Ethnic data on subprime loans

One of the problems we've all had in discussing the racial angle of the mortgage meltdown is the lack of good data.

Since writing that fairly comprehensive article on Saturday, I've also found some seemingly trustworthy statistics on recent subprime loans by ethnicity. (Unfortunately, nobody seems to have calculated defaults by ethnicity. Perhaps nobody wants to know?)

We do know that defaults are closely tied to subprime loans. The most toxic of all, adjustable rate mortgage (ARM) subprime loans, accounted in early 2008 for only six percent of all loans outstanding but 39 percent of foreclosures started. Fixed and adjustable subprimes account for only 12 percent of loans outstanding, but half of current foreclosures. The subprime share of new lending roughly doubled from 2003 to 2004 and increased again in 2005. So far, that's where most of the "unexpected" defaults have come from, although the default contagion will likely spread to lower interest rate adjustable rate mortgages in the near future.

Compliance Tech, a firm that helps lenders "Manage Diverse Lending Markets," estimates that in 2004-2006, minorities accounted for 44 percent of all subprime loans, with Hispanics slightly outnumbering blacks.

The numbers we really want, though, are defaults, dollar value of defaults, and incremental dollar values of defaults over expected levels.

Minorities with subprime loans probably have higher default rates than whites with subprime loans. For example, default rates on college loans are about five times higher for blacks, and more than two times higher for Hispanics, than they are for whites. (Asians are best of all at paying back college loans.) Normally, college loans are handed out more willy-nilly than mortgages, so the ethnic default rate gaps likely aren't as big in mortgages, but willy-nilly pretty much describes 2004-2006 mortgage lending in some markets.

On the other hand, they likely tend to have lower value mortgages. On the other other hand, many Hispanics are found in expensive states, especially California, epicenter of the crisis. The largest defaults in America as measured in dollar losses (number of defaults times size) appear to have come out of California's exurban fringe: the Inland Empire, Antelope Valley, and the Central Valley. All these areas tend to have mixed white and Hispanic populations.

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

California vs. Texas

I want to expand on something I mentioned briefly in my last VDARE.com article on Karl Rove and the mortgage disaster. Sorry if some of it already appeared in VDARE, but the full thing will help the residents of the two polar states understand each other's situation better.

In defense of Bush and Rove, it was natural for them to misunderestimate the financial scale of what they were propagating because they are from Texas, where land prices have been saner than in California ever since the bursting of the first oil bubble a quarter of a century ago. At present, Texas ranks only 15th out of 50 states in per capita foreclosure rate, far below most other highly Latino states. That's because land costs in Texas are dramatically lower than in most other states with heavy Hispanic concentrations, keeping recent homebuyers from getting in over their heads so badly. I visited San Antonio in April 2007, at the height of the housing bubble, and saw billboards advertising new 3000 square foot, five bedroom homes for $162,000.

In the flat, well-watered eastern half of Texas, there's an enormous supply of buildable land. Moreover, there aren't many environmental or other restrictions on home development. In contrast, California has a thin strip of exquisite coastal land, mostly locked down tight by strict environmental controls, backed by uninhabitable mountains. The level inland areas become increasingly miserable for year-round habitation the farther east you go (for example, the aptly named Death Valley). Likewise, Nevada and Arizona have significant water limitations, restricting growth to certain areas.

Texas Republicans are prone to blame the limited supply of housing in California on leftwing Not In My Back Yard politics used by greedy homeowners to raise their home values and keep out undesirables. Some of that is true, but there are topographical reasons for limiting development in mountainous California, such as smog and traffic, that aren't easily understood on the Texas prairie.

For instance, the northern exurbs of Los Angeles County, the Santa Clarita Valley, are connected to Los Angeles almost solely by Interstate 5 through the rugged Newhall Pass. The only proposed alternative to this chokepoint would require colossally expensive tunneling through 15 miles of the earthquake-prone San Gabriel Mountains. So, the current residents of the Santa Clarita Valley, who tend to be more Republican than Los Angelenos, raise a stink about exacerbating commute times to their jobs in LA whenever anybody asks for approval of a new development. Thus, the posh Valencia TPC golf and housing development was proposed in 1985 but construction didn't begin until 2000. Other planned developments have been vetoed after long years of hearings.

Therefore, in California, unlike in Texas, it takes many years for increases in housing supply to catch up to increases in demand. That's why the loose credit policies of the Bush years turned into higher home prices in California than in Texas. To be precise, a Los Angeles home averaged 2.6 times the price of a Dallas home in 2001 and 4.7 times in 2005. Even in 2005, the median Dallas home only cost a sane 2.8 times the local annual income, while the median Los Angeles home cost a ridiculous 12.7 times what the median Angeleno was making.

From Bush & Rove's Texas-centric point of view, if some guy named Juan with no assets besides a 1979 Datsun pickup truck gets a liar loan for a house in Texas, his mortgage is, what, $100,000? He might be able to scratch together enough money to meet his payments. If he can't, well, Juan is gone, but that's just $100,000 down the drain. No biggie, Bush and Rove would assume.

What they apparently didn't realize in 2001 was that when his cousin Jose, who is equally broke, gets a mortgage in California, that was, say, $200,000. And by Bush's second term, the Administration's easy money-easy credit "affordable housing" policies meant Jose had to worm his way into a $400,000 mortgage to get a crummy house in California. No way, Jose is going to be able make the monthly payment after his two-year teaser rate runs out. And when he defaults, that's $400,000 down the rathole.

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

Video: Burning Down the House (Rove-Bush Style)

A reader has put together a helpful video mashup of George W. Bush's wonderful 2002 speeches on lowering mortgage credit standards for minorities along with snark comments.

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

The two problems

Let me suggest a conceptual distinction to make things clearer.

Economically, we face two related but distinguishable problems.

First, due to post-modern financial engineering, Wall Street has created vast upside down pyramids of leverage that are so intricate that nobody is sure what financial instruments are worth anymore, with frightening implications for the whole system, which could cause a lock-up of all lending.

Second, we have a fundamental problem, which is that a lot of those highly leveraged complex instruments really aren't worth much because the basic assets they balance on top of have declined sharply in value. Essentially, in this decade home prices (primarily in a small number of states, most notably California, Nevada, Arizona, and Florida) inflated to absurd levels, generating trillions in new wealth on paper. Those gains are now gone and won't come back for decades because they were always stupid: there was never enough human capital in California to earn enough money to pay for those houses.

Now, that doesn't sound so bad: easy come, easy go. For some homeowners in California, the nominal doubling and subsequent halving of their home values had no effect on their economic behavior. My family took our vacation in a tent in pre-bubble 2001 and again in bubblicious 2007. Unfortunately, lots of Californians spent their increased paper wealth on crud, like fancy rims. (And the salesmen who sold the rims purchased fancier tattoos. And the tattoo artists ...) And now the economy and standards of living are going to have to contract as this orgy of real world spending of paper profits is slowly paid off.

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

Do we live in a republic after all?

Invited members of the Great and the Good had spent a few days in a conference room, where they decided to give the Treasury Secretary power to give away $700 billion dollars.

But then, this quaint body called the House of Representatives (which I believe is mentioned somewhere in the Constitution) had the gall to vote against it, 228-205. Don't these mere elected representatives understand how many gallons of diet soft drinks the self-appointed authors of the bailout had consumed over the last two weeks?

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

Speculators in Exurban Bubble Markets

With the financial crisis, we might start seeing a few more defaults in Greenwich, CT (we can all hope, can't we?), but so far, the defaults have tended to hit marginal areas hardest. Here in California, people in Santa Monica aren't defaulting, it's the poor bastards out in the high desert or even down in Bakersfield in the hot, smoggy Central Valley.

In these godforsaken places, all sorts of mini-McMansions have gone up on the theory, apparently, that, hey, they're in California! Every peon in Guatelombia has seen Baywatch and wants to move to California (even though Lancaster, CA looks more like Death Valley Days). So prices can only go up, up, up!

Imagine you're a homeowner in Santa Clarita in 2005, now a nice established exurb 35 miles north of LA. You bought your house in 1995 at the bottom of the market for $175,000 and a decade later it's worth three or four times that much. You can take cash out with home equity loans, so why not find an investment property?

