Showing posts with label political economy. Show all posts
Showing posts with label political economy. Show all posts

December 21, 2011

Obama's Popguns of Singapore

From the NYT:
Countrywide Will Settle a Bias Suit 
By CHARLIE SAVAGE 
WASHINGTON — The Justice Department on Wednesday announced the largest residential fair-lending settlement in history, saying that Bank of America had agreed to pay $335 million to settle allegations that its Countrywide Financial unit discriminated against black and Hispanic borrowers during the housing boom. 

The British defense of Singapore after Pearl Harbor is famously (although not necessarily all that accurately) said to have suffered from the long-held assumption that Singapore's big guns must point out to sea to defeat an attack by an enemy navy. Yet, the Japanese army, not the navy, came by way of the Malaysian mainland.

Similarly, for decades, the conventional political wisdom was that the main problem with the mortgage business was its irrational refusal to do enough business with blacks and Hispanics. Thus, the government laboriously constructed legal and political guns to pound down this intractable problem.

Over time, the more politically nimble sort of lenders, such as Angelo Mozilo of Countrywide, came around to the government's point of view that they were leaving money on the table. In 2003, Mozilo trumpeted in a Harvard address that Countrywide was going to lend $600 billion (with a b) to minorities and low income communities. And then in early 2005, Mozilo upped the commitment to a trillion bucks, with Countrywide's board member Henry Cisneros (Clinton Administration HUD secretary) delegated to advise him upon it.

When the mortgage system went into the ditch in the Sand States in 2007-2008, however, it  turned out that the problem was largely one of lenders lending too much to minorities, which had driven up home prices to unsustainable levels.

Here we are in late 2011, and the Obama Administration has just fired one of its guns at the most notorious symbol of mortgage mania: Countrywide. Of course, its guns are still pointing in the wrong direction. More amusingly, the big gun turns out to be popguns.
A department investigation concluded that Countrywide loan officers and brokers charged higher fees and rates to more than 200,000 minority borrowers across the country than to white borrowers who posed the same credit risk. Countrywide also steered more than 10,000 minority borrowers into costly subprime mortgages when white borrowers with similar credit profiles received regular loans, it found.

Let's do some math: $335 million divided by 200,000 minority mortgage borrowers equals a $1,675.00 payout per victim of racism. That's out of 2.5 million mortgages examined, according to Business Insider. Hhmmhmmmhmm ... Keep that in mind as you read onward.
Attorney General Eric H. Holder Jr. said the settlement showed that the Justice Department would “vigorously pursue those who would take advantage of certain Americans because of their race, national origin, gender or disability,” adding: “Such conduct undercuts the notion of a level playing field for all consumers.  It betrays the promise of equal opportunity that is enshrined in our Constitution and our legal framework.” 
The settlement is subject to approval by a federal judge in California; according to the proposed consent order filed Wednesday, Countrywide denied all of the department’s allegations. 
Dan Frahm, a Bank of America spokesman, stressed that the allegations were focused on Countrywide’s conduct from the years 2004 to 2008, before Bank of America purchased it. ...
The problems stemmed from a Countrywide policy that gave loan officers and brokers the discretion to alter the terms for which a particular applicant qualified without setting up any system to comply with fair-lending rules, the department said. Lending data showed that Countrywide ended up charging Hispanics and African-Americans more, on average, than white applicants with similar credit histories.

So, if you are Asian or white and you got cheated by Countrywide's boiler room operation into paying higher fees on your mortgage than you should have, you are out of luck because you are the wrong race?

Basically, Countrywide and independent mortgage brokers were running high pressure boiler rooms during the peak of the housing bubble. To up commissions, their salesmen often stuck a bunch of extra fees in the fine print. Moreover, they talked about 5% (10,000 out of 200,000 minority borrowers who extra fees) into getting subprime loans with higher interest rates who would have qualified for prime loans.
In 2007, for example, Countrywide employees charged Hispanic applicants in Los Angeles an average of $545 more in fees for a $200,000 loan than they charged non-Hispanic white applicants with similar credit histories. 

Of course, the joke is that $545 in rip-off fees is a pittance compared to how much was lost on these loans on average.

Of course, it's not as if Countrywide tried to keep secret that they were going after minority borrowers.

For salesmen whose commissions pay off when fees are paid at closing, not when the borrowers write their monthly checks, being told to rope in marginal minority customers is like telling hyenas to eat raw meat. Countrywide's office in high-IQ Santa Monica was notoriously hard to make money at, but their Inglewood office in the 'hood brought in huge margins.

This is highly reminiscent of the argument between Malcolm Gladwell versus Judge Richard A. Posner and myself about whether or not car salesmen consciously exploit blacks and Hispanics. As Gladwell wrote in 2006:
One of the most bizarre reactions that I received from reviewers of Blink is an absolute inability to accept the notion of unconscious prejudice. Here is an example from a fairly well known writer named Steve Sailer. Sailer, in turns, quotes from a very hostile review of Blink in The New Republic by Richard Posner.

Posner and I said that of course car salesmen rip off blacks and Latinos consciously. While Gladwell claimed that the car salesmen who charge blacks and Latinos higher prices are, when you stop and think about it, the real victims. If only they had read Blink and realized that they were unconsciously assuming that blacks and Latinos were easier to rip off than, say, Armenians or Koreans, then they would have stopped doing it, and the car salesmen would have made more money!
Independent brokers processing applications for a Countrywide loan charged Hispanics $1,195 more, the department said. ...

Of course, a much higher fraction of the independent brokers exploiting Hispanics were Hispanics themselves. This shouldn't be a surprise: Countrywide issued many press releases over the years patting itself on the back for all its hiring of Hispanic salesmen and its efforts to find independent Hispanic brokers. The mortgage meltdown has some of the attributes of a classic affinity scam, like Mormons getting suckered by a Mormon conman.
“Chances are, the victims had no idea they were being victimized,” said Thomas E. Perez, the Justice Department’s assistant attorney general for civil rights. “It was discrimination with a smile.” 
In addition, from 2004 to 2007 — the peak of Wall Street firms’ demand for subprime loans that they purchased, bundled and resold as securities, a major cause of the ensuing financial crisis ...

And Fannie Mae and Freddie Mac's peak demand, too, or that was more like 2005-2008. Countrywide was famously in bed with Fannie.
...— Countrywide allowed its brokers and employees to steer applicants who qualified for regular mortgages into a riskier and more expensive subprime loan. 
The odds of a minority applicant being steered into such a loan were more than twice as high as those for a non-Hispanic white borrower with a similar credit rating, the department said. About two-thirds of the victims were Hispanic and one-third were black, the department said.

Oddly enough, steering into a subprime loan apparently only happened to about 5% of these minority victims of higher fees, and to only about 0.4% of all Countrywide borrowers examined by the Justice Dept. I'm surprised that percentage isn't higher. We've been hearing for years about how the foreclosure crisis was caused by minorities getting forced into subprime loans, but with notorious Countrywide, it was quite rare.

