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I went camping in late July 2007 and when I got back in early August, the world had changed. The subprime mortgage bubble had definitively exploded. It took more than a year for the financial world to be fully rocked, but the process was in motion by August 2007.

As I blogged on August 12, 2007:

A trillion here, a trillion there, pretty soon we’re talking about real money

Now that the long predicted dubious mortgage crash has finally arrived, I keep remembering that going back to the early 1990s, the government has been twisting the arms of private lenders to get them to lend more mortgage money to minorities than the private firms believed was justified by colorblind principles of creditworthiness.

This history seems to have disappeared down the memory hole because it’s all in the sacred cause of fighting discrimination (real or imagined), but I recall it distinctly from when I was a daily reader of the Wall Street Journal in the 1990s.

For example, there was a celebrated 1993 study by the Boston Fed showing that minorities’ mortgage applications were rejected at a higher rate. (Peter Brimelow pointed out in Forbes that minorities did not have lower default rates, suggesting that lenders were behaving in a rationally colorblind manner, but that was not a popular view at the time.)

Have the chickens finally come home to roost?

I’m sure the private financial markets were quite capable of blowing up a big bubble by themselves in the eternal see-saw struggle between greed and fear, but this political pressure for lending to minorities with doubtful credit must have exacerbated the problem. About half of all mortgages for blacks and Hispanics are subprime, versus about one-sixth for whites.

This is of course not to claim that the American Housing Bubble was the only cause of the series of unfortunate events. It’s like you asking: “What caused American involvement in WWII?” and me answering: “Pearl Harbor.” And then you say, “What about Hitler?”

“Pearl Harbor” is not a complete answer to that question, but it’s a good start. And indeed America took Pearl Harbor very seriously and subsequently invested massively in early warning systems to not be vulnerable to another Pearl Harbor. In contrast, the role of America’s sacred cow of diversity worship in the Housing Bubble has largely been swept under the rug.

Since then, lots of academic studies have shown the massive role played in this by increased minority lending in first driving up home prices during the Housing Bubble and then by high minority default rates during the Housing Bust.

Later, however, I came up with a more refined theory of causality. Government pressure didn’t force lenders to lend to people whom they didn’t believe could pay back. Nobody would do that on a massive scale. They’d get out of home lending and go into commercial real estate lending or something else with less diversity oversight. Or they’d stay small and try not to attract government attention by asking federal permission to buy other banks.

Instead, the government pressure and media cheerleading selected out from the home mortgage industry the pessimists about minority mortgage creditworthiness, who no doubt tended to go into other specialities, leaving only the optimists like Angelo Mozilo of Countrywide and Kerry Killinger of Washington Mutual.

For example, WaMu grew into the sixth biggest bank in the country via dozens of mergers that had to get government approval. One of the ways Killinger became a favorite of regulators was by outbidding rival banks in acquisition wars by making bigger minority lending pledges. The government didn’t hold a gun to Killinger’s head to lend money to strawberry pickers, it just discouraged lenders who were more cautious about minority (especially Hispanic) creditworthiness from growing.

This subtly tipped the playing field in favor of over-optimists. It also turned the mortgage industry into what James Damore would call an “echo chamber” in which dissent from the Bush Administration’s push to increase minority homeownership by 5.5 million households by 2010 by dumping fuddy-duddy and effectively racist standards about down payments and income documentation was restricted to whispers. If you put your doubts in writing in an email, it could turn up in discovery in a discrimination trial.

Yet, writing is a better way to communicate complex ideas than whispering or eye-rolling.

 
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  1. Anon says: • Disclaimer

    Wall Street developed a Gekko Chamber.

    Greed coasting on talk of Need.

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  2. Anon says: • Disclaimer

    And new cold war with Russia and another ‘hitler’ with North Korea.

    US never learns anything from foreign policy either.

    Read More
  3. That actually reminds of something that’s been bugging me since my very early days of reading iSteve: How do I make money on all of this stupidity?