Of course, you'll have to look farther out, deeper into the dusty high desert, like in Lancaster, 70 miles from downtown LA. They're building many new 3,000 s.f. homes on culdesacs with all the amenities. You should buy one up now and resell it when new refugees from the LA Unified School District arrive.

The family you sell it to will, no doubt, be moving to the exurbs to get their kids away from all the Guatelombians in the LA public schools. It's not like Bush is going to close the borders and stop the flood of Guatelombians. So, there will always be refugees looking for "good schools."

That's one reason, you realize, why these new homes in the exurbs tend to be so big -- they're expensive in the hopes of discouraging low rent people from moving in next door. Sure, they cost a fortune to air condition during Lancaster's summer (March-October), but it's all in a good cause.

You start shopping around outside Lancaster. The Cypress Creek Estate sales agents talk about the new high school that's going to be built to serve these new neighborhoods. It will be diverse, but not too diverse, if you know what I mean. Two-thirds white, one fifth Hispanic, enough Asians to show your neighborhood's a good investment, enough blacks so that the football and basketball teams will be competitive. Sounds good!

You get the feeling that there aren't any cypress trees within 100 miles or creeks within 20 miles, but that's not the point. The point is that with low down payment mortgages available, you have all sorts of speculative options available. For example, with a 3% down payment, you could buy a new $400,000 house in a development of 3000+ square foot homes for only $12,000 in cash (not counting the usual points and fees). So, why not buy two? Only $24,000!

If each house goes up 10% in value the first year you own them, you've made $56,000 on your $24,000 investment. Try getting that rate of interest on a CD. Leveraging 33 and 1/3 to one does wonders for your ROI.

Granted, that's exaggerated because you have to pay the monthly mortgage, but you can get a two year teaser interest rate that makes things easier. You're going to be cashing in before two years are up!

Of course, that assumes you can flip them, which often turns out to be more difficult than you initially anticipated. After all, when such easy profits can be made, builders build. Sure, the ecology rules slow them down for years, but in Lancaster there really isn't a whole lot of ecology other than scorpions stinging each other, so eventually a flood of new housing comes online.

Then, there's the problem that not too many people actually deeply, truly want to live in Lancaster, unless they have a job there. Back in the Cold War, there were good jobs at Edwards Air Force base and in aerospace plants. There still are, but nobody's too sure why, or exactly how long the federal government will go on funding new fighter planes to fight ... well, nobody's too sure who.

So, most of the new jobs there are building more houses for Even Greater Fools. Or, you could get work standing by the side of the road as a Human Sign, twirling a big arrow to attract attention to the new housing developments. (Here's my 2005 VDARE article on Human Signs as the personification of the Expensive Land / Cheap Labor economy.)

So, the flipping goes a little slower than you expected. And even at the teaser rate, the monthly on those two empty houses is starting to gnaw away at your net worth. What do you do? What do you do?

Well, you could always rent it out until the market takes off again like you know it will.

But that raises the question of who exactly would want to rent in Lancaster, when you can buy a home in Lancaster for $12,000 down, or you can rent for a reasonable rate in the San Fernando Valley, 40 miles closer to work and 15 degrees cooler, with no dust storms.

Q. So, who wants to live for awhile in Lancaster?

A. The Guatelombian construction workers who are building all the new McMansions down the road.

So, you get some bunk beds and rent out your five bedroom house to 12 Guatelombians. They work hard all day and pay on time. Sure, the neighbors are complaining because your tenants are drunkenly singing along to mariachi music in the backyard all weekend and one fellow got a little too celebratory and started shooting his gun in the air. But, you don't live next door to them, so what do you care?

And then you rent your other house to a couple of families of Guatelombian construction workers. The parents are fine, but you start to notice grafitti around the neighborhood. There are rumors of a gang shooting at the strip mall.

But the money is good in the meantime while you're getting closer to your big payday.

But then you notice that the nice quiet street isn't so quiet anymore. The other speculative owners are doing the same thing you did: renting to construction workers. Soon, there are cars up on jacks on front lawns and Cypress Creek Estates is a big Guatelombian slum. If only you had done it, it would have been okay. But once all those other jerks followed your example, you were hosed. Now, nobody wants to buy into Cypress Creek Estates.

After awhile, they stop constructing new homes in Lancaster, so some of your tenants go home to Guatelombia, while the others hang around Home Depot looking for day labor. It gets harder to collect your rent. So you toss out the construction workers and bring in a Section 8 family. The great thing about Section 8 is that you get your rent checks straight from the federal government, so you don't have to go knock on the door, because, well, to be honest, your new tenants haven't (a single grandmother of 38, her three daughters and their three children, plus a fluctuating cast of boyfriends) don't seem as polite as the Guatelombians.

Then, your two teaser rate runs out and and the monthly resets to considerably higher. You start Googling queries like "non-recourse loan California."

In summary, the essential problem is that there aren't enough people with the human capital to earn enough to pay for all the new homes that have been built in this low, dishonest decade out in the middle of damn all. Screwing around lowering down payments just pushed the discovery of this fact off into the future, after we've wasted all that money on homes, which aren't really investments in the sense that they generate new wealth, they're just expensive consumer durables. And, they aren't all that durable, either.

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

Ephraim Diveroli's VP Talks (about his upcoming album)

Penn Bullock has the first press interview with an executive officer of AEY, Inc., the Miami Beach weapons dealership charged with defrauding the Pentagon and the Afghan Army in a $200 contract using old made-in-China ammunition from Albania, etc etc (you know the story).

When MicroCOSM is released in a few weeks, [David] Packouz will almost certainly be the world's first and only rocker-cum-masseur-cum-arms-dealer.

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

Paul Newman, RIP

Rather than mention all the great performances Paul Newman gave, I'd like to recall a role he chose to give up.

One of my favorite movies is John Huston's version of Kipling's short story "The Man Who Would Be King." It was in Development Hell for 20 years, going through multiple screenplays. Originally, Huston was going to direct Clark Gable as the majestic Daniel Dravot and Humphrey Bogart as the sly Peachy Carnehan. I'm not sure if the stars were going to attempt English accents, or if they were going to be turned into Canadians in the Indian Army, or what.

Then Bogie died. After his comeback in the "Misfits," Gable wanted to revive the project, so Huston was looking for a new co-star, when Gable had a heart attack and died. In the 1970s, the project got relaunched, with Paul Newman and Robert Redford attached. (I'm guessing with Redford as Danny and Newman as Peachy, but Newman being older and almost as handsome as Redford would have made casting more flexible and/or confusing than with Gable and Bogart, where there was never a doubt who would play which role.) John Huston and his secretary, Gladys Hill, wrote a great fourth script.

From director John Huston's autobiography "An Open Book:"

"I sent the new screenplay to Paul, who called me immediately and said it was one of the best things he'd read, but he'd had second thoughts about the casting of the leads, which at that point were to have been himself and Robert Redford. He said they should be played by two Englishmen. Paul, speaking not as an actor but as someone interested in the improvement of the breed, cast it right there: "For Christ's sake, John, get Connery and Caine!"

Screenwriter William Goldman's book Adventures in the Screen Trade includes a fair amount of malicious gossip about the swelled heads of big stars he'd written for, such as Redford and Dustin Hoffman, but he only had praise for Newman as a human being.

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

Whose Fault Is It?

On VDARE.com, I point out the name of a man who has so far escaped any blame for the mortgage meltdown, but who deserves a share. Indeed, you might almost call him "The Architect."

It's a big article, and you'll notice it tends to turn into a sort of Unified Field Theory of iSteve obsessions. I had fun pulling it all together and I hope you have fun reading it.

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

The Diversity Recession: A debunking

UPDATE: 12/31/2009: The paper by Laderman and Reid of the San Francisco Federal Reserve Bank provides the crucial information on foreclosure rates in California, the heart of the mortgage meltdown:

We also find that race has an independent effect on foreclosure even after controlling for borrower income and credit score. In particular, African American borrowers were 3.3 times as likely as white borrowers to be in foreclosure, whereas Latino and Asian borrowers were 2.5 and 1.6 times respectively more likely to be in foreclosure as white borrowers.