Now the Justice Department quantifies the discrimination and comes up with a price tag of $1,675 each -- a distinct anti-climax. I mean $335,000,000 is about Angelo Mozillo's compensation during the last decade even after his SEC mini-fine.
If a judge approves the settlement, victims will receive between several hundred and several thousand dollars, with larger amounts going to those who were steered into subprime mortgages despite qualifying for regular loans.

Let's repeat that: "several hundred and several thousand dollars:" not exactly a home run for Eric Holder's theory of what caused the meltdown; more like a foul tip.
... Under federal civil rights laws — including the Fair Housing and Equal Credit Opportunity acts — a lending practice is illegal if it has a disparate impact on minority borrowers. Against the backdrop of the foreclosure crisis, the Obama administration has made a major effort to step up the laws’ enforcement.

So, it's a disparate impact case. I guess that's why white and Asian victims of being cheated by Countrywide can't get any compensation. The blacks and Hispanics are evidently getting paid the difference between what they paid in points and other mortgage fees and the average of what whites paid, not the difference between what they paid and what an honest broker would have charged them. What Countrywide should have done was rip off whites and Asians even more so then the Obama Justice Dept. wouldn't have a complaint.
In early 2010, the division created a unit to focus exclusively on banks and mortgage brokers suspected of discriminating against minority mortgage applicants, a type of litigation that requires extensive and complex analysis of data.

While they were crunching the numbers, perhaps they could have calculated the default rates on these loans. My guess is that even with the surplus origination fees Countrywide / Bank of America came out the loser in the long run due to defaults. (Of course, other losers include Fannie and the public.) To have had these risky mortgages make sense as paying propositions, Countrywide would have had to charge vastly higher fees.
Working with bank regulatory agencies and the Department of Housing and Urban Development, the unit has reached settlements or filed complaints in 10 cases accusing a lender of engaging in a pattern or practice of discrimination. 
The Federal Reserve first detected statistical discrepancies in the loans Countrywide was making and referred the matter to the Justice Department in early 2007, according to a court filing disclosed in 2010 as part of a civil fraud case brought by the Securities and Exchange Commission against Angelo R. Mozilo, the former chief executive of Countrywide.

In other words, the normal federal regulatory system noticed this disparate impact problem in early 2007, well before Countrywide cratered in 2008. Good to know that the Feds were on the watch against the really important mortgage lending problem!

In summary, there's a general problem with rip-off sales practices, whether in mortgage lending or auto sales. Experience, however, shows that fighting rip-offs by focusing on discrimination is a losing proposition. What happens is that clever people rip off not clever people, which has disparate impact on blacks and Hispanics.

But the problem can't be explained that way, because then it leads to the inference that blacks and Hispanics are less clever on average. So, enforcement tapers off because the whole subject becomes too embarrassing.

Clearly, the anti-discrimination method of regulating mortgage lenders turned out to be extremely bad as a way to prevent boiler room fraud and excess. It was not uncommon for lenders to respond to complaints about predatory lending to minorities by saying, "Okay, we'll lend more to minorities. (Fannie is buying!) And we'll hire some of your NGO's foot soldiers as loan counselors. And maybe make a donation to your fine organization. After all, we all have to do our part in fighting racist redlining."

We need instead to say that the clever shouldn't rip off the clueless, and it doesn't matter what races the clever and the clueless belong to. We all get clueless in the end.

September 22, 2011

Rick Perry's Texas Miracle (Americans need not apply)

Steve Camarota has done a very useful piece of research for the Center for Immigration Studies:
Governor Rick Perry (R-Texas) has pointed to job growth in Texas during the current economic downturn as one of his main accomplishments. But analysis of Current Population Survey (CPS) data collected by the Census Bureau show that immigrants (legal and illegal) have been the primary beneficiaries of this growth since 2007, not native-born workers. This is true even though the native-born accounted for the vast majority of growth in the working-age population (age 16 to 65) in Texas. Thus, they should have received the lion’s share of the increase in employment. As a result, the share of working-age natives in Texas holding a job has declined in a manner very similar to the nation as a whole. 
Among the findings: 
Of jobs created in Texas since 2007, 81 percent were taken by newly arrived immigrant workers (legal and illegal).  
In terms of numbers, between the second quarter of 2007, right before the recession began, and the second quarter of 2011, total employment in Texas increased by 279,000. Of this, 225,000 jobs went to immigrants (legal and illegal) who arrived in the United States in 2007 or later.  
Of newly arrived immigrants who took a job in Texas, 93 percent were not U.S. citizens. Thus government data show that more than three-fourths of net job growth in Texas were taken by newly arrived non-citizens (legal and illegal).  
The large share of job growth that went to immigrants is surprising because the native-born accounted for 69 percent of the growth in Texas’ working-age population (16 to 65). Thus, even though natives made up most of the growth in potential workers, most of the job growth went to immigrants.  
The share of working-age natives holding a job in Texas declined significantly, from 71 percent in 2007 to 67 percent in 2011. This decline is very similar to the decline for natives in the United States as a whole and is an indication that the situation for native-born workers in Texas is very similar to the overall situation in the country despite the state’s job growth. 
Of newly arrived immigrants who took jobs in Texas since 2007, we estimate that 50 percent (113,000) were illegal immigrants. Thus, about 40 percent of all the job growth in Texas since 2007 went to newly arrived illegal immigrants and 40 percent went to newly arrived legal immigrants.

A commenter in the one newspaper that has covered this study argues:
In reading the study, they came up with 2 sets of findings depending on how they compared the data: gross vs net showed 29% immigrant growth taking 81% of the new jobs and a net vs net comparison showed 31% immigrant growth taking 54% of the new jobs. The second finding is the more valid comparison (as noted above) but only the first is being reported in most of the media reports and headlines. 
An interesting part of their conclusion: 
"This analysis shows that job growth was significant in Texas. But, depending on how one calculates the impact of immigration, between 2007, before the recession began, and 2011 more than three-quarters or more than half of that growth went to immigrants. This is the case even though the native-born accounted for more than two-thirds of the growth in the working-age population. Some may argue that it was because so many immigrants arrived in Texas that there was job growth in the state. But if immigration does stimulate job growth for natives, the numbers in Texas would be expected to look very different. The unemployment rate and the employment rate show a dramatic deterioration in the Texas for the native-born that was similar to the rest of the country. Moreover, if immigration does stimulate job growth for natives, why have states that received so many new immigrants done so poorly in recent years? (See Table 2.) For example, unemployment in the top-10 immigrant-receiving states in 2011 averaged 8.7 percent, compared to 8.1 percent in the other 40 states. Moreover, unemployment is 7.2 percent on average in the 10 states where the fewest immigrants arrived since 2007. These figures do not settle the debate over the economics of immigration. What they do show is that high immigration can go hand in hand with very negative labor market outcomes for the native-born. And conversely the native-born can do relatively well in areas of lower immigration."