    Let’s just say that I have a reasonable understanding of investing, at least on a certain level. I – all of us, really – should be able to take advantage of these gigantic behaviorial errors, but I just don’t see an obvious avenue. (Of course, that’s always made me suspect that people don’t really believe all of this BS so perhaps that’s the issue.)

    Anyway, any ideas?

    Buy rentals in white areas because they will hold their value and demand solid rents. Avoid or short companies with growning diversity programs (love to figure a screen for that). There has to be a way.

    As long as the country is going down the tubes, we might as well make some money to pad our landing elsewhere.

    Read More
    • Replies: @carol
    If you like day trading there are always the short ETFs. But only when things get crazy again.
    , @JohnnyWalker123

    That actually reminds of something that’s been bugging me since my very early days of reading iSteve: How do I make money on all of this stupidity?
     
    Insider trading.

    Here's a fact. Wall Street makes enormous amounts of money off trading not because their employees are the "smartest guys in America," but because they get insider information illegally. There are many different sources of this inside information (politicians, lobbyists, senior employees of publicly traded firms, wire taps).

    Watch this.

    https://www.youtube.com/watch?v=l3DZh1109W8

    Even more interesting. Right before 9/11, lots of traders were short selling. Right before the attack, short selling trading activity on United Airlines was 90 times it's usual trading volume. Same story with American Airlines. There was also an enormous amount of short selling of Morgan Stanley and Marsh&McClendon, both of which lost significant numbers of employees on 9/11.


    https://www.youtube.com/watch?v=QUHZcUwHrJ8
    , @JohnnyWalker123
    The majority of home foreclosures were of Non-Hispanic Whites, according to one study.

    During the first three years of the foreclosure crisis, from January 2007 through the end of 2009, we

    estimate that 2.5 million foreclosures were completed. The vast majority of these foreclosures were

    on owner-occupied properties with mortgages that were originated between 2005 and 2008.1

    • The majority (an estimated 56%) of families who lost homes were non-Hispanic and white, but

    African-American and Latino families were disproportionately affected relative to their share of

    mortgage originations.
     
    So investing in white areas probably isn't a good strategy.


    Avoid or short companies with growning diversity programs (love to figure a screen for that).
     
    Can anyone think of any examples of companies that have financially declined due to excessive diversity-related hiring?


    As long as the country is going down the tubes, we might as well make some money to pad our landing elsewhere.
     
    Short US-treasury bonds because inevitably there will be a debt crisis. The only problem is that we don't know when it'll happen.
    , @anon
    Having been around at the time, it was extremely difficult to actually make money on this.

    As far as short term stuff -- an investor that isn't a trader missed stuff that imploded within a day.

    Over a longer period of time, it was impossible to correctly predict future inflation and real interest rates.

    If you go back, you will see that virtually everybody was predicting that there would be significant inflation and interest rates at levels roughly like the higher rates from the 1995-2005 period.

    Stuff like TBT

    This if from 2013

    “Investors interested in this fund essentially think the unprecedented moves by the Federal Reserve to pump liquidity into the financial system will ultimately result in higher inflation and sinking dollar value,” Morningstar analyst Timothy Strauts said in a profile of TBT. “Investors should also hold the thesis that the flight to quality will ultimately reverse itself, causing Treasury rates to rise.”
     
    It was obvious.

    The problem is that many people were around then with vivid memories of 1980's inflation and associated interest rates. But nobody was around that remembered the 1930's.

    In retrospect, the period had some elements of 1930's style debt/deflation. https://en.wikipedia.org/wiki/Debt_deflation

    In 2008, people were piling into commodities and oil. Oil hit its all time peak in 2008 of $140/bbl. Anywhere to avoid the inevitable inflation 'hangover'.

    And then, the idea of extrapolating from something like bad mortgages to a systemic financial panic -- it is never obvious in advance.