So, in the economists’ simple multiple regression model, after adjusting for income and FICO, minorities in California still had substantially higher foreclosure rates than whites:

- blacks 3.3X
- Latinos 2.5X
- Asians 1.6X

(These adjusted gaps are all statistically significant at the 0.01 level.)

Presumably, the raw differences in foreclosure rates are greater. Unfortunately, the actual raw numbers aren't listed in the report, and the authors refused my repeated email requests to release the unadjusted numbers by ethnicity.

The raw ratios are important for estimating the overall share of defaulted dollars by ethnicity in California. We know from the federal HMDA data that minorities accounted for 77% of subprime home purchase dollars borrowed in California in 2006 (the worst vintage for defaults) and 56% of all home purchase dollars. You can see the graphs here. (I'm excluding borrowers of unknown ethnicity and mixed ethnicity couples).

In other words, minorities accounted for the great majority of defaulted dollars in California. And, California accounted for a sizable majority of all the defaulted dollars that launched the mortgage meltdown that launched the Great Recession.

For the story of my request under the Freedom of Information Act to obtain a copy of the unadjusted ratios, see here.

UPDATED September 27, 2008: For a subsequent rebunking of the connections between the Bush Administration's ideology of "diversity" and the mortgage disaster, see my article on "The Man Who Has Escaped All Blame for the Mortgage Meltdown ... So Far."

Since writing that fairly comprehensive article on Saturday, I've also found some seemingly trustworthy statistics on recent subprime loans by ethnicity. (Unfortunately, nobody seems to have calculated defaults by ethnicity. Perhaps nobody wants to know?)

We do know that defaults are closely tied to subprime loans. The most toxic of all, adjustable rate mortgage (ARM) subprime loans, accounted in early 2008 for only six percent of all loans outstanding but 39 percent of foreclosures started. Fixed and adjustable subprimes account for only 12 percent of loans outstanding, but half of current foreclosures. The subprime share of new lending roughly doubled from 2003 to 2004 and increased again in 2005. A remarkable fraction of defaults appear to have come from mortgages originated in 2004 through early 2007, when median prices in California, Nevada, Arizona, and Florida were absurdly high relative to median incomes.

Compliance Tech, a firm that helps lenders "Manage Diverse Lending Markets," estimates that in 2004-2006, minorities accounted for 44 percent of all subprime loans, with Hispanics slightly outnumbering blacks.

Minorities probably have higher default rates than whites. For example, default rates on college loans are about five times higher for blacks, and more than two times higher for Hispanics, than they are for whites. (Asians are best of all at paying back college loans.) Normally, college loans are handed out more willy-nilly than mortgages, so the ethnic default rate gaps likely aren't as big in mortgages, but willy-nilly pretty much describes 2004-2006 mortgage lending in some markets.

On the other hand, they probably tend to have lower value mortgages. On the other other hand, many Hispanics are found in expensive states, especially California, epicenter of the crisis. The largest defaults in America as measured in dollar losses (number of defaults times size) appear to have come out of California's exurban fringe: the Inland Empire, Antelope Valley, and the Central Valley. All these areas tend to have mixed white and Hispanic populations.

Now, that earlier debunking.

A friend emails:

Quite a lot of mainstream conservatives---seemingly following Steve's lead---are starting to argue that racially oriented government housing policies played a very large role in the ongoing collapse of America's financial system, e.g.
The Diversity Recession:
http://www.vdare.com/sailer/080921_cornerstone.htm
and many, many, many other articles.

I just can't see how this makes any sense. Here are my back-of-the-envelope estimates:

(1) Blacks+Latinos together make up about 1/4 of America's adult population.

(2) A very disproportionate fraction of blacks+Latinos just aren't in the mortgage/homeowner demographic category. After all, a substantial fraction of adult blacks are either current convicts, drug addicts, or welfare recipients, and a substantial fraction of adult Latinos are either recently arrived or otherwise improverished illegal immigrants.

While some members of these sub-demographic categories do own homes and have mortgages, the rates are surely extremely low compared with the general population. For example, I really don't think too many of those Latino immigrant day-laborers at Home Depot own their own homes.

(3) Furthermore, even if we exclude those black+Latino subgroups, the remaining black and Latino population is considerably poorer than the
white+Asian population. Poorer people are much more likely to rent (or
live casually with friends and relatives) rather than own a home and have a mortgage.

(4) Therefore, I'd guess that that although black+Latinos are about 1/4 of the adult population, they'd probably have only about 10-15% of the home mortgages. Presumably, there must be some official statistics on this somewhere.

(5) Next, consider that blacks and Latinos tend to live in heavily black and Latino areas, where the housing prices are probably far below the national average. And since even homeowning blacks and Latinos are almost certainly poorer than homeowning whites+Asians, they're homes are cheaper. And probably very, very few blacks or Latinos can afford the upper-end $1M+ homes.

(6) Therefore, my rough guess is that while blacks+Latinos might hold 10-15% of the home mortgages, the total dollar amount of the mortgages held by those groups is much lower, perhaps just 5-8%. Admittedly, many Latinos live in ultra-expensive CA, but very few blacks do, and housing in heavily Latino TX is pretty cheap. A big fraction of the black population lives in the Deep South, where home prices are very low.

(7) Now suppose that 5-8% of the dollar value of American mortgages is held by blacks+Latinos. And let's suppose that the default rate among
blacks+Latinos is 3 times the white+Asian average, which is probably on
the very high side. If so, that still means that the impact of disproportionately high black+Latino default rates on the national dollar amount default rate would be pretty negligible, not remotely the sort of thing that would be causing all those banks (and maybe our entire financial system!) to collapse.

(8) Furthermore, the slice of the black+Latino population with supposedly the much higher default rates, e.g. the subprime borrowers, are also paying much higher interest rates and various extra fees and penalties, which would partially mitigate the impact of the higher default rate.

Anyway, that's my very crude analysis. I'd be very interested in knowing where my numbers might be off or what a better set of estimates might look like.

Any comments?

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

Request

Something I've noticed over and over is that the NYC-DC based punditocracy doesn't really believe that there are 47 million Hispanics in the U.S. (Hey, you never meet any at the dinner parties we attend ...) Black people, yes, they see them on TV singing or carrying the football, they're always seeing PBS specials on the civil rights movment, so, yes, they very much believe in the existence of blacks.

But Hispanics are virtually invisible to important news media people in America. They see them when they visit Santa Fe, but otherwise, they don't occupy any space in their mental universe.

So, in the media mind, mortgage defaults by minorities can't possibly play an important role because, well, a minority is less than a majority, so therefore it can't be of any significance.

All the evidence I've seen, however, suggests that defaults by Non-Asian Minorities (NAMs) played a big role in precipitating the current crisis. But, I haven't yet seen anybody calculate a single number estimate of the size of that role. What we are really looking for is the share of all mortgage defaults, both by number and by dollar value, by NAMs. Foreclosures would be a reasonable proxy for defaults, although subprime share might not be.

To be even more accurate, we should look for the incremental defaults, above the usual expected baseline default rate. (Normally, lenders expect a small single digit percentage of defaults per year due to sad events and they plan for that rate. What's causing this wipeout is the higher than expected rate.)

Below is a trove of information posted by a commenter named david. Perhaps a reader could go through the links and figure out what that share is.

david commented

eh said:

Some statistics on non-white delinquency and defaults across all mortgage grades and loan types would be interesting to see.

Don't know if this will help you, but below I copied and cleaned up a recent (9/22) comment by an Anonymous.

Below each hyperlink is a juicy excerpt or preview therefrom.

Enjoy.

***


Someone said, "My criticism of your VDare piece is it implies that minorities are more likely to default on their loans. This is probably true. Please show the statistics to back it up. My second criticism is that the dollar value of losses may not be disproportionally [sic] minority caused."

See cites below. They show:

a) Default rate is higher among minorities; and

b) Minorities are more likely to have subprime loans even at higher income levels. (Reason: income is not a perfect proxy for IQ, and high-income minorities are very disproportionately affirmative action recipients. See the regression to the mean in Prince George's County.)