So, I'm going to suggest caution in quoting that 81% figure. You can read the report here and make up your own mind.

In a 2006 VDARE.com article, I explained why the then-current boom in Las Vegas wasn't doing American workers much good:
What [economist David] Card doesn't grasp is that illegal immigration is denying Americans the traditional wage premium for undergoing the pain of moving to a boomtown.{NYT writer Roger] Lowenstein can't see it either, as he writes: "Immigrants do help the economy; they are fuel for growth cities like Las Vegas …"
Imagine you are an American blue-collar worker in Cleveland, making $10 per hour. You know the local economy is stagnant, so you're thinking about relocating to fast-growing Las Vegas. But your mom would miss you; and you're not a teenager anymore so you don't make new friends as fast as you once did; and you really like the wooded Ohio countryside you grew up around and the fall colors and the deer hunting; and there's this girl that maybe you could get serious about, but her whole family is in Cleveland and she'd never leave. 
So, you decide, you'll leave home behind if you can make 50 percent more in Las Vegas, adjusted for cost of living. That seems fair. 
But, then you look through the Las Vegas want ads and discover you'd be lucky to make 10 or 20 percent more because the town is full of illegal aliens. They're moving from another country, so it's not much skin off their nose to move to Las Vegas rather than some place slower-growing. 
Well, forget that, you say. I'll stay in Cleveland. 
Unfortunately, too many economists forget that too. They can't—or won't—put themselves in other people's shoes and see how the world really works. 
That doesn't seem to hurt them professionally. But it can hurt America.

September 17, 2011

Mayor Bloomberg's latest

A distinguished reader points to this from CNN:
New York City Mayor Michael Bloomberg is worried that high U.S. unemployment could lead to the same kind of riots here that have swept through Europe and North Africa.

Fortunately, Bloomberg has long used his massive political, media, and financial influence to increase the supply of marginally employed workers / potential rioters in the U.S.

From UPI in 2006:
Bloomberg: Illegal immigrants help golfers 
New York Mayor Michael Bloomberg says golf fairways would suffer if illegal immigrants were returned to their native country. 
"You and I are beneficiaries of these jobs," Bloomberg told his WABC-AM radio co-host, John Gambling. "You and I both play golf; who takes care of the greens and the fairways in your golf course?" 
However, Robert Heaney, general manager of Deepdale Golf Club -- a Long Island course where Bloomberg often plays -- told The New York Daily News that no illegal immigrants work at the club.

Deepdale is "maybe the most reclusive club in America," and it "hosts maybe ten rounds per day," according to golf course architect Tom Doak in his indispensable Confidential Guide to Golf Courses. Thank God that billionaires like Bloomberg don't have to choose between paying groundskeepers a little more or putting up with fluffy lies in the fairway that might make it harder to draw a 3-iron shot into Deepdale's notoriously unreceptive 15th green. If it weren't for illegal immigrants holding costs down, Deepdale might have to let an extra two or three golfers per day play the course to pay the wages of those greedy American citizens. And then, Mayor Bloomberg might one day see another foursome playing on a different hole, which could ruin for him, perhaps permanently, the entire Deepdale Experience of having what appears to be his own personal golf course. C'mon, people, we have to get our priorities straight. 

August 5, 2011

Let's play "Spot the Fallacies"

An op-ed in the New York Times by Princeton sociologist Douglas S. Massey, "Isolated, Vulnerable, and Broke:"
ACCORDING to a new study by the Pew Research Center, Hispanic families saw the largest decline in wealth of any racial or ethnic group in the country during the latter half of the last decade: from 2005 to 2009, their median wealth fell by an astounding 66 percent. The reason? The implosion of the housing market, where Hispanic families had invested much of their wealth. 
But that’s only the latest chapter in a much longer story. Over the past two decades Hispanics have moved from the middle of the socioeconomic hierarchy, between blacks and whites, to a position below both. On virtually every indicator of socioeconomic welfare, Hispanics fell relative to blacks. 

Not really. I've looked at least as many socioeconomic indicators as Professor Massey over the last 39 years, and the keynote is relative stability. But, to the extent that Hispanics fell relative to blacks on socioeconomic indicators, it's largely due to a flood of new immigrants from south of the border.
This has nothing to do with nativist tropes like work ethic or resistance to assimilation and everything to do with misguided government policy: our immigration and border-control system has created a class of people cut off from traditional legal and economic structures and thus vulnerable to the worst depredations of the market system.

When somebody angrily announces without evidence "This has nothing to do with nativist tropes like work ethic or resistance to assimilation ..." they are feeling insecure about their argument.
During the housing bubble, those depredations came in the form of predatory lenders, driven by the boom in mortgage-backed securities. Before that, minorities had generally been shunned by lenders, which tended to be risk averse and discriminatory.

And, apparently, accurate.
... Yet subprime lending affected both blacks and Hispanics and, if anything, predatory lenders went after the former more than the latter. So why did Hispanics suffer more? 

I doubt that predatory lenders went after blacks more than Hispanics. The big money didn't flow into Detroit. All that happened there was you had a lot of $30,000 houses got pumped up to $65,000 before collapsing to $12,000. That's nothing compared to the flood of money into, say, California's Inland Empire.

You can see that Massey doesn't know what he's talking about just by looking at the four Sand States (CA, AZ, NV, FL) where the great majority of money was lost. At the peak of the bubble, something like 3/8ths of all the market value of homes in the U.S. was in California alone.

Lots of lenders had been burned on black neighborhoods before. Latinos were the big growth market. If you listed to the key figures in the housing bubble, such as Angelo Mozilo, Henry Cisneros, and George W. Bush, it's clear that they were much more excited over the potential of the Hispanic market than of the black market.
The answer is simple: over time more and more Hispanics had become economically vulnerable and eminently exploitable, a fact attributable in large part to American immigration policy. 
In the early 1990s the United States began militarizing its border with Mexico in an effort to halt unauthorized migration.

Lame. The argument here is that if illegal immigrants were legal, then magic ponies for everybody. Or something. There seems to be lacking a mechanism.
... Thus the sudden creation of a new class of people, working low-wage jobs outside the legal labor markets. Not only was it difficult for them to safely accumulate wealth, but they were left uniquely vulnerable to economic exploitation — such as the promise of a mortgage with little documentation required at signing.
When the Great Recession arrived, many Hispanics got hit with a double whammy: not only were many Hispanic homeowners left with negative equity, but the collapse of construction jobs, which had been a primary draw for immigrants beforehand, eliminated the very means by which they could continue making mortgage payments. 

Indeed.
And because many were working and living in legal gray areas, they had little recourse when they learned their mortgages came with ballooning fee structures and onerous penalties for late payments. What little wealth they had managed to accumulate simply vanished.