    For example, if 20% of all mortgagesfail, and home values decline 20%, the total loss is 20% of 20% or 4%. Or double the losses per defaulted mortgage to 40%, and you get 8% total mortgage losses. Even if you knew there was a lot of rot in the system, this is more like the S&L 'crisis' which was digested without a major financial crisis outside of Texas.

    But the most common, 'smart person' financial bet over the last 10 years is that 'interest rates will go up a lot over the next 1-2 years'. And its obvious how that has worked out.
  4. songbird says:

    One of my perceptions before the bubble burst was that the media seemed much more Boomer-centric than would strictly be in the interest of civilization. Stratospheric housing prices were viewed as good news, rather than bad news, as they would be to anyone trying to start a family.

    That angle was very easy to see due to the incredible preponderance of big pharma ads aimed at older folk which would run during commercial breaks.

    Read More
  5. benjaminl says:

    For those of us who are true iSteve aficionados, it’s fascinating to skim through the archives of August 2007, to momentarily glimpse the not-that-distant past:

    http://www.unz.com/isteve/2007/08/

    Much of the world is as depressing now as it was in 2007. However, for at least one of the topics — quality of Simpsons episodes — we have a marginally more precise answer now, thanks to Big Data:

    Read More
    • Replies: @TomSchmidt
    What leads to the outperformance of later season ninth episodes? That stands out.
    , @ScarletNumber
    The first bad Simpsons episode was "Another Simpsons Clip Show"
    , @EdwardM
    Why, even in the inferior later seasons, were episodes early in the season better than those later in the season? The writers ran out of good ideas earlier in the season and coasted for the rest -- only to rediscover new good ideas on summer vacation for the next season?

    More likely it's fatigue from the people doing the rating as the season wore on, to be replaced by anticipation of the new season that caused them to overrate early episodes.
  6. carol says:
    @Citizen of a Silly Country
    That actually reminds of something that's been bugging me since my very early days of reading iSteve: How do I make money on all of this stupidity?

    Let's just say that I have a reasonable understanding of investing, at least on a certain level. I - all of us, really - should be able to take advantage of these gigantic behaviorial errors, but I just don't see an obvious avenue. (Of course, that's always made me suspect that people don't really believe all of this BS so perhaps that's the issue.)

    Anyway, any ideas?

    Buy rentals in white areas because they will hold their value and demand solid rents. Avoid or short companies with growning diversity programs (love to figure a screen for that). There has to be a way.

    As long as the country is going down the tubes, we might as well make some money to pad our landing elsewhere.

    If you like day trading there are always the short ETFs. But only when things get crazy again.

    Read More
  7. @Citizen of a Silly Country
    That actually reminds of something that's been bugging me since my very early days of reading iSteve: How do I make money on all of this stupidity?

    Let's just say that I have a reasonable understanding of investing, at least on a certain level. I - all of us, really - should be able to take advantage of these gigantic behaviorial errors, but I just don't see an obvious avenue. (Of course, that's always made me suspect that people don't really believe all of this BS so perhaps that's the issue.)

    Anyway, any ideas?

    Buy rentals in white areas because they will hold their value and demand solid rents. Avoid or short companies with growning diversity programs (love to figure a screen for that). There has to be a way.

    As long as the country is going down the tubes, we might as well make some money to pad our landing elsewhere.

    That actually reminds of something that’s been bugging me since my very early days of reading iSteve: How do I make money on all of this stupidity?

    Insider trading.

    Here’s a fact. Wall Street makes enormous amounts of money off trading not because their employees are the “smartest guys in America,” but because they get insider information illegally. There are many different sources of this inside information (politicians, lobbyists, senior employees of publicly traded firms, wire taps).

    Watch this.

    Even more interesting. Right before 9/11, lots of traders were short selling. Right before the attack, short selling trading activity on United Airlines was 90 times it’s usual trading volume. Same story with American Airlines. There was also an enormous amount of short selling of Morgan Stanley and Marsh&McClendon, both of which lost significant numbers of employees on 9/11.

