic groups; and securitization, which spread the effects of bad mortgage lending around the world."

http://www.marketwatch.com/news/story/Maybe-meltdown-not-you-think/story.aspx?guid=%7B956958F4%2D3CE2%2D4E1C%2D90EE%2D1C1159F0CB14%7D

Woods' book Meltdown is #16 on the NYT nonfiction bestseller list.

http://www.amazon.com/Meltdown-Free-Market-Collapsed-Government-Bailouts/dp/1596985879/ref=cm_cr_pr_product_top

Thanks to iSteve for providing facts and solid data regarding an important aspect amongst the range of culpabilities contributing to yet another credit debacle. An aspect being largely ignored, swept under the rug or flimsily denied. Some of us just like to know.

RobertHume said...

"I'm beginning to realize that the reason folks are so scared of the "r" word is that it is a very powerful emotional accusation that sounds like it is based on reason."

No, the reason is that everyone *is* racist. That includes Blacks, Hispanics, and Asians. Comes from evolutionary roots. Revealed in those implicit association tests. Extends to any outgroup, such as Protestant/Catholic or Christian/Jew.

But whites have been taught that racism is not a natural impulse which it is wise to suppress, often, for the general good; but that it is a moral failing which only whites have. So naturally they fear the accusation because they know it is true but that they dare not admit it.

Perhaps the only defense is a vast statistical base of implicit association tests on all races, showing that racism is universal to some degree.

Whites may come out worse than blacks, of course, because blacks are objectively more violent, at least in the US.

Truth said...

"Thrasymachus, it's necessary to explain the role that lending policies to people of color played in the crisis because that is what the other contributing factors, wall street greed, overleveraging, etc., were all centered on."

Now I could be wrong, but I think that wall-street greed predated these policies. I mean, we did have a depression didn't we?

eh said...

He always seemed like a cross between Yoda and Goober to me.

Instead of ticking off politicians and ex-politicians who don't have the guts to be un-PC it would be easier to name those who do.

Anonymous said...

Considering the fact that the financial meltdown was largely the product of a complete lack of regulation of credit default swaps, and that Gramm was more responsible than anyone for pushing for their specific exemption from regulation, his timidity just may be the result of whatever still, small voice of contrition might be hiding underneath his customary bluster. For him to point the finger at anyone else at this point in time is the height of chutzpah.

Victoria said...

"How can Respectable Republicans like Gramm ever hope to persuade the public when they are terrified of saying what they mean for fear of being branded a “racist”?"

Why single out Phil Gramm? None of them will risk that lifetime security they will eventually get to live off, but least of all the namby-pamby Phil Gramm. I'm surprised he even wrote that column. In the 90s, I saw a lot of this guy on C-span, and he struck me as a nervous type, carefully looking over his shoulder. Kind of sissified. He would have made a perfect tool as President.

Truth said...

"No, the reason is that everyone *is* racist."

Speak for yourself, I'm not.

Anonymous said...

"Now I could be wrong, but I think that wall-street greed predated these policies. I mean, we did have a depression didn't we?"

Truth, wall street greed always has to have some shortsighted policy to operate on in order to mess things up. Wall street greed in and of itself is not bad. Irresponsible lending polices towards blacks and Hispanics let that greed out of the bag and created havoc.

clem said...

No, the reason is that everyone *is* racist. That includes Blacks, Hispanics, and Asians. Comes from evolutionary roots. Revealed in those implicit association tests. Extends to any outgroup, such as Protestant/Catholic or Christian/Jew.

Yes, that's exactly right. This is skeptic Michael Shermer:

"Consciously and publicly, Michael Richards is probably not a racist. [Plus, Richards explicitly claimed, in his televised apology, that he was actually "trying to be funny" in his infamous tirade against blacks.] Unconsciously and privately, however, he is. So am I. So are you...."

"We are by nature sorters. Evolutionists theorize that we evolved in small bands of hunter-gatherers where there was a selection for within-group amity and between-group enmity. With our fellow in-group members, we are cooperative and altruistic. Unfortunately, the down side to this pro-social bonding is that we are also quite tribal and xenophobic to out-group members."