As opposed to everybody else who had tons of recourse.

This is just dumb. On the whole, illegal immigrants had more options, including just disappearing.

The simple explanation is that a big influx of Hispanics helped justify the housing bubble. Who was going to buy these houses in Palmdale for $400,000? Why the infinite supply of hard-working family values Hispanics, that's who. Just like the President said. Only evil nativists had any doubts about their ability to pay. The smart money boys like Mozilo and Cisneros are putting a trillion dollars into underserved markets. You notice Mozilo didn't team up with Al Sharpton.

Now, I read several hundred articles about people who got foreclosed upon. I'm pretty good at noticing patterns in large amounts of anecdotal evidence. And I was looking for evidence of a huge role for illegal immigrants in this debacle. Trust me, I was.

While I saw plenty of Spanish surnames, my impression is that the big money foreclosures in the Inland Empire, Vegas, and Phoenix hit hardest Hispanics who were either born here or had been here a fair amount of time. New illegal immigration played a huge role, but it was more indirect. You see much higher foreclosure rates in entrepots in LA and Orange Co. like East LA and Santa Ana relative to surrounding neighborhoods, but the really big money was lost in fast growing inland areas that were less entrepots for illegal immigrants than Brown Flight destinations. Illegal Immigration pushed established Hispanics out of LA County and into the desert, looking to get away from the newcomers. Only in the last year or two as the bottom of the barrel got scraped ever harder did a large number of illegals got loans.


July 26, 2011

Wealth gap ratio hits new high

From a new study of Census Bureau data by the Pew Hispanic Center:
Hispanics: The net worth of Hispanic households decreased from $18,359 in 2005 to $6,325 in 2009. The percentage drop--66%--was the largest among all groups. Hispanics derived nearly two-thirds of their net worth in 2005 from home equity and are more likely to reside in areas where the housing meltdown was concentrated. Thus, the housing downturn had a deep impact on them. Their net worth also diminished because of a 42% rise in median levels of debt they carried in the form of unsecured liabilities (credit card debt, education loans, etc.).  
Blacks: The net worth of black households fell from $12,124 in 2005 to $5,677 in 2009, a decline of 53%. Like Hispanics, black households drew a large share (59%) of their net worth from home equity in 2005. Thus, the housing downturn had a strong impact on their net worth. Blacks also took on more unsecured debt during the economic downturn, with the median level rising by 27%.  
Whites: The drop in the wealth of white households was modest in comparison, falling 16% from $134,992 in 2005 to $113,149 in 2009. White households were also affected by the housing crisis. But home equity accounts for relatively less of their total net worth (44% in 2005), and that served to lessen the impact of the housing bust. Median levels of unsecured debt among whites rose by 32%.  
Asians: In 2005 median Asian household wealth had been greater than the median for white households, but by 2009 Asians lost their place at the top of the wealth hierarchy. Their net worth fell from $168,103 in 2005 to $78,066 in 2009, a drop of 54%. Like Hispanics, they are geographically concentrated in places such as California that were hit hard by the housing market meltdown.  
The arrival of new Asian immigrants since 2004 also contributed significantly to the estimated decline in the overall wealth of this racial group. Absent the immigrants who arrived during this period, the median wealth of Asian households is estimated to have dropped 31% from 2005 to 2009. Asians account for about 5% of the U.S. population.  
No Assets: About a quarter of all Hispanic (24%) and black (24%) households in 2009 had no assets other than a vehicle, compared with just 6% of white households. These percentages are little changed from 2005.

July 22, 2011

How Microsoft does it

Yesterday, Microsoft announced it had made net income of $5.87 billion in the latest quarter, but had reduced its tax rate from 25% a year ago to 7%. Annualized, that would be about $4 billion incremental in tax avoidance just over the last year. You're probably saying to yourself, "Hey, I'd like to reduce my tax rate by 72% from 2010 to 2011, too! What are some tips from Microsoft on how I could do this?"

In the fine print of Microsoft's July 21, 2011 press release, you can find:
Our effective tax rates for the fourth quarters of fiscal years 2011 and 2010 were approximately 7% and 25%, respectively. Our effective tax rate was lower than the U.S. federal statutory rate primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore and Puerto Rico, which are subject to lower income tax rates.

Microsoft's tax avoidance strategy wasn't public knowledge until recently. New Is My Business reported on June 7, 2011:
Software giant Microsoft has reportedly been using three jurisdictions where it operates outside the United States — Puerto Rico, Ireland and Singapore — as tax shelters to reduce its federal tax bill, the Financial Times reported
The strategy is part of Microsoft tax planning methods, details of which the Washington-based company reluctantly disclosed to the Securities and Exchange Commission in its quarterly report filed last month. That was when the company revealed for the first time that most of the $50.2 billion in cash it has amassed is held in so-called “low-tax regional centers.”

If you are wondering why giant American corporations aren't reinvesting their giant retained earnings in creating American jobs, or at least distributing them to American shareholders as dividends or stock buybacks, well, one reason is because they've declared that they just happened to make most of this cash in certain overseas tax havens. Hence, 84% of Microsoft's $50 billion trove of cash is officially overseas, and can't be repatriated without paying American taxes on it which means that American shareholders can't get it and thus can't pay taxes on their capital gains, either. This kind of tax policy would make sense to Rumplestiltskin, Hetty Green, Silas Marner, and Scrooge McDuck, but it doesn't seem to make much sense to me.

For purposes of tax avoidance, Puerto Rico is considered, by the U.S. government, to be an untouchable foreign tax haven, because it's crucial, as Admiral Mahan explained in the 19th Century, for the U.S. Navy to hold Puerto Rico to protect the approaches to the future Panama Canal from the Kaiser's High Seas Fleet and the new dreadnoughts of the Royal Navy. Or something. The U.S. doesn't actually have any military bases in P.R. these days, nor does it have the Panama Canal, but it still has lots of tax breaks for Puerto Rico.
Microsoft has had presence in Puerto Rico for more than two decades. The eastern town of Humacao is where it operates its only wholly owned manufacturing facility in the world. Out of that plant come the millions of software and game CDs and DVDs ...
Furthermore, the Financial Times also reported that some 62 percent of Microsoft’s international income came from the three aforementioned manufacturing hubs last year, even though the two island nations and Puerto Rico only accounted for 42 percent of the company’s international revenue. 