    Read More
  8. benjaminl says:

    What exactly was happening in August 2007? Aha: BNP Paribas…

    https://www.theguardian.com/business/economics-blog/2012/aug/05/economic-crisis-myths-sustain

    http://www.reuters.com/article/us-bnpparibas-subprime-funds-idUSWEB612920070809

    Then, on 9 August, came reports that central banks had been active in the markets. The Guardian said the action involved pumping billions of pounds into the financial system to calm nerves amid fears of a credit crunch. The trigger for the panic was the decision by BNP Paribas to block withdrawals from three hedge funds because of what it called a complete evaporation of liquidity. A spokesman for the bank described the move as a temporary technical issue.

    Technical? Temporary? Within six weeks, it was clear the meltdown of August 2007 was no short-term blip when investors queued outside branches of Northern Rock for three days in the first run on a leading UK bank since the mid-19th century. …

    Makes me think: For those of us who reached adulthood during the incredibly complacent, smugly self-satisfied post-Cold War, Clinton years of 1992-2000, what were the main events that prompted a rethinking of the Conventional Wisdom (besides discovering Sailer’s blog)? Here’s my list:

    * 9/11/2001: it’s not The End of History
    * 2003-present: Our leaders are too eager to bomb the Muslim Middle East into democracy
    * 2008-present: Neoclassical economists like Greg Mankiw don’t have all the answers
    * Opioid epidemic: The lower middle class is f******
    * Ferguson riots, Saint Trayvon, Obergefell: The progressives really are going to push the identity politics dial to 11, make the rubble bounce, and try to eradicate their enemies from public life
    * Twitter era: Social media is making us all antisocial nutcases

    I don’t know how anyone who lived through the last 17 years could believe in the Arc of Progress and the Right Side of History. I guess if you really think the Koch Brothers and the Deplorables are all that stands between us and the broad sunlit uplands of progressive utopia…. But personally, for me every major historical event confirms the rightness of the Derb: We are doomed.

    Read More
    • Replies: @Lugash
    I'd add Hurricane Katrina. It basically summed up all the bad things in America: elite incompetence and obliviousness, government corruption, Black nuttiness and hatred of whites.
  9. @Citizen of a Silly Country
    That actually reminds of something that's been bugging me since my very early days of reading iSteve: How do I make money on all of this stupidity?

    Let's just say that I have a reasonable understanding of investing, at least on a certain level. I - all of us, really - should be able to take advantage of these gigantic behaviorial errors, but I just don't see an obvious avenue. (Of course, that's always made me suspect that people don't really believe all of this BS so perhaps that's the issue.)

    Anyway, any ideas?

    Buy rentals in white areas because they will hold their value and demand solid rents. Avoid or short companies with growning diversity programs (love to figure a screen for that). There has to be a way.

    As long as the country is going down the tubes, we might as well make some money to pad our landing elsewhere.

    The majority of home foreclosures were of Non-Hispanic Whites, according to one study.

    During the first three years of the foreclosure crisis, from January 2007 through the end of 2009, we

    estimate that 2.5 million foreclosures were completed. The vast majority of these foreclosures were

    on owner-occupied properties with mortgages that were originated between 2005 and 2008.1

    • The majority (an estimated 56%) of families who lost homes were non-Hispanic and white, but

    African-American and Latino families were disproportionately affected relative to their share of

    mortgage originations.

    So investing in white areas probably isn’t a good strategy.

    Avoid or short companies with growning diversity programs (love to figure a screen for that).

    Can anyone think of any examples of companies that have financially declined due to excessive diversity-related hiring?

    As long as the country is going down the tubes, we might as well make some money to pad our landing elsewhere.

    Short US-treasury bonds because inevitably there will be a debt crisis. The only problem is that we don’t know when it’ll happen.

    Read More
    • Replies: @ia

    Can anyone think of any examples of companies that have financially declined due to excessive diversity-related hiring?
     
    Dell.

    One hundred-year-old Maytag was destroyed by a black CEO in 1.5 years who had been groomed by status-marking eloi chairman of the board.