"This natural tendency to sort people into Within-Group/Good and Between-Group/Bad is shaped by culture...."

Likewise, from Pascal Boyer's Religion Explained (p. 290):

"Sidanius and Pratto marshal an impressive amount of evidence to suggest that there is more to dominance [hierarchies] than stereotyping, and that the latter is a consequence rather than a cause. In fact, they demonstrate that many dominant group behaviors not only represent a desire to stay with one's group, to favor one's clan, but also to favor one's group in an insidious way that maintains the other group's lower status. Racial stereotypes are among the representations that people create to interpret their own intuition that members of other groups represent a real danger and threaten their own coalitional advantages. Obviously, one possible reason for this blindness to coalitional structures is that they often conflict with our moral standards. This may well explain why many people prefer to consider racism a consequence of sadly misguided concepts rather than a consequence of highly efficient economic [i.e., implicit/evolutionary cost-benefit analysis of group membership] strategies."

The classic study demonstrating that in-groups inherently devalue and view with suspicion their corresponding out-groups was, of course, Sherif's Robbers Cave Experiment. The very readable text of that study is available online, here: Intergroup Conflict and Cooperation. From that excellent book:

"Our findings indicate that the limiting condition determining friendly or hostile attitudes between groups is the nature of functional relations between them, as defined by analysis of their goals. When the groups competed for goals which could be attained by only one group, to the dismay and disappointment of the other, hostile deeds and unflattering labels developed in relation to one another. In time, derogatory stereotypes and negative attitudes toward the out-group were crystallized.... Sociometric indices pointed to the overwhelming preponderance of friendship choices for in-group members. Experimental assessment of intergroup attitudes showed unmistakable attribution of derogatory stereotypes to the villainous out-group and of favorable qualities to the in-group. Laboratory-type judgments of performance showed the tendency to overestimate the performance attributed to fellow group members and to minimize the performance of members of the out-group."

Racism is just in-groups and out-groups based on skin color, rather than on age, fashion, "Eagles" vs. "Rattlers" (in Sherif's study), or any of a million other potential ways of grouping people. It's also the most obvious-even-from-a-distance way of drawing those boundaries.

(David Berreby's Us and Them is also very good for insight on this topic, though written from a Pinker-trashing "cultural" perspective rather than a genetics/evolution-oriented one.)

And what do multiculturalism and its proponents do, if not demand that we focus on "celebrating" each of those splintered in-groups--each of them inherently conflicted with their out-groups--rather than on finding common ground in our shared nationality, etc.? Even in that demand alone, it inherently creates conflict rather than unity, which no mere "goodwill contact" will resolve:

"Most of these contact situations involved activities which were satisfying in themselves, such as eating good food in the same room, attending a movie together, or engaging in an exciting activity like shooting fireworks. But none of them created a state of interdependence between the groups. Such contact situations did not prove effective in reducing friction. Instead contact situations not conducive to interdependence were used by our groups for overt acts of hostility and further exchanges of unflattering invectives."

"The ineffectiveness of contacts during which hostile groups engaged, while in close physical contiguity, in activities which were themselves satisfying to each individual has obvious implications for psychological theorizing."

The "contact/integration hypothesis," debunked fifty years ago.

One of the other flip sides of all that is that the people who most identify with their own race or sex are necessarily also the ones who draw the sharpest boundaries between the "good"/superior in-groups to which they fortunately belong, vs. the "bad"/inferior out-groups. And that, of course, is precisely why black activists (for whom skin color is everything) are consistently the worst racists in the world, and dyed-in-the-wool feminists the worst and most unapologetically discriminatory sexists. It's also a big part of the reason why such people find it so easy to blame all of their problems (even blatantly self-inflicted ones) on the Evil out-group to which they fortunately do not belong. Observe:

"In an early morning swim ... the Eagles had discovered their flag in the water, burned the previous evening by the Rattlers. Upon making this discovery, they denounced the Rattlers as "dirty bums," and accused them of having put ice in the water (because it appeared to one of them as colder than usual), and of throwing rocks in their creek (because one of them stubbed his toes a number of times during the swim)."

clem said...