LINK

"What insurers aren't allowed to do is discriminate based on race, no matter how actuarially sound their arguments. Blacks, for example, have shorter life expectancies on average than whites, but companies aren't allowed to charge black customers more for life insurance."

LINK

"Urban, Minority Foreclosures on the rise"


LINK

"A similar pattern can be seen in Chicago, where foreclosure filings tripled, to 7,576, from 1993 to 2005. Neighborhoods where the population is more than 80 percent non-white account for 65 percent of all cases, up from 61 percent in 1993, according to data compiled by the National Training and Information Center, a housing advocacy and research group based in Chicago. The same trends have been documented in Atlanta and Philadelphia, according to researchers from Harvard and the Reinvestment Fund, a Philadelphia-based investment organization hired by the Pennsylvania Department of Banking to study mortgage foreclosures in the state."


LINK

"The 10 neighborhoods with the highest rates of mortgages from subprime lenders had black and Hispanic majorities, and the 10 areas with the lowest rates were mainly non-Hispanic white.

"...the rate of subprime lending is far higher for minorities than for whites even at higher income levels. For example, 24 percent of non-Hispanic white borrowers earning $125,000 to $150,000 took out a subprime mortgage in 2006, compared with 52 percent of Hispanics and 63 percent of non-Hispanic blacks in the same income range."


LINK

"July 13, 2007--The National Association for the Advancement of Colored People stepped into the fight against subprime lending Wednesday when it sued 12 national mortgage-lending companies for discriminatory practices."


LINK

"But Hispanics and African-Americans were far more likely to leverage the American dream with subprime loans — higher-cost products for buyers with impaired credit — that are now going bad at an alarming rate.

"About 46% of Hispanics and 55% of blacks who took out purchase mortgages in 2005 got higher-cost loans, compared with about 17% of whites and Asians, according to Federal Reserve data. The South Side of Chicago, with a large concentration of minority borrowers, has a high concentration of subprime loans and the state's highest foreclosure rate. In Boston, where defaults are rising — especially in minority areas — 73% of high-income black buyers (those making $92,000 to $152,000) and 70% of high-income Hispanics had subprime loans in 2005, compared with 17% of whites.

"...Recent immigrants lack credit histories, and 35% of Latino families don't have checking accounts. Hispanic families are more apt to have undocumented income, leading them to lenders who make loans without income verification, according to the National Council of La Raza.[...]

"Another reason for the subprime surge: Lenders have been supported by politicians and community leaders eager to promote minority homeownership, which remains about 25 percentage points below that of white non-Hispanics.

"'Access became such a buzzword that people forgot about basic lending practices,' says Keith Corbett, executive vice president of the Center for Responsible Lending. 'You are really in debt servitude, having a loan with a loan-to-value ratio of 100% or greater.'"


LINK

"High-cost subprime mortgages have often been framed as loans that catered to people with blemished credit records or little experience with debt.

"There has been less attention paid to the concentration of these loans in neighborhoods that are largely black, Hispanic, or both. This pattern, documented in federal loan records, holds true even when comparing white middle-income or upper-income neighborhoods with similar minority ones."


LINK

"The Joint Center for Political and Economic Studies reports that the rate of subprime mortgages for Latinos and African Americans is about double the rate for whites. In 2006, subprimes made up one in four mortgages (26 percent) made to whites, 47 percent of those to Latinos and 53 percent of mortgages that went to African Americans."


LINK

"Illegal immigrants were able to buy U.S. homes during the boom years, either by showing evidence that they pay taxes or by simply presenting false documents. Many of them took out high interest fixed-rate loans or subprime mortgages with a low entry rate that later rose sharply."


LINK

"It boggles the mind to think how many illegal aliens are homeowners in this country thanks to these programs, all fully insured by our government. Because of fear of lawsuits for discrimination I can also tell you that a lender may have a borrower who speaks little or no English who claims to be either a citizen or resident alien and it will not be questioned nor any proof required."


LINK

"In a world devoid of lending discrimination, therefore, minority mortgage holders as a group will tend to have higher default rates than the pool of white mortgage holders."


LINK

"Austan Goolsbee: Also, the historical evidence suggests that cracking down on new mortgages may hit exactly the wrong people. As Professor Rosen explains, 'The main thing that innovations in the mortgage market have done over the past 30 years is to let in the excluded: the young, the discriminated against, the people without a lot of money in the bank to use for a down payment.' It has allowed them access to mortgages whereas lenders would have once just turned them away.

"The Center for Responsible Lending estimated that in 2005, a majority of home loans to African-Americans and 40 percent of home loans to Hispanics were subprime loans. The existence and spread of subprime lending helps explain the drastic growth of homeownership for these same groups. Since 1995, for example, the number of African-American households has risen by about 20 percent, but the number of African-American homeowners has risen almost twice that rate, by about 35 percent. For Hispanics, the number of households is up about 45 percent and the number of homeowning households is up by almost 70 percent."


LINK

"Obama, Like Dodd and Conrad, Got Cheap Home Loan

"Wednesday, July 2, 2008 10:36 AM

"By: Rick Pedraza

"Presidential nominee Barack Obama joins the list of several other high-profile Democratic Party members who received highly favorable home loans.

"Obama, D-Ill., reportedly purchased a $1.65 million mansion in Chicago through a 'super, super jumbo' loan he received from Northern Trust Bank in Illinois, the Washington Post reports.

"The portion of the money financed through the lender ($1.32 million) was offered to the Obamas at an unusually low discount interest rate locked in at 5.625 percent over the life of the 30-year fixed-rate loan, which was below the average of what a typical Chicagoan pursuing a similar low loan rate received at the time.

"For his part, Obama and his camp are defending the lower rate as lender competition for business. A spokesman for the camp says, 'The Obamas have since had as much as $3 million invested through Northern Trust.'

"Obama joins Sen. Chris Dodd, D-Conn., and Sen. Kent Conrad, D-N.D., on the list of high-profile public figures who received 'VIP' loans that some now are scrutinizing as alleged trade-offs for political favors.

"According to a report released last month by Condé Nast, Dodd received highly favorable loans under the designation, 'Friend of Angelo,' a reference to embattled Countrywide Financial Corp. head Angelo Mozilo.

"Dodd, who chairs the Senate Banking Committee, received loans from Countrywide that reportedly saved him tens of thousands of dollars.

"Conrad also has been named as a recipient of special-consideration loans from the beleaguered lender.

"Countrywide is the same bank involved in the loan scandal that caused Obama's vice presidential Vetting Team Chief James Johnson to resign amid criticism over his personal loan deals with the lender.

"Other high-ranking political officials involved in questionable 'VIP' home loans include former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador and assistant Secretary of State Richard Holbrooke, Condé Nast reports."

**

Have a nice day, eh.

9/25/2008

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

Debate Open Comment Thread

I'm working on a Unified Field Theory to explain the Bush decade, so just comment away on the Presidential debate.

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

If McCain drops out ...

If, by any chance, McCain gets even more erratic and drops out of the race (which seems like a low probability, but not out of the range of possibility) and the GOP needs a replacement in a hurry, they already have an experienced, reasonable, respected steady hand who is totally on top of current national security issues, and would probably do about as well with economic issues as anybody else they've got: Defense Secretary Robert Gates.

I'm just tossing that name out there to go along with the Romneys and Powells.

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

Washington Mutual's Last - Press Release - Ever

By commenter demand, here's a commercial from the late, not-so-great Washington Mutual bank:

Thanks to a commenter, here's the last press release from the nation's 6th largest bank on the day before it finally went under:

WaMu Recognized as Top Diverse Employer—Again Company ranks in top ten of Hispanic Business’ Diversity Elite and earns perfect score on the Human Rights Campaign’s Corporate Equality Index

SEATTLE, WA (September 24, 2008) – Washington Mutual, Inc. (NYSE:WM), one of the nation’s leading banks for consumers and small businesses, has once again been recognized as a top employer by Hispanic Business magazine and the Human Rights Campaign.