    Not a private company but DC Metrorail is in a "death spiral" from black race nepotism.

    Just off the top of my head but there are many more.

    And then there's the federal government;

    "In fiscal year 2011, federal agencies obligated a total of around $537 billion in government contracts to businesses," said GAO. "About $104 billion was obligated to small businesses (19 percent) and of this amount, just over one-third ($36 billion) was obligated to small businesses that identified themselves as minority-owned . . ."

    http://www.cnsnews.com/news/article/audit-35-federal-small-business-contract-dollars-went-minority-owned-firms

    In order to get obligated government contracts you have to be "socially disadvantaged" which doesn't sound geared to let the best man win.
  10. And (roughly) the 17th anniversary of the Dotbomb collapse

    https://en.wikipedia.org/wiki/Dot-com_bubble

    (Crickets)

    Read More
    • Replies: @jroll
    After the East Asian financial crisis (https://en.m.wikipedia.org/wiki/1997_Asian_financial_crisis) the Trade Deficit exploded (https://fred.stlouisfed.org/series/BOPGSTB) and the two bubbles (stock and then housing) were the only thing keeping the economy going. (The trade deficit is a demand leak.)

    So without a bubble (or big government deficits) we have "secular stagnation."

    For explanation read Plunder and Blunder (free) by Dean Baker (http://cepr.net/books/plunderandblunder.pdf).

    Also, Steve, there was a commercial real estate bubble near the end (http://econlog.econlib.org/archives/2010/01/commercial_real.html). (Which you may know, you commented there.)
  11. anon says: • Disclaimer

    The minority lending angle got the ‘left’ on board with what I’ll call shadow banking. And their worst excesses.

    Not that the worst mortgages weren’t associated with minorities. But it had this additional, corrosive effect of eliminating the possibility of political opposition from Democrats.

    Read More
  12. Lugash says:
    @benjaminl
    What exactly was happening in August 2007? Aha: BNP Paribas...

    https://www.theguardian.com/business/economics-blog/2012/aug/05/economic-crisis-myths-sustain
    http://www.reuters.com/article/us-bnpparibas-subprime-funds-idUSWEB612920070809

    Then, on 9 August, came reports that central banks had been active in the markets. The Guardian said the action involved pumping billions of pounds into the financial system to calm nerves amid fears of a credit crunch. The trigger for the panic was the decision by BNP Paribas to block withdrawals from three hedge funds because of what it called a complete evaporation of liquidity. A spokesman for the bank described the move as a temporary technical issue.

    Technical? Temporary? Within six weeks, it was clear the meltdown of August 2007 was no short-term blip when investors queued outside branches of Northern Rock for three days in the first run on a leading UK bank since the mid-19th century. ...
     
    Makes me think: For those of us who reached adulthood during the incredibly complacent, smugly self-satisfied post-Cold War, Clinton years of 1992-2000, what were the main events that prompted a rethinking of the Conventional Wisdom (besides discovering Sailer's blog)? Here's my list:

    * 9/11/2001: it's not The End of History
    * 2003-present: Our leaders are too eager to bomb the Muslim Middle East into democracy
    * 2008-present: Neoclassical economists like Greg Mankiw don't have all the answers
    * Opioid epidemic: The lower middle class is f******
    * Ferguson riots, Saint Trayvon, Obergefell: The progressives really are going to push the identity politics dial to 11, make the rubble bounce, and try to eradicate their enemies from public life
    * Twitter era: Social media is making us all antisocial nutcases

    I don't know how anyone who lived through the last 17 years could believe in the Arc of Progress and the Right Side of History. I guess if you really think the Koch Brothers and the Deplorables are all that stands between us and the broad sunlit uplands of progressive utopia.... But personally, for me every major historical event confirms the rightness of the Derb: We are doomed.

    I’d add Hurricane Katrina. It basically summed up all the bad things in America: elite incompetence and obliviousness, government corruption, Black nuttiness and hatred of whites.