A May 26, 2011 article in Caribbean Businss by Jose Alvarado Vega gave some details on Microsoft's Puerto Rica operation that helps Microsoft avoid perhaps a billion or two in taxes per year:
Microsoft Humacao plant poised to capture growing software market 
Microsoft's manufacturing plant in Humacao is not only key to the company's regional and global distribution of disk-based gaming and office-computing software, but also is looking forward to Internet-driven, interactive and unified telecommunications media products. More than 90% of all personal computers used throughout the world are run by Microsoft software. Chances are that such software was made and passed quality-control tests at the 123,000-square-foot plant, a continuation of the company's 21 years of innovation-driven manufacturing in Puerto Rico. 
Julián Herencia, general manager of Microsoft Operations Puerto Rico LLC, which runs the plant, said the facility shows Microsoft's long-term trust in the local workforce. ...
The plant, built in 2006, makes 80 million CD and DVD software units a year, and has 185 full-time permanent employees. ...  
Herencia didn't rule out lobbying for moving some research & development, now done entirely at Microsoft's headquarters in Redmond, Wash., to Puerto Rico. [I don't know if the "entirely" done in Redmond part is true, but the point is that Microsoft isn't doing much in Puerto Rico other than having a 185 people replicating CDs, plus the modest sales office in suburban San Juan I mentioned yesterday. Yet, Microsoft has recently started to claim to make several billion dollars in profits annually in Puerto Rico.]

Now, I get it! You see, Microsoft has over 40,000 employees in the state of Washington in the United States. But they don't actually physically burn on to disks the software they develop. Instead, Microsoft, has a manufacturing plant in Puerto Rico employing 185 people that gets credited in Microsoft's books with a lion's share of Microsoft's Western hemisphere revenue and profits. It's making disks that's the really important thing that Microsoft does.

Despite all you've heard about Microsoft being a software company, they are actually a manufacturing company, at least for tax accounting purposes. To the IRS, Microsoft is basically a Puerto Rican, Irish and Singaporean industrial goliath with a money-losing R&D outpost in Redmond, WA.

I'm picking on Microsoft because they are in the news and they are easy to pick on because very few people like Microsoft. But MS barely made the top ten in piling up cash overseas to avoid paying American taxes. Microsoft didn't invent this tax avoidance technique. Judging by how much their tax rate has fallen over the last year, they only recently jump heavily on this bandwagon.

As for Puerto Rico, it's a really odd story. Imperialism has been in bad odor for most of the last century. There are now a couple of hundred independent countries. But, not Puerto Rico, even though it's a much more plausible nation-state than many existing counties. It's an island. They all speak Spanish. Emotionally, Puerto Rico is a nation with its own Olympic team.

But the way it works is that big American corporations and politicians team up to bribe Puerto Ricans via tax breaks for big American interests into staying part of the American empire, all at the expense of average American taxpayers. Any American who would call for kicking Puerto Rico out of America would be branded a racist, so the thought never even crosses anybody's mind.

It's another one of these Hi-Lo teamups against the Middle that have been so successful in recent decades.

A reader writes:

I happen to have a bit of inside knowledge on this one. MS ships blank
disks to their overseas operations, which then burns them onsite for resale
to foreign markets. MS then shows US income for the 10 cents or so the disk
costs, while the "profit", that results from the completed packages is
booked to foreign operations in that country. Pretty slick. 
How do I know this? 'Cause Bill himself told me in a meeting before I
retired from MS in 199X.

Tax amnesty?

From a Washington Post article on Microsoft's quarterly earnings announcement:
Net income in the fiscal period that ended in June rose 30 percent to $5.87 billion, or 69 cents a share, from $4.52 billion, or 51 cents, a year earlier, Redmond, Washington-based Microsoft said in a statement today. That beat the 58-cent estimate of analysts surveyed by Bloomberg. 
Sales rose to $17.4 billion, compared with the $17.2 billion average projection. ... 
Microsoft said its tax rate fell to 7 percent from 25 percent a year earlier because more earnings were taxed at lower rates in Ireland, Singapore and Puerto Rico, Microsoft said. 
“Our effective tax rate was lower than the U.S. federal statutory rate primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions,” Microsoft said in the statement.
The rate explains much of the reason why results surpassed predictions, Chief Financial Officer Peter Klein said in an interview.

Can I get my personal income taxed at the rate of some random foreign country? For example, I became a lifetime foreign member of the Ballybunion Golf Club in 1987, so therefore I should be able to take advantage of any tax breaks Ireland happens to be offering, just on general principles. Granted, I've only been back to Ireland once since then, but I bleed green (at tax time, at least). Doesn't Ireland have no income tax on creative artists? I don't think of my works as creative, but my detractors have claimed that, so I think my income should be tax free. (Now that I think about it, that's pretty creative. Creativity at tax evasion ought to count.)

Back in 2004, there was a "tax holiday" that allowed American firms to "repatriate" cash they'd nominally piled up in overseas tax havens without paying American corporate profits tax rates on it. Now, there's apparently $1.2 trillion piled up abroad and American firms are trying to get another tax amnesty.

And exactly how much work does Microsoft actually get done in Puerto Rico? 
Microsoft Building
This building is located in Metro Office 
Park, marginal PR Road 2 Guaynabo 
is an office complex with 64,000 sq. ft 
Class-A office space. Parking is 1,180         .
cars. The owner is Muñoz Holding
and the Bldg. complex is completed. 
Parking is 3/1000 No-Rent including 
with office rent. The Office complex 
is only for rent. The property
is available now.
Somewhat to my surprise, there actually is a five story building in a nice suburb of San Juan with a Microsoft sign on it, but the address on Microsoft's website for Microsoft Puerto Rico ("Suite 5000") suggests that Microsoft doesn't use the whole building, which is owned by somebody else. A real estate agent in Puerto Rico advertises 64,000 square feet of the Microsoft Building for rent, "available now."

Twenty minutes of Googling (or even of Binging) would suggest that Microsoft does not actually "earn" in Puerto Rico (in any reasonable sense of the term) a material portion of the $2 billion or so in profits it's booking every month these days. But, apparently, Microsoft's tax lawyers have persuaded the IRS that they do.

I ought to be able to declare my house The Commonwealth of iSteve and then rent it to Apple as its official global headquarters and all purpose tax haven.

Why does the U.S. government let itself get cheated out of taxes by its own Commonwealth? How much exactly are we bribing Puerto Rico in tax breaks to be part of the American Empire, and why? What is owning Puerto Rico doing for us, anyway? Back in the 1890s, Admiral Mahan suggested grabbing it to guard the approaches to a future Isthmusian Canal, but we don't even own the Panama Canal anymore.

No wonder Puerto Rican independence only gets about 4 percent in referendums, even though Puerto Ricans are happy to cheer for their own national Puerto Rican team in the Olympics:
Puerto Ricans Treat Victory Over U.S. Team Like Gold
August 16, 2004

SAN JUAN, Puerto Rico (AP) - Puerto Ricans celebrated the island's historic 92-73 thumping of the U.S. basketball team at the Olympics, treating the victory like gold. 
Islanders honked horns and waved Puerto Rican flags after Sunday's game, which was only the third Olympic loss for the United States and its first since adding professional players. 
"This is like winning a gold medal," teacher Carmen D. Torres said from the north-coast city of Arecibo. "I expected the Puerto Rican team to play well, but the fact that it defeated the world's greatest team is like a dream. I still don't believe it."