Hispanic Business magazine recently ranked WaMu sixth in its annual Diversity Elite list, which names the top 60 companies for Hispanics. The company was honored specifically for its efforts to recruit Hispanic employees, reach out to Hispanic consumers and support Hispanic communities and organizations.

The Human Rights Campaign, the largest national gay, lesbian, bisexual and transgender (GLBT) civil rights organization, also awarded WaMu its second consecutive 100 percent score in the organization’s 2009 Corporate Equality Index (CEI), which measures progress in attaining equal rights for GLBT employees and consumers. WaMu joins the ranks of 259 other major U.S. businesses that also received top marks in the annual survey. The CEI rated a total of 583 businesses on GLBT-related policies and practices, including non-discrimination policies and domestic partner benefits.

In both surveys, WaMu earned points for competitive diversity policies and programs, including the recently established Latino, African American and GLBT employee network groups, all of which have a corporate executive sponsor and champion.

“Diversity is an integral part of cultivating a welcoming, innovative and dynamic workplace here at WaMu. We are proud to be recognized for the opportunities and benefits we offer to all of our employees, including the specific efforts we have made to engage Hispanics and the GLBT community,” said Steve Rotella, WaMu president and COO. “We are committed to diversity at WaMu and pledge to listen to our customers and work closely with our employees to continue to make progress.”

These two recent honors build upon diversity recognitions WaMu received earlier in 2008. WaMu was named one of 25 Noteworthy Companies by Diversity Inc magazine and one of the Top 50 Corporations for Supplier Diversity by Hispanic Enterprise magazine.

About WaMu

WaMu, through its subsidiaries, is one of the nation's leading consumer and small business banks. At June 30, 2008, WaMu and its subsidiaries had assets of $309.73 billion. The company has a history dating back to 1889 and its subsidiary banks currently operate approximately 2,300 consumer and small business banking stores throughout the nation. WaMu’s press releases are available at http://newsroom.wamu.com.

Rex May has a cartoon take on WaMu.

The NYT reports:

Until recently, Washington Mutual was one of Wall Street’s strongest performers. It reaped big profits quarter after quarter as its then chief executive, Kerry K. Killinger, enlarged its presence by buying banks on both coasts and ramping up mortgage lending.

His goal was to transform what was once a sleepy Seattle thrift into the “Wal-Mart of Banking,” which would cater to lower- and middle-class consumers that other banks deemed too risky. It offered complex mortgages and credit cards whose terms made it easy for the least creditworthy borrowers to get financing, a strategy the bank extended in big cities, including Chicago, New York and Los Angeles. With this grand plan, Mr. Killinger built Washington Mutual into the sixth-largest bank in the United States.

Okay, Mr. Killinger, but perhaps by now you've noticed the fundamental difference between Wal-Mart and WaMu: Wal-Mart takes money from lower- and middle-class customers, while you gave money to them.

While our increasingly diverse lower- and middle-class American residents have been spending a lot in recent years in our vibrant, globalized economy, they haven't been making a lot. (You may have noticed that our elites were united in their horror of "wage inflation" and did their best to combat it through encouraging massive immigration, outsourcing, cutting tariffs, and the like.) In the long run, that's a problem. To cover the difference between what the bottom 2/3rds or whatever of society was spending and making, they've been going more in debt to, say, WaMu. You were able to mark that up as profits, which Wall Street celebrated, but eventually the clock struck twelve and the carriage turned back into a pumpkin.

To broaden the subject slightly, it's interesting that we don't yet have a name for this decade yet, even though it's almost over. All other decades for the last 80 years were named directly from the third digit (e.g., The Sixties), but nobody has agreed upon a quantitative title for this decade. Therefore, we should feel free to recommend a qualitative name. Pardon the vulgarity, but at this point I can't come up with anything more descriptive and accurate than The Bullshit Years.

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

McCain's newest campaign managers announced

John McCain, who either will or won't debate Barack Obama on Friday night, announced Thursday evening that he has accepted the resignation of campaign manager Rick Davis, after revelations that Davis was accepting payola from Freddie Mac, and that his campaign tactics this week have been masterminded by Don King and the ghost of Bobby Fischer.

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

They don't allow this in Sweden

From the NYT:

Freshman Jacquizz Rodgers ran for 186 yards and two touchdowns, and Oregon State built an early lead and held on for a 27-21 upset victory over top-ranked Southern California on Thursday night.

I believe in Sweden there's a law that all newborns' names must be chosen from an approved list.

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

What was wrong with this picture?

A couple of years ago, the median sales price of a Los Angeles area home was $580,000. But, as Ed Rubenstein had reported on VDARE.com in 2004:

"A new study by the United Way of Los Angeles finds that 53 percent of the city’s adult population—3.8 million people—are functionally illiterate."

Do you notice a problem, a certain contradiction between very high home prices and very low human capital? If you stop and think, you might wonder how a whole bunch of people who can't read and write English are ever going to make enough money to pay off these humongous and humongously leveraged mortgages

But, nobody was supposed to stop and think because that would be racist.

As Glaivester pointed out, one of the truly insightful scenes in modern cinematic history, an exchange of dialogue that speaks profoundly about the human condition in the 21st Century, occurs in "Deuce Bigelow, European Gigolo," when Deuce Bigelow (Rob Schneider) tracks down his fugitive friend T.J. Hicks (Eddie Griffin) in Amsterdam by looking for him at the Van Gogh Chicken and Waffles Joint.

TJ: How'd you find me?

Deuce: It’s the only chicken and waffles place in Holland.

TJ: So, a black man's gotta be at a chicken and waffles place? That's racist.

Deuce: But you are here.

TJ: Yeah, but figuring it out is racist.

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

The Real McCain?

What's the deal with McCain suspending his campaign?

Greg Cochran suggests, in the mode of Robert Heinlein's Double Star, it's because the actor who will serve as his double on the campaign trail until McCain gets over some undisclosed medical problem hasn't quite recovered from his appearance-altering plastic surgery yet. Of course, in Double Star the elderly politician never recovers, so the 40-something ham actor winds up living an extra 30 years of the statesman's life for him as Prime Minister of the Solar System.

Perhaps when the surprisingly spry UN General Secretary John McCain celebrates his 100th birthday in office, historians will begin to wonder why Kevin Spacey's film career ended so abruptly in the fall of 2008.

But here's my favorite, from david in the comments section:

"Or he's having second thoughts: who wants to be president of a bankrupt country that's soon to disintegrate?

"'I have seen the future, and I quit.'"

To be serious, though, I could imagine that McCain might have had some medical bad news and might want a few days to get second opinions and consider his options. That happened to me a dozen years ago and it doesn't leave you in the mood for public dispay. If so, I wish him all the luck in the world.

Does anybody know what the Republican Party's contingency plan is if a nominee has to drop out late in the race?

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

2002: Bush's speech to the White House Conference on Increasing Minority Homeownership

As I've been saying for a long time (see "The Diversity Recession") the easy way to get rich quick is to debauch credit standards, take the money and run, then let somebody else pay to clean up the mess. It's an inevitable temptation. That's why the government, which usually winds up on the hook for bailing out the crash to keep it from turning into a depression (e.g., with federal deposit insurance), is supposed to regulate lending, to take the punchbowl away just when the party gets interesting.

Unfortunately, the sacred word "diversity" provided an excuse for everybody who is anybody -- developers, lenders, politicians, activists -- to keep all four trotters in the trough. Its by no means the only excuse that was offered for the degradation of traditional lending standards, but whatever its absolute share of the blame, it's relative share of the blame in public discourse has been disproportionately small so far.

Here's George W. Bush's speech from six years ago to the White House Conference on Increasing Minority Homeownership. The precise programs he was advocating aren't terribly important, they're fairly minor, but the tone of his speech is important. It puts the Presidential Seal of Approval on the orgy of dubious mortgage lending (Down payments? We don't need no steenking down payments!) in the name of increasing minority homeownership.

This is the bipartisan consensus epitomized.

By the way, this isn't some eloquent oration Michael Gerson wrote and Bush just read it stolidly off the teleprompter. As you can see from the garbled syntax, this is Bush winging it, straight from his heart. He really believes all this stuff.