Regarding the Implicit Association Test, note this:

"About 80% of white Americans show a preference for whites. What that means in terms of the test is that it is easier for them to pair words like 'love,' 'peace' and 'joy' with white faces and words like 'terrible,' 'evil' and 'failure' with black faces than it is for them to do the opposite. The test times you, so it knows...."

"And so whites who have helped blacks their whole lives, whites who no one thinks of as racist, can still show a strong unthinking preference for whites. In their everyday thoughts they may not be racist, but deep down in their subconscious, below the level of thought, they still see white as good and black as bad."

"Not surprising for anyone who grows up in America. As it turns out, even 42% of black Americans have a preference for whites! They too, in the back of their minds, tend to see white as good and black as bad!"

Given that, the idea that such tests measure "racism" is a bit of a stretch. More reasonably:

"The IAT ... has been interpreted as assessing familiarity, perceptual salience asymmetries, or mere cultural knowledge regardless of personal endorsement of that knowledge. A more recent critique argued that there is a lack of empirical research justifying the diagnostic statements that are given to the lay public. Proponents of the IAT have responded to these charges, but the debate continues. According to The New York Times, 'there isn't even that much consistency in the same person's scores if the test is taken again.'"

Plus, the hypothesis on which the tests are based is probably not falsifiable:

"[T]he whole point of IAT is that it can detect preferences subjects themselves are not aware of. So how do you know how accurate your test is? By definition the subjects can't tell you if your test's results are right or wrong, you have no actual data to check against."

Very "Freudian" and junk-sciency, that.

Regardless, one of the interesting points made about how to counteract biases (subconscious and otherwise) is this:

"According to Banaji, a brief talk about working for women suffices to reduce gender bias. City University of New York psychologist Curtis Hardin showed that having black experimenters administer a test produced lower bias scores among white subjects."

"In one of the few attempts to measure bias change and brain activity, Princeton University psychologist Susan Fiske simultaneously presented test subjects with pictures of black people and vegetables. When asked what the person in the picture liked to eat, activity in the amygdala--a brain region that modulates fear--subsided."

"Amygdala activation goes away as soon as you start to think of people as individuals," said Fiske.

That, of course, is exactly what Sherif would have told you: Thinking of people as individuals is precisely what breaks down the in-group/out-group barriers, and the associated negative stereotypes held toward the members of the out-group.

Anonymous said...

That, of course, is exactly what Sherif would have told you: Thinking of people as individuals is precisely what breaks down the in-group/out-group barriers, and the associated negative stereotypes held toward the members of the out-group.

So when one of those unrepentant racists sees a statistic regarding black street crime or financial irregularity ascribed to some other ethnic group, we will know the correct response. Said racist is failing to see these people as...people. You see, now everything is OK.

Truth said...

"Irresponsible lending polices towards blacks and Hispanics let that greed out of the bag and created havoc."

So one could only assume that there were "Irresponsible lending polices towards blacks and Hispanics" in place in 1929.

Anonymous said...

"So one could only assume that there were "Irresponsible lending polices towards blacks and Hispanics" in place in 1929."


You're smarter than that, right?

Truth said...

Apparently not.

Mr. Anon said...

"Anonymous said...

"So one could only assume that there were "Irresponsible lending polices towards blacks and Hispanics" in place in 1929."

You're smarter than that, right?"

No, he isn't.

Anonymous said...

No no no. It was the white guys who securitized the near worthless debt, and THAT caused the gasket to blow. We could handle the defaults, not the cascade of "virtual defaults" and "mirror defaults" that occured thereafter. It was also the white guys who decided that the banks needed to carry very little net capital on their books in order to finance this growth in the first place. They were leveraged out 35 to 1!

Anonymous said...

Best parody ever. I wonder if the Homestarrunner guys read iSteve.