July 13, 2011

"What did we learn, Palmer?"

Paul Sperry (whose book The Great American Bank Robbery is pretty good) writes in Investor's Business Daily:
Justice spokeswoman Xochitl Hinojosa said the anti-discrimination notice "does not compel the banks to make loans to people who do not qualify." She said such measures are "essential to remedy the harmful effects of the banks' conduct." 
But industry analysts fear Attorney General Eric Holder is rekindling an anti-bank witch hunt launched by Attorney General Janet Reno in the 1990s, when Holder served as her deputy. 
Some blame that in part for the subprime boom, because banks were ordered to throw open their lending windows to credit-poor minorities. That crackdown spurred the American Bankers Association to distribute to its thousands of members "fair-lend ing tool kits" advising the adoption of more permissive underwriting criteria to help inoculate them from prosecution. 
In the new prosecutions, Justice acknowledges in every case it did not prove charges of intentional discrimination, while banks have denied any wrongdoing. Many, in fact, earned outstanding ratings from anti-redlining regulators enforcing the Community Reinvestment Act. 
Istook calls Holder's crusade an "egregious overreach by the government." He says many of the targets are smaller banks without the resources to fight a protracted legal battle.
The House Judiciary Committee plans to investigate. 
"This is an expansion of the law," said a congressional investigator. "They're pushing the envelope as far as they can go in the enforcement of civil rights." 
As part of settlement deals, prosecutors have required banks to sign "nondisclosure agreements" barring them from talking about the methods used to allege discrimination. Bank lawyers contend the prosecutors are trying to hide the shaky legal grounds on which the cases are built. "It's horrible what they're doing at the civil rights division," said Reginald Brown, a partner at Wilmer Hale in Washington, who has represented banks in connection to recent race-bias investigations. "They don't have any proof, just theories." 
He added, "They want you to sign something saying you agree, under the condition of any settlement with them, that you won't disclose what their theories were. That's because their theories are loopy and wouldn't stand the light of day."


If Paul Krugman ever admitted this kind of thing played any role whatsoever in the Recent Economic Unpleasantness, Mrs. Krugman would have him sleeping on the couch for a month.

The title is a reference to the wonderful J.K. Simmons' last lines in Burn After Reading.

July 8, 2011

Alan Greenspan explains it all

Q. Why are you puzzled over the current U.S. trade debate? 
A. “It is almost completely focused on job creation. But it has never been clear to me why jobs are the object of trade. ... 
Q. Which nation illustrates the folly of trying to create jobs through trade? 
A. “The Chinese. They are manipulating their currency in order to get low-quality, high-labor-content products produced — for maximum employment. They are distorting their economic structure and creating long-term economic damage. I don’t know why we should be attracted to that general principle.” 
"In the United States, the productivity of the younger part of our workforce is declining relative to that of the retiring baby boomers." 
Q. Turning back to the United States, what demographic shift will have major economic implications? 
A. “In the United States, we are in the process of seeing the baby boomers — the most productive, highly skilled, educated part of our labor force — retire. They are being replaced by groups of young workers who have regrettably scored rather poorly in international educational match-ups over the last two decades.” 
Q. What else points to the inability of young workers to compete? 
A. “Most disturbing is that the average income of U.S. households headed by 25-year-olds and younger has been declining relative to the average income of the baby boomer population. This is a reasonably good indication that the productivity of the younger part of our workforce is declining relative to the level of productivity achieved by the retiring baby boomers. This raises some major concerns about the productive skills of our future U.S. labor force.”  
Q. Can the U.S. government counter this trend?
A. “Yes, there are options to combat that decline, but contrary to what many people believe, we do very poorly in opening up our borders to skilled immigrants. Our H1-B visa restrictions are a disgrace. Most high-income people in our country do not realize that their incomes are being subsidized by their protection from competition from highly skilled people who are prevented from immigrating to the United States. But we need such skills in order to staff our productive economy, so that the standard of living for Americans as a whole can grow.” 
Q. What needs to change with respect to U.S. immigration? 
A. “My view is that we should give a green card to every immigrant who gets an advanced degree in the United States. The proportion of those people who will be terrorists is miniscule. That would have a major positive economic impact.” 
A.. "Most high-income Americans do not realize that their incomes are being subsidized by highly skilled people being prevented from immigrating to the United States." 
Q. How could immigration reform reduce income inequality? 
A. “Most of the debate on income inequality correctly focuses on raising the level of low-income individuals. However, it also works by lowering top-level incomes via more competitive immigration. There is much academic research demonstrating that it is the relative position of people in society that fosters views of ‘fairness,’ not one’s absolute status.” 
Q. How else can the United States make itself more competitive? 
A. “History tells us that it is those societies that have the most advanced cutting-edge technologies that have the highest standards of living. That’s always been the case. If the United States is now slipping in this regard, it is basically because of our increasingly dysfunctional primary education system.”


June 20, 2011

Why are corporate profits so high compared to a generation ago?

From the Washington Post:
With executive pay, rich pull away from rest of America 
It was the 1970s, and the chief executive of a leading U.S. dairy company, Kenneth J. Douglas, lived the good life. He earned the equivalent of about $1 million today. He and his family moved from a three-bedroom home to a four-bedroom home, about a half-mile away, in River Forest, Ill., an upscale Chicago suburb. He joined a country club. The company gave him a Cadillac. The money was good enough, in fact, that he sometimes turned down raises. He said making too much was bad for morale. 
Forty years later, the trappings at the top of Dean Foods, as at most U.S. big companies, are more lavish. The current chief executive, Gregg L. Engles, averages 10 times as much in compensation as Douglas did, or about $10 million in a typical year. He owns a $6 million home in an elite suburb of Dallas and 64 acres near Vail, Colo., an area he frequently visits. He belongs to as many as four golf clubs at a time — two in Texas and two in Colorado. While Douglas’s office sat on the second floor of a milk distribution center, Engles’s stylish new headquarters occupies the top nine floors of a 41-story Dallas office tower. When Engles leaves town, he takes the company’s $10 million Challenger 604 jet, which is largely dedicated to his needs, both business and personal. ... 
Other recent research, moreover, indicates that executive compensation at the nation’s largest firms has roughly quadrupled in real terms since the 1970s, even as pay for 90 percent of America has stalled. 
This trend held at Dean Foods. Over the period from the ’70s until today, while pay for Dean Foods chief executives was rising 10 times over, wages for the unionized workers actually declined slightly. The hourly wage rate for the people who process, pasteurize and package the milk at the company’s dairies declined by 9 percent in real terms, according to union contract records. It is now about $23 an hour. ... 
While no company over this period of time — from the 1970s to today — can be considered completely typical, Dean Foods offers a better comparison than most because fundamentally it hasn’t changed. 
The dairy business is still the root of the company; it was on the Fortune 500 by the late ’70s and remains there today. It grew then and more recently through acquisition.
Moreover, both chief executives — Douglas and Engles — could boast records of growing the company and profits. 
From 1970 to 1979, while Douglas was the chief executive, sales at Dean Foods tripled and profits increased tenfold, to $9.8 million, according to company records. Similarly, from 2000 to 2009, sales at what would be Dean Foods had roughly doubled, and so had profits, to $228 million. (Engles became chief executive after the company he led bought Dean Foods in 2001 and adopted its name.)