President George W. Bush addresses the White House Conference on Increasing Minority Homeownership at The George Washington University Tuesday, Oct. 15, 2002

THE PRESIDENT: …. I appreciate your attendance to this very important conference. You see, we want everybody in America to own their own home. That's what we want. This is -- an ownership society is a compassionate society.

More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That's a homeownership gap. It's a -- it's a gap that we've got to work together to close for the good of our country, for the sake of a more hopeful future.

We've got to work to knock down the barriers that have created a homeownership gap.

I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. (Applause.) … And it's going to require a strong commitment from those of you involved in the housing industry. …

I appreciate so very much the home owners who are with us today, the Arias family, newly arrived from Peru. They live in Baltimore. Thanks to the Association of Real Estate Brokers, the help of some good folks in Baltimore, they figured out how to purchase their own home. Imagine to be coming to our country without a home, with a simple dream. And now they're on stage here at this conference being one of the new home owners in the greatest land on the face of the Earth. I appreciate the Arias family coming. (Applause.)

We've got the Horton family from Little Rock, Arkansas, here today. … They were helped by HUD, they were helped by Freddie Mac. …

Finally, Kim Berry from New York is here. She's a single mom. You're not going to believe this, but her son is 18 years old. (Laughter.) She barely looked like she was 18 to me. And being a single mom is the hardest job in America. And the idea of this fine American working hard to provide for her child, at the same time working hard to realize her dream, which is owning a home on Long Island, is really a special tribute to the character of this particular person and to the character of a lot of Americans. So we're honored to have you here, Kim, and thanks for being such a good mom and a fine American. (Applause.)

I told Mel Martinez I was serious about this initiative… And the good news is, Mel Martinez believes it and means it, as well. He's doing a fine job of running HUD, and I'm glad he has joined my Cabinet. (Applause.)

And I picked a pretty spunky deputy, as well, Alphonso Jackson -- my fellow Texan. (Applause.) I call him A.J. …

I see Rosario Marin, who's the Treasurer of the United States. Rosario used to be a mayor. Thank you for coming, Madam Mayor. (Applause.) She understands how important housing is. …

All of us here in America should believe, and I think we do, that we should be, as I mentioned, a nation of owners. Owning something is freedom, as far as I'm concerned. It's part of a free society. And ownership of a home helps bring stability to neighborhoods. You own your home in a neighborhood, you have more interest in how your neighborhood feels, looks, whether it's safe or not. It brings pride to people, it's a part of an asset-based to society. It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child. It's a part of -- it's of being a -- it's a part of -- an important part of America.

Homeownership is also an important part of our economic vitality. If -- when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; …

Low interest rates, low inflation are very important foundations for economic growth. The idea of encouraging new homeownership and the money that will be circulated as a result of people purchasing homes will mean people are more likely to find a job in America. This project not only is good for the soul of the country, it's good for the pocketbook of the country, as well.

To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments. A lot of folks can't make a down payment. They may be qualified. They may desire to buy a home, but they don't have the money to make a down payment. I think if you were to talk to a lot of families that are desirous to have a home, they would tell you that the down payment is the hurdle that they can't cross. And one way to address that is to have the federal government participate.

And so we've called upon Congress to set up what's called the American Dream Down Payment Fund, which will provide financial grants to local governments to help first-time home buyers who qualify to make the down payment on their home. If a down payment is a problem, there's a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next five years become first-time home buyers.

Secondly, affordable housing is a problem in many neighborhoods, particularly inner-city neighborhoods. … I'm doing is proposing a single-family affordable housing credit to encourage the construction of single-family homes in neighborhoods where affordable housing is scarce. (Applause.)

Over the next five years the initiative will provide home builders and therefore home buyers with -- home builders with $2 billion in tax credits to bring affordable homes and therefore provide an additional supply for home buyers. …

And we've got to set priorities. And one of the key priorities is going to be inner-city America. …

Another obstacle to minority homeownership is the lack of information. You know, getting into your own home can be complicated. It can be a difficult process. I had that very same problem. (Laughter and applause.)

Every home buyer has responsibilities and rights that need to be understood clearly. And yet, when you look at some of the contracts, there's a lot of small print. And you can imagine somebody newly arrived from Peru looking at all that print, and saying, I'm not sure I can possibly understand that. Why do I want to buy a home? There's an educational process that needs to go on, not only to explain the contract, explain obligation, but also to explain financing options, to help people understand the complexities of a homeownership market, and also at the same time to protect people from unscrupulous lenders, people who would take advantage of a good-hearted soul who is trying to realize their dream.

Homeownership education is critical. And so today, I'm pleased to announce that through Mel's office, we're going to distribute $35 million in 2003 to more than 100 national, state and local organizations that promote homeownership through buyer education. (Applause.)

And, of course, one of the larger obstacles to minority homeownership is financing, is the ability to have their dream financed. Right now, we have a program that all of you are familiar with, maybe our fellow Americans are, and that's what they call a Section 8 housing program, that provides billions of dollars in vouchers to help low-income Americans with their rent. It encourages leasing. We think it's important that we use those vouchers, that federal money to help low-income Americans go from being somebody who leases to somebody who owns; that we use the Section 8 program to not only help with down payment, but to help with continuing monthly mortgage payments after they're into their new home. It is a -- it is a way to help us meet this dream of 5.5 million additional families owning their home.

I'm also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own. …

Last June, I issued a challenge to everyone involved in the housing industry to help increase the number of minority families to be home owners. And what I'm talking about, I'm talking about your bankers and your brokers and developers, as well as members of faith-based community and community programs. And the response to the home owners challenge has been very strong and very gratifying. Twenty-two public and private partners have signed up to help meet our national goal. Partners in the mortgage finance industry are encouraging homeownership by purchasing more loans made by banks to African Americans, Hispanics and other minorities.

Representatives of the real estate and homebuilding industries, through their nationwide networks or affiliates, are committed to broadening homeownership. They made the commitment to help meet the national goal we set.

Freddie Mae -- Fannie Mae and Freddie Mac -- I see the heads who are here; I want to thank you all for coming -- (laughter) -- have committed to provide more money for lenders. They've committed to help meet the shortage of capital available for minority home buyers.

Fannie Mae recently announced a $50 million program to develop 600 homes for the Cherokee Nation in Oklahoma. Franklin [Raines], I appreciate that commitment. They also announced $12.7 million investment in a condominium project in Harlem. It's the beginnings of a series of initiatives to help meet the goal of 5.5 million families. Franklin told me at the meeting where we kicked this office, he said, I promise you we will help, and he has, like many others in this room have done.

Freddie Mac recently began 25 initiatives around the country to dismantle barriers and create greater opportunities for homeownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans. …

There's all kinds of ways that we can work together to meet the goal. Corporate America has a responsibility to work to make America a compassionate place. Corporate America has responded. As an example -- only one of many examples -- the good folks at Sears and Roebuck have responded by making a five-year, $100 million commitment to making homeownership and home maintenance possible for millions of Americans. …

The non-profit groups are bringing homeownership to some of our most troubled communities. …

The other thing Kirbyjon told me, which I really appreciate, is you don't have to have a lousy home for first-time home buyers. If you put your mind to it, the first-time home buyer, the low-income home buyer can have just as nice a house as anybody else. And I know Kirbyjon. He is what I call a social entrepreneur who is using his platform as a Methodist preacher to improve the neighborhood and the community in which he lives.

And so is Luis Cortes, who represents Nueva Esperanza in Philadelphia. I went to see Luis in the inner-city Philadelphia. … But he also understood that a homeownership program is incredibly important to revitalize this neighborhood that a lot of folks had already quit on. …

Again, I want to tell you, this is an initiative -- as Mel will tell you, it's an initiative that we take very seriously. … Thank you for coming. May God bless your vision. May God bless America. (Applause.)

What would 5.5 million marginal mortgages cost? I dunno ... at, say, $127,000 each, that would be, what, $700 billion?

This might be another case where we would have been better off with a straightforward affirmative action program for Non-Asian Minorities (NAMs) rather than lower standards for everybody. At least, with quotas, you get the best from each race, whereas when you lower standards enough for NAMs to get higher representation, you wind up with lower quality from within each group.