    Read More
  13. @benjaminl
    For those of us who are true iSteve aficionados, it's fascinating to skim through the archives of August 2007, to momentarily glimpse the not-that-distant past:

    http://www.unz.com/isteve/2007/08/

    Much of the world is as depressing now as it was in 2007. However, for at least one of the topics -- quality of Simpsons episodes -- we have a marginally more precise answer now, thanks to Big Data:

    https://twitter.com/simongerman600/status/895677656192229376

    What leads to the outperformance of later season ninth episodes? That stands out.

    Read More
  14. It starts simply, banks will lend to anybody when those loans can be sold to others.

    And wasn’t WaMu the Sandlers?

    Read More
  15. @benjaminl
    For those of us who are true iSteve aficionados, it's fascinating to skim through the archives of August 2007, to momentarily glimpse the not-that-distant past:

    http://www.unz.com/isteve/2007/08/

    Much of the world is as depressing now as it was in 2007. However, for at least one of the topics -- quality of Simpsons episodes -- we have a marginally more precise answer now, thanks to Big Data:

    https://twitter.com/simongerman600/status/895677656192229376

    The first bad Simpsons episode was “Another Simpsons Clip Show”

    Read More
  16. anon says: • Disclaimer
    @Citizen of a Silly Country
    That actually reminds of something that's been bugging me since my very early days of reading iSteve: How do I make money on all of this stupidity?

    Let's just say that I have a reasonable understanding of investing, at least on a certain level. I - all of us, really - should be able to take advantage of these gigantic behaviorial errors, but I just don't see an obvious avenue. (Of course, that's always made me suspect that people don't really believe all of this BS so perhaps that's the issue.)

    Anyway, any ideas?

    Buy rentals in white areas because they will hold their value and demand solid rents. Avoid or short companies with growning diversity programs (love to figure a screen for that). There has to be a way.

    As long as the country is going down the tubes, we might as well make some money to pad our landing elsewhere.

    Having been around at the time, it was extremely difficult to actually make money on this.

    As far as short term stuff — an investor that isn’t a trader missed stuff that imploded within a day.

    Over a longer period of time, it was impossible to correctly predict future inflation and real interest rates.

    If you go back, you will see that virtually everybody was predicting that there would be significant inflation and interest rates at levels roughly like the higher rates from the 1995-2005 period.

    Stuff like TBT

    This if from 2013

    “Investors interested in this fund essentially think the unprecedented moves by the Federal Reserve to pump liquidity into the financial system will ultimately result in higher inflation and sinking dollar value,” Morningstar analyst Timothy Strauts said in a profile of TBT. “Investors should also hold the thesis that the flight to quality will ultimately reverse itself, causing Treasury rates to rise.”

    It was obvious.

    The problem is that many people were around then with vivid memories of 1980′s inflation and associated interest rates. But nobody was around that remembered the 1930′s.

    In retrospect, the period had some elements of 1930′s style debt/deflation. https://en.wikipedia.org/wiki/Debt_deflation

    In 2008, people were piling into commodities and oil. Oil hit its all time peak in 2008 of $140/bbl. Anywhere to avoid the inevitable inflation ‘hangover’.

    And then, the idea of extrapolating from something like bad mortgages to a systemic financial panic — it is never obvious in advance.

    For example, if 20% of all mortgagesfail, and home values decline 20%, the total loss is 20% of 20% or 4%. Or double the losses per defaulted mortgage to 40%, and you get 8% total mortgage losses. Even if you knew there was a lot of rot in the system, this is more like the S&L ‘crisis’ which was digested without a major financial crisis outside of Texas.

    But the most common, ‘smart person’ financial bet over the last 10 years is that ‘interest rates will go up a lot over the next 1-2 years’. And its obvious how that has worked out.

    Read More
  17. Ivy says:
    @willieskull68
    It starts simply, banks will lend to anybody when those loans can be sold to others.

    And wasn't WaMu the Sandlers?

    Sandlers were World Savings.

    Read More
  18. Vullsain says:

    Let me get this straight, poor lending practices to minority neighborhoods brought the Western Financial Industry to it’s knees? I remember the screams and yells and gnashing of teeth from the Masters of the Universe who lost money after the dot com crash imploring Greenspan and the Federal Reserve to cut interest rates, a national credit bubble in housing was knowingly produced with easy money policy. The Bush Administration including the FHA, the ratings agencies, Congress, the MSM the Securities firms all looked the other way as the the bubble developed. Once a financial tsunami has been unleashed it is almost impossible to stop, everyone who was already in was making money and state and local governments could feast on the tax revenues. It was an obvious racket at the time and there were multiple warnings from prudent observers , including the National Real Estate Assessors who testified to congress that real estate agencies were gaming the system and would not give business to assessors who would not artificially inflate prices. Remember the acronyms from the loan originator insiders in real estate worried about the inevitable crash YWBH (you won’t be here) and IWBH (I won’t be here) or how about Goldman Sachs selling AAA rated mortgage bonds to their clients even though the default rates on the bonds were junk and at the same time buying reinsurance from AIG knowing they would explode. Repeat and rinse, but next time another excuse will need to be used, the Clinton Community Reinvestment Act may not have been prudent but was by far not the main cause for the plundering and rot in our financial/political system.

    Read More
    • Replies: @ia
    Why was it originally called "subprime crisis?"
  19. Peter Brimelow pointed out in Forbes that minorities did not have lower default rates

    Technically, Mr Brimelow indicated that more (potential) minority borrowers were weeded out before loan originations occurred, because of their poorer credit ratings, among other things.

    The Boston Fed authors apparently assumed that equal default rates meant all minority applications are an equal credit risk compared with whites. But they`re wrong. These census tract mortgages had already passed through the loan approval process-which had presumably rejected a higher proportion of minority applicants on the way. So the fact that white and minority default rates finished up equal meant mortgage lenders knew what they were doing.
    http://www.vdare.com/articles/the-hidden-clue

    Read More
    • Replies: @ia
    Correct.

    A Freddie Mac study concluding that far more black people have bad credit than white people, even when both have the same incomes, has come under attack in Congress, and some experts have questioned whether it oversimplifies a complex  issue.

    The study's [Freddie Mac] authors defended their conclusions but said they probably should have chosen language other than "bad credit" or "good credit" because they were trying to say whether people had trouble paying their bills.

    The [Freddie Mac] researchers, relying on data from credit reports, designated people as having "bad credit" if they had two bills overdue more than 30 days in the past two years, one bill more than 90 days late, a lien, a judgment or a bankruptcy. Their data showed that a higher percentage of African Americans with incomes of $65,000 to $75,000 had "bad credit" than whites with incomes below $25,000.

     (Washington Post 10/05/99 by D'Vera Cohn)[former link **http://www.washingtonpost.com/wp-srv/WPlate/1999-10/05/089l-100599-idx.html]
  20. Mike says: • Website

    There are many causes of the mortgage meltdown. Many of us commenters here at iSteve would agree on most of them, but weight them differently.

    My favorites: It all begins with deposit insurance. Banks don’t have to be safe and secure when they have deposit insurance. Second, the transition of the Wall Street firms from partnerships to public companies. With the partnerships the partners had joint and several liability. As public firms… Ahh… Who gives an eff…

    Read More
    • Replies: @Dan Hayes
    Mike:

    One of the proximate causes of the eventual housing meltdown was that in congress Representative St. Germain surreptitiously increased FSLIC insurance on Savings & Loans in the middle of the night from $40,000 to $100,000.
  21. This brings up an issue where the Alt Right differs from mainline conservatism: the regulation of corporations.

    The Justice Department under Reagan and both Bushes had a favorable attitude toward mergers and acquisitions, because of free market economic theory.

    The Alt Right says: free market theory is not applicable sometimes. The article gives an example: the government allowed Washington Mutual to merge with other companies, becoming one of the largest banks. That’s seemingly pro free market. But the problem is that the government allowing Washington Mutual to merge with other companies was a kind of reward to WashMu for doing sub-prime loans.

    Recently, YouTube, which is owned by Google, has flagged various videos which led to the de-monetization of the content of those videos. (See for example Paul Joseph Watson’s recent YouTube video about this.)

    Google acquired YouTube in 2006–during a Republican Administration. In hindsight, allowing that acquisition was a mistake. A SJW converged company bought a media company, and now is putting pressure on YouTube personalties who oppose leftism/liberalism.

    With a Trump administration, there is a chance for new thinking in regards to mergers, acquisitions, and anti-trust.

    Read More
  22. jroll says:
    @anon
    Having been around at the time, it was extremely difficult to actually make money on this.

    As far as short term stuff -- an investor that isn't a trader missed stuff that imploded within a day.

    Over a longer period of time, it was impossible to correctly predict future inflation and real interest rates.

    If you go back, you will see that virtually everybody was predicting that there would be significant inflation and interest rates at levels roughly like the higher rates from the 1995-2005 period.

    Stuff like TBT

    This if from 2013

    “Investors interested in this fund essentially think the unprecedented moves by the Federal Reserve to pump liquidity into the financial system will ultimately result in higher inflation and sinking dollar value,” Morningstar analyst Timothy Strauts said in a profile of TBT. “Investors should also hold the thesis that the flight to quality will ultimately reverse itself, causing Treasury rates to rise.”
     
    It was obvious.

    The problem is that many people were around then with vivid memories of 1980's inflation and associated interest rates. But nobody was around that remembered the 1930's.

    In retrospect, the period had some elements of 1930's style debt/deflation. https://en.wikipedia.org/wiki/Debt_deflation

    In 2008, people were piling into commodities and oil. Oil hit its all time peak in 2008 of $140/bbl. Anywhere to avoid the inevitable inflation 'hangover'.

    And then, the idea of extrapolating from something like bad mortgages to a systemic financial panic -- it is never obvious in advance.

    For example, if 20% of all mortgagesfail, and home values decline 20%, the total loss is 20% of 20% or 4%. Or double the losses per defaulted mortgage to 40%, and you get 8% total mortgage losses. Even if you knew there was a lot of rot in the system, this is more like the S&L 'crisis' which was digested without a major financial crisis outside of Texas.

    But the most common, 'smart person' financial bet over the last 10 years is that 'interest rates will go up a lot over the next 1-2 years'. And its obvious how that has worked out.

    Don’t forget the goldbugs.

    Read More
  23. Anonymous says: • Disclaimer

    In retrospect, George W. Bush – and everything he stood for – were complete absolute f*cking disasters for America.

    Read More
  24. Anonymous says: • Disclaimer

    There’s also a very strong case for damning the ‘neo-liberal’ policies which held sway over the west since the Thatcher and Reagan victories of 1979/80 and remorselessly pushed and pursued by The Economist magazine.

    Basically, under the ‘liberal’ free trade free market ‘global’ system which emerged, China and the far east racked up huge foreign exchange mountains which had to go somewhere, due the the concomitant collapse of productive industry in the USA, the only place left for the money to go was in funding mortgages for low paid low productivity immigrants (another Economist policy) to America.
    As the dickheads who write The Economist failed to understand, but blathered and bullshitted their prejudiced and partial view away, basic, basic economics tells us that even the supposedly ‘mighty’ US economy, in the free market, is unable in the long run, to withstand a continual massive drain of wherewithal and the substation of productive capacity by the economically useless propped up foreigner’s capital.

    Read More
  25. jroll says:
    @anony-mouse
    And (roughly) the 17th anniversary of the Dotbomb collapse

    https://en.wikipedia.org/wiki/Dot-com_bubble

    (Crickets)

    After the East Asian financial crisis (https://en.m.wikipedia.org/wiki/1997_Asian_financial_crisis) the Trade Deficit exploded (https://fred.stlouisfed.