I'm guessing from all this that the CEO's compensation as a % of corporate profits went up from about 3% in the 1970s to about 4% these days. So, there's no apparent economy of scale in CEO pay. 

That change from 3 to 4% is not insignificant, but the big change since the 1970s seems to me to be the huge growth in corporate profits. 

And that seems kind of odd. I paid a lot of attention to the business world from, say, 1979 into the early to mid 1990s, but the size of corporate profits these days seems hard to reconcile with economic theory.Adam Smith 101 says that more perfect competition will lead to lower profits.

You might think that regional monopolies and oligopolies that allowed higher profits than the risk adjusted cost of capital would have been worn down over the decades by increased competition caused by the huge improvements in shipping, communications, data processing, and globalization. But I don't see much evidence for that.

I'm not surprised that Apple has very high profit margins on innovative products, but why does, say, P&G do so well these days on toothpaste and detergent?

I mean, sure, we all know that corporate executives have been winning in the struggle with workers over pay. But why hasn't increased competition between corporations competed away the profits won away from employees?

June 18, 2011

Who is more moderate?

Here's David Brooks's column, "Who Is James Johnson," in the New York Times on Gretchen Morgenson's new book on the mortgage meltdown, Reckless Endangerment.

And here's my VDARE column from 12 days ago on the same book. 

My question is: Who is more even-handed, non-partisan, reasonable, and just plain moderate on this crucial topic: David Brooks or me?

June 10, 2011

How the World Works, 2011 Version

From Politico:
AT&T Gave Cash to Merger Backers 
By Eliza Krigman 
AT&T is lining up support for its acquisition of T-Mobile from a slew of liberal groups with no obvious interest in telecom deals — except that they’ve received big piles of AT&T’s cash. 
In recent weeks, the NAACP, the Gay & Lesbian Alliance Against Defamation and the National Education Association have each issued public statements in support of the deal. 
The groups all say their public positions have nothing to do with the money they received from AT&T. And AT&T says it supports nonprofit groups because it’s the right thing to do — and not because of any quid pro quo. 
“For decades, AT&T has proudly supported numerous diverse groups and organizations,” a company spokesperson told POLITICO.

June 6, 2011

Gretchen Morgenson's "Reckless Endangerment"

My VDARE column reviews the new book Reckless Endangerment on the origins of the mortgage meltdown by Gretchen Morgenson of the NYT and financial analyst Joshua Rosner.

June 1, 2011

The past is an unknown country

The New York Times appears genuinely surprised to discover that racial activists like La Raza and the NAACP are teaming up with big mortgage lenders to try to undermine prudent regulation of home loans. Who could imagine such a thing?

From the New York Times: 
Advocates and Bankers Join to Fight Loan Rules 
As banking regulators rewrite mortgage rules, unusual alliances have sprung up to oppose tighter standards
By EDWARD WYATT and BEN PROTESS 
WASHINGTON — The weight of the mortgage crisis fell heavily on lower-income and minority communities, where first-time home buyers often fell victim to the predatory lending practices that resulted in an explosion of defaults and foreclosures. 
That left consumer advocates and civil rights groups frequently at odds with bankers, mortgage lenders and their lobbyists during the debate over the financial regulation act last year, which aims to rein in the subprime mortgage excesses that inflated the housing bubble. 
Now, as banking regulators are rewriting the rules for the mortgage market, unusual alliances have sprung up in opposition to tighter lending standards. Advocacy groups like the N.A.A.C.P. and the National Council of La Raza, a Latino civil rights organization, on the one hand, and the American Bankers Association on the other, are joining together to fight rules they say could make home loans less affordable for minority and working-class Americans. 
The growing alliance between civil-rights organizations and banking lobbyists could extend beyond the current round of financial rule-making. If Congress turns its focus to restructuring Fannie Mae and Freddie Mac, for example, the same groups could voice similar concerns over anything that restricts the availability of credit for first-time home buyers. ...
For the uncommon alliance

Huh? It was an awfully common alliance in the 1990s and 2000s.
the first point of attack is on a proposal that would require sellers of mortgage-backed securities to retain part of the risk should a package of loans go sour. The sellers would have to keep on their books at least 5 percent of the value of any baskets of loans they purchase from lenders and then resell to investors. One of the few exceptions to the requirement would be for mortgages on which the home buyer has made a down payment equal to 20 percent of the purchase price. 
“Most people don’t have 20 percent to put down,” said Janis Bowdler, a project director in La Raza’s office of research, advocacy and legislation. “These rules will so significantly deter the ability of first-time buyers to break into the market that we will see a real decline in home ownership.” 
... Any standards that apply to the private mortgage market will have to be reflected in government housing finance entities that help low-income and minority borrowers, said Barry Zigas, director of housing policy for the Consumer Federation of America. ... 
Last year, according to the National Association of Realtors, 96 percent of first-time home buyers made down payments below 20 percent. ... 
 Some regulators  say that the coalition of consumer and industry groups is jeopardizing rules that could, in the long run, protect borrowers from risky lending practices. In private meetings, some top agency lawyers now refer to the partnership as “the unholy alliance.”
But mortgage lenders, consumer and community groups, which are planning a joint news conference in Washington on Thursday to highlight their opposition to the risk-retention proposals, say they are just as certain that the regulations will not prevent risky loans from being made while hurting qualified borrowers. 
“It is more likely that the credit restrictions that result will disproportionately fall on lower-income borrowers,” said Robert R. Davis, an executive vice president for the American Bankers Association. That, in turn, puts banks in a bind, because it gives the appearance of violating fair-lending practices. 
The bonds between the former foes could unravel, in part because the wounds created by the implosion of the housing market remain fresh.

"Former foes"??? Mortgage lenders like Angelo Mozilo of Countrywide and diversity mongers like Henry Cisneros of Countrywide's board were best friends from roughly 1994 through 2007. 

"Reckless Endangerment"

Gretchen Morgenson of the New York Times has an important new book out on the role played by Fannie Mae in the mortgage meltdown, Reckless Endangerment. I hope to review the whole thing shortly, but I wanted to quote from a small section of the book:
Fannie Mae did not limit its outreach to politicians in need of photo ops or community organizers in need of money. The company also enlisted the aid of academics whose resarch papers on housing issues helped shape the policy debate that was so crucial to the preservation of Fannie's status quo. ... 
Fannie Mae's financing of academic research on such a large scale meant that few housing experts were left to argue the other side of any debate involving the company. ... 
One bank lobbyist was interested in hiring academics to write papers that might take a different point of view on housing issues. But most of the experts in the area had been co-opted by Fannie Mae. "I tried to find academics that would do research on these issues and Fannie had bought off all the academics in housing," the lobbyist said. "I had people say to me are you going to give me stipends for the next 20 years like Fannie will?" 
The answer was no. The discussion was over.