For example, when NAMs complained to the Nixon Administration that the they weren't passing the federal civil service exam at the same rate as whites, the government spent a fortune creating the perfect new civil service exam, the PACE, with five subsections, validated for over 100 different jobs. Of course, a higher quality test didn't solve the problem of lower NAM competence, so the Carter Administration junked the PACE and left it up to each department to cobble together its own hiring process, with deleterious long-term results.

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

Chicago Annenberg Challenge

Here's an article from the Brown U. Daily Herald on the role of Brownies, namely the President and an education prof, in the Chicago Annenberg Challenge, of which Obama was chairman of the board. It's a classic example of John O'Sullivan's law that any non-profit organization that isn't explicitly conservative always ends up being run for leftists ends. Arch-Republican Walter Annenberg puts up a half billion bucks, $100,000,000 of which went to Chicago, to fix the public schools. For advice, he turns to two people at Brown, the leftiest of the Ivy Leagues. They direct his money to a proposal co-authored by unrepentant terrorist Bill Ayers, husband of Charles Manson fan Bernardine Dohrn. In turn, Barack Obama gets hired as chairman of the board of the organization dreamed up by Ayers to hand out money to leftist organizations in Chicago like ACORN. The $100 million of Annenberg's money doesn't do much for the test scores of Chicago public school students, but it does wonders for building Team Obama among his base, leftist activists and civil servants.

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

McCain suspends campaign?!?

Huh?

My guess is that he's got the cold/flu thingie that's going around and doesn't want to admit it, so he's blaming the fiscal crisis rather than his physical problems. But who knows...

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

The Mother of All Management Buyouts

Martin Kelly writes from Scotland:

You're dead right to describe the bailout as a coup - in fact, it's worse than that; to all intents and purposes it's a management buyout of the American financial and political systems.

And done with Other People's Money!

I've been blogging about this since last Tuesday (to anyone who's willing to listen) - there is absolutely no normative difference between the proposed operation of Paulson's bailout and Gaetano Salvemini's description of Mussolini's economic theory as being that 'profit is private and personal, loss is public and social'.

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

My advice on livening up the Obama-McCain debate

John McCain hasn't mentioned Rev. Jeremiah Wright in months, so I imagine he won't start in Friday's debate ...

But here's something I posted last March on the eve of Obama's 5,000 word oration on the edifying ineffability of his nuanced thoughtfulness about race (which, by the way, happened right after the Bear Stearns collapse):

Keep in mind that the Wright-Obama connection has two interrelated but distinguishable aspects: the black racial angle and leftist ideological angle. My guess is that Obama will play up the black angle of his past (as being both more understandable -- seeing as how Obama, kind of like Jesus, was a poor black child raised by a single mother in the ghetto of Honolulu -- and more untouchable by the press) and totally ignore the leftist angle.

It would be more fun if Obama reversed the polarity and snarled, "Yeah, yeah, for the last 12 years, I forced myself to nod in seeming agreement when all those smug Friedmanite economists at my University of Chicago would ramble on about the magic of the market. But, in my heart, I knew this glorious day would someday come when the capitalist system crumbles in ruins! Nyah-hah-hah-hah!"

That would be cool.

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

No Real Solution

Back in August, in a VDARE article entitled "No Real Solution -- Arnold Schwarzenegger's Algebra for Dummies," I explained that the new California policy mandating that all 8th graders take Algebra I was kind of stupid.

Now the Brookings Institute agrees, although under a slightly less provocative title: The Misplaced Math Student: Lost in Eighth Grade Algebra. The LA Times reports:

The new study, released today by the Brookings Institution in Washington, D.C., looked at who is taking eighth-grade algebra and how they are doing.

And there was some ostensibly good news. Nationwide, more students are taking algebra than before. Over five years, the percentage of eighth-graders in advanced math -- algebra or higher -- went up by more than one-third. In total, about 37% of all U.S. students took advanced math in 2005, the most recent year in the analysis.

Yet some 120,000 of these students -- about 8% -- are scoring in the lowest 10% on the eighth-grade National Assessment of Educational Progress. Many thousands more are performing well below grade level.

And when students perform poorly in a math course where they don't belong, no one benefits, said Tom Lawless, a senior fellow at Brookings.

Across the country, "you have 120,000 kids sitting in algebra and geometry classes and they don't know how to multiply and divide," Lawless said. "That's an absurd situation. They're not going to learn anything. And the kids who are sitting next to them, who are well prepared, are not going to learn anything either" because their learning will be slowed down.

On average, there are at least two students in every eighth-grade algebra class with second-grade math skills. That number rises in urban school systems where these students are more likely to attend overcrowded schools with teachers who are less experienced and less likely to have math degrees or college-level advanced math. These students also are disproportionately low-income minorities.

For many, algebra has become a civil rights issue. Students who take algebra early have a leg up on college and career. And minorities and the poor have a glaringly lower enrollment rate in early algebra. But just taking the course is not enough.

As evidence, Lawless pointed to the District of Columbia, which rates near the top in eighth-grade algebra enrollment and dead last on the math portion of the eighth-grade national assessment. Near the top in math achievement are Vermont and North Dakota, which enroll a comparatively small percentage of students in advanced math. There is no correlation nationwide between eighth-grade algebra policies and performance in algebra, Lawless said.

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

The Caffeine Coup

From the proposed $700 billion mortgage bailout:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

From the NYT:

The two men [Treasury Secretary Paulson and Fed Chairman Bernanke] have been working early and working late, tracking Asian markets and fielding calls from their European counterparts, then reconnecting with each other by phone eight or nine times a day, talking so often that they speak in shorthand. Mr. Paulson has powered through the long days with a steady infusion of Diet Coke. Asked twice to testify by the Senate last week, he begged off.

“He told me he had like four hours of sleep,” said Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking Committee. But there were limits to Mr. Dodd’s sympathy. “The public wants to know what’s going on,” he said he replied.

Mr. Bernanke (his drink: Diet Dr Pepper) has made a point of leaving the office by midnight to get at least some rest, but friends say the toll on him is clear as well.

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

UPDATED: The weird thing about the latest financial house of cards

... is that the cornerstone, such as it was, was confidence in the increasing ability of the bottom half of society to pay back unprecedentedly large debts.

Underlying these vast pyramids of debt was, all too often, a promise by a single mother who works at the DMV or a drywaller from Chiapas to (following a brief teaser period) make mortgage payments of, say, $3750 per month for the next several decades.

In recent times, investors have typically gotten rich in our society by betting on the rich to get richer. And most of the time, that's what happens: the rich get richer. Every so often, however, we have a meltdown because, during the bubble, investors temporarily overestimated the rate at which the rich will get richer—e.g., Silicon Valley in 2000, the Texas oil patch in 1982, commercial real estate developers around 1990, and so forth.

But, most of the time, you can get richer betting on the rich to get richer....

The homeownership rate had been stuck at about 64% since the late 1960s. The Clinton and Bush administrations pushed hard to get it up to 68-69%.

What in the world made anybody think that the second quartile up from the bottom was developing more earning capacity?

They'd sent their wives out to work a couple of decades before. What else could they do now to pay bigger mortgage payments in the future?

The second quartile folks weren't getting better educated, weren't getting more unionized, weren't facing less competition from China, weren't facing less competition from immigrants, weren't getting married at higher rates so they could better pool their earning capacity.

So what trend suggested they were now developing more capacity to pay back huge debts than before?

You can read the rest at VDARE.com.

I mean, when was the last time it was smart to bet on the working class getting richer? 1946?

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

Too big to fail

There is a lot of talk about how we need more governmental regulation of today's enormously complex financial markets, but the obvious problem with that is that barely anybody understands how today's enormously complex financial markets work, and those that do generally have better things to do than get paid at civil servants' salary levels.

So, what we need are a few new but simple regulations. But those are hard to come up with. Let me toss one idea out there: We shouldn't permit financial institutions to get too big to fail.

The analogy to antitrust legislation is obvious: we don't permit businesses to get too big to compete, so why let financial firms get too big to fail?

For example, in 1987 the Reagan Administration Department of Justice vetoed the acquisition of the marketing research firm I worked for by Nielsen because it would leave only two competitors in the consumer packaged goods sales data industry. You didn't even know there was an industry that measures whether Crest or Colgate has higher market share? Well, it's not much of an industry, but the Reagan Administration considered it important enough to insist that it be a three company industry rather than a two company industry. This decision may have cost me, say, $100,000 or more in paper profits on my stock options in my employer, which went from worth $20 per share to below water, but I don't recall too many being outraged by my loss. That's how the antitrust laws work, going back to 1911, when the Supreme Court ruled that the Standard Oil Company should be broken up under the 1890 Sherman Anti-Trust Act. Standard was split up into three separate competitors.

Why not do the same thing to firms threatening to be too big to fail?

First, once this crisis is over, don't approve mergers that would create firms above a certain threshold in too-big-too-failness.

Second, firms that are already over the threshold would be given, say, three years to split themselves up into firms under the limit. Fast growing firms could plot out their futures and make plans to voluntarily divest themselves of some units, or split like amoebas before they reached the penalty threshold.

This doesn't penalize stockholders unduly (other than that they lose their too-big-too-fail premium). Instead of holding one share of TooBigtoFail Inc, they hold one share each in PrettyBig Inc. and FairlyLarge Inc. Are there enormous economies of scale in the financial industry that would be lost? Perhaps, but how do they compare to all the other losses we've seen due to too-big-to-fail moral hazard? If you want FDIC insurance on your million dollars in bank savings, the government doesn't let you keep it all in one bank, even though there would be economies of scale in doing that. It forces you to diversify among ten banks.

We already know how to do this in antitrust law. We've been doing it for 97 years, and it's not all that controversial anymore.

Consider the alternative, as we've seen it this week, to having written laws and regulations explaining in black and white ahead of time how big a financial firm can be before it must split itself up: government bureaucrats and contractors, in a caffeine-fueled frenzy, deciding which firms are too big to fail (AIG) and which ones aren't (Lehman).

Why let them get that big in the first place?

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

Non-specific immune response due to intentional attribution error

GC unloads in the GNXP comment section. Yes, I know that the financial breakdown had lots of short-term causes, but we've got a long-term problem that people are only now waking up to that he describes with vivid overstatement here.

Consider the recent and ongoing financial meltdown. The forced borrowing and credit expansion makes our society like Wile E. Coyote. The standard of living which we're maintaining through massive borrowing is that of a 90+% Euro country, running further and further out in mid-air over an enormous gorge. At some point the Chinese will call in their chits -- and there will be a massive correction which drops us back to the economic profile of a ~67% Euro country with a 2% high IQ minority of immigrants and a 30% or larger proportion of restive NAM economic deadweight. A vertical drop on the regression line rather than a gradual degradation. ...

But can this fundamental demographic factor be mooted, let alone discussed? No.

- Yet can we discuss "greed"? Sure.

- The ineradicable evil of the Republicans and capitalism itself? Of course.

- The necessity of yet more government control over the economy, despite the fact that Sarbanes-Oxley did nothing to prevent this? Naturally.

So -- what happens when we can only discuss symptoms rather than causes? Well, do you know what nonspecific activation of the immune system can do? Some really bad things:

http://en.wikipedia.org/wiki/TGN1412

A cytokine storm. An immunologist contacted by New Scientist and who wished to be anonymous has commented that "You don't need to be a rocket scientist to work out what will happen if you non-specifically activate every T cell in the body."[25]


- Point: a nonspecific immune response can result in the death or incapacitation of an organism.

- Observation: our media systematically causes nonspecific responses via intentional attribution error.

1) Health Care -- have you seen these Blue Shield Ads? They go on & on about the "uninsured" without ever once mentioning that they are overwhelmingly Hispanic.

2) Collapse of our financial system -- compare Sailer's diversity recession article to current see-no-ACORN NYT coverage.

3) "Gun violence" in the US -- compare Bowling for Columbine to the FBI Uniform Crime reports. The Heller argumentation was a joke, a complete abstraction on both sides. Doesn't matter whether there are assault rifles in every house (like Switzerland) or gun prohibition (like the UK). Demographics is what determines gun violence.

4) Education -- international statistics show "Americans" at the bottom, causing NCLB. But whites and Asians are doing fine.

5) Terrorism -- compare PC Norman Mineta's screening procedures with the reality of the names on the terrorist watch list.

6) Racial profiling -- see "violence" above. Soon whites/asians will be pulled over at higher rates to match quotas, with blacks/hispanics pulled over at lower rates. This will be the effect of Obama's proposed national racial profiling prohibition in the Jena Six speech at Howard -- either increase spurious arrests or practice catch and release, or both.

7) Crime statistics -- FBI aggregates Hispanics into the white category as "offenders", vastly increasing the apparent white crime rate (this is how Tim Wise lies).


Every single one of these has the same form:

1) NAM group behaves badly
2) Media reports it as nonspecific problem of "society" and refuses to mention specific culpability
3) The government increases its power and forces non-NAMs to pay for their bad behavior
4) Refusal to address root causes increased rates of taxation, crime, victimization. Everything from airport security strip searches of grandma to gun seizures from law abiding citizens to forced busing into Rwanda-like schools is a function of this systematic attribution error.

This movie ends badly.

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

Was Obama born in Hawaii?

Or was he born in some foreign country, thus (perhaps) disqualifying him from becoming President?

Of course he was born in Hawaii.

Have you ever looked at where Hawaii is on a globe? It's farther from foreign countries than even the American mainland. The idea that his heavily pregnant mother (flying is not at all fun for pregnant women) would get on an early 707 and fly at great expense to some foreign country is ridiculous -- especially the popular theory that he was born in Kenya. Do you know how many different flights she would have had to take to get to Kenya in 1961? Honolulu to California, California to the East Cost, the East Coast (refueling at Gandar Bay) to London, London to maybe Cairo, Cairo to Nairobi. How much would that have cost? And then you would be stuck having your baby in Africa rather than in a modern American hospital in Honolulu.

Or you could go the other way around the world -- it's about the same distance either way. Kenya and Hawaii are more or less on the opposite sides of the globe, almost as far apart as two places can be.

This is a very silly idea.

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

The Obama Thought Police

In "Black and Blacker: The Racial Politics of the Obama Marriage," Vanessa Grigoriadis writes:

"As I began to finish the reporting for this article, I mentioned to an Obama aide that I was interested in the different ways that Obama presents himself to black and white audiences. The aide hit the roof over this comment, which he claimed was racially divisive, and soon I received a call from Obama’s “African-American outreach coordinator,” who apparently clarifies race issues for reporters when they are perceived to have strayed. “I appreciate what you’re saying,” said Corey Ealons, “but I think it’s dangerous, quite frankly.” He thought for a moment. “The spirit of this campaign is about bringing people together and focusing on the things that are similar about us as opposed to the things that make it different,” he said. “Barack is one of the best political communicators in our history. If you’re somehow saying that he can’t be the same person with all people, that’s certainly not the case.” He paused. “Barack Obama is Barack Obama,” he said."

Anybody who has seen the video of Obama's "Quiet Riot" speech commemorating the 1992 South Central Riots in front of an assembly of black ministers, in which he uses the accent and body language of a Baptist reverend from Tupelo, will know how funny this is. By the way, the "shout-out" to Rev. Jeremiah A. Wright, Jr., is from the one to the two minute mark in the video. (The text of Obama's speech is less amusing -- it features a long whine about how blacks got cheated out of all that government money they were promised after they rioted in 1992.)

What's even more hilarious is how many journalists have volunteered to serve as unpaid deputies in the Obama Thought Police Auxilary. Partly, it's access journalism at work -- you're only allowed to talk to the candidate if his aides are sure you won't ask any tough questions. It's like Hollywood's various gay Scientologist action heroes -- you'll never ever be allowed to interview them, or any of their publicists' other A-list clients, if you ask them about being gay or being a Scientologist.

But mostly, it's just that asking Obama any intelligent questions about his "story of race and inheritance" is unthinkable. Sure, it would be interesting and important, but its ... just ... not... done.

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