That reminds me of why you might wish to send me money: because neither Fannie Mae nor any other big money special interest will. The interpretation of the causes of the mortgage meltdown that I came up with in 2007-2008 isn't the kind of spin that benefits any particular set of big money boys. 

It's not necessarily that I'm so incredibly ethical that I would turn down their money. It's that no sensible special interest would try to buy me off.

You can send me an email and I'll send you my P.O. Box address.

If you already asked, please allow me to request that you follow up and put a check in the mail.

Or, you can use Paypal to send me money directly. Use any credit card or your Paypal account. To get started, just click on the orange Paypal "Donate" button on the top of the column to the right.

When that takes you to Paypal, if you want to use your Paypal account, fill in your Paypal ID and password on the lower right of the screen.

Or, if you want to use your credit card, fill in your credit card info on the lower left part of the screen by clicking on the word "Continue" in the lower center/left.

Thanks.

May 27, 2011

IMF after DSK: Afro-Asian boss to break Euro monopoly?

Here's a story in the Washington Post about a groundswell of support in NY-DC for a particular non-European candidate to head the IMF that is pretty funny if you Get The Joke. (But who does, these days?)

See, since the post-WWII era, America and Europe have had a deal: the head of the World Bank is always an American and the head of the International Monetary Fund is always a European. For example, the current head of the World Bank is Robert Zoellick, and the previous one was Paul Wolfowitz. The only possible exception to this rule was the World bank leader before Wolfowitz, Sir James Wolfensohn. He became an American citizen in 1980 to be eligible for the job, but went back to Australian citizenship in 2010.

Not surprisingly, American interests have been hinting that what with the European IMF boss Dominique Strauss-Kahn getting caught raping Third Worlders not just metaphorically, but literally, it's time to break this outdated European monopoly on the IMF. This doesn't have anything to do with America trying to take power away from Europe. It's all about diversity and social justice!

In fact, Bloomberg News and the Wall Street Journal have come up with the perfect diversity candidate. He's African by birth (in what's now Zambia, although it was called something very different then), Asian by current employment, and he apparently holds citizenships in both the New World (well, to be precise, the U.S.) and the Old World (you'll never, ever guess where).

You can read all about the New York financial press's diversity fusion candidate here.

May 24, 2011

Mortgage Lending Industry Strategic Markets & Diversity Conference

All these years after the mortgage meltdown, most well-informed Americans have yet to hear about the existence of the mortgage diversity industry. The number of activists and academics employed by the mortgage diversity biz isn't huge, but it's not insignificant either. And it has a major impact on molding reporting on mortgage and diversity issues. Since all the self-proclaimed experts are rewarded for promoting more lending to the diverse, we get a one-sided view. This industry's conventions don't rival AIPAC's wingding, but they're not insubstantial 

Dear Steve Sailer: 
The Lending Industry Diversity Conference and ComplianceTech are pleased to announce Bank of America as a Silver Sponsor of the 6th Annual Mortgage Lending Industry Strategic Markets and Diversity Conference to be held in the Washington, DC area on June 22-24, 2011 at the Westin Arlington Gateway Hotel, Arlington, Virginia (Ballston Metro stop).  The Strategic Markets and Diversity Conference is a one of a kind forum for candid discussions on the interplay of workforce diversity, multicultural marketing, and how housing policies and practices influence minority homeownership outcomes. The bank has been a strong supporter of the conference for each of the past five years.  We thank Bank of America for its display of leadership with regard to mortgage industry diversity and homeownership opportunity for all Americans. 
Click Here to Register Online at the registration rate of $499.

The schedule at a glance is as follows:

June 22, 2011
3:00 pm -5:00 pm:  Pre-Conference Workshop:  Data Driven Solutions for Strategic and Responsible Lending
5:00 -7:00 pm Opening Reception
June 23, 2011
9:00 am – 10:15 am General Session I:  The State of the Industry: Diversity & Section 342 of Dodd-Frank
10:30 am - 11:45 am:  General Session II:  Qualified Residential Mortgage (QRM) proposal and other Supply Side Impediments to furthering Strategic and Multi-Cultural Lending Activities
12:00pm – 1:45pm:  Diversity Luncheon w/ Guest Speaker, Diversity Awards Ceremony
Session A: 2:00 pm – 3:00 pm: The 2010 Census: The Impact of Demographic Changes & Industry Statistics on Strategic and Responsible Lending
Session B: 2:00 pm – 3:00 pm:  Fair Servicing Analysis and Standards
3:15 pm - 4:30 pm:  General Session III:  Life after HAMP
4:30 pm-5:15 pm:  General Session IV:  Beryl Satter, Author of Family Properties: Race, Real Estate, and the Exploitation of Black Urban America
5:15 pm - 7:30 pm Diversity Reception
June 24, 2011
9:00 am - 9:30 am:  General Session V:  Keynote Address: Consumer Financial Protection Bureau
9:30 am - 10:30 am:  General Session VI:  Regulatory Perspectives on Consumer Protection and Responsible Lending
10:45 am - 12:30 pm:  General Session VII:  Debate on National Homeownership policy: Impact on Affordable Housing & Minority Populations

Click Here to Register Online.
Visit the conference website for more details: www.MortgageIndustryDiversity.com.


The hot topic is Rep. Maxine Water's Section 342 of the Dodd-Frank Act, which requires hiring lots of diversity compliance officers who will then funnel money to others in the diversity industry.
My old articles are archived at iSteve.com -- Steve Sailer

February 23, 2011

Because that's where the money isn't

The centerpiece story on NYTimes.com is:

Bank Closings Tilt Toward Poor Areas
By Nelson D. Schwarz

Government data shows that as banks shut branches in poorer areas last year, like an Ohio Savings Bank in Cleveland, they expanded in richer neighborhoods. 

Perhaps Willie Sutton could have explained this strange phenomenon.

Reading this article reminds me that there is a sizable infrastructure of academics, activists, corporate staffers, and government officials whose jobs revolve around checking up on mortgage lending to make sure enough money is going to the right sort of people. We have a sizable apparatus of people employed to nudge mortgages in only one direction.

In contrast, far fewer people get a paycheck for complaining that, say, Apple Stores aren't opened in Compton. For example, the three Apple Stores on the Apple website listed as being in Los Angeles are at The Grove, the Beverly Center, and Century City, which aren't exactly fully representative of Los Angeles. At minimum, Apple, which has a colossal amount of cash on its balance sheet, should be required to run free buses from the corner of Florence and Normandie to the nearest Apple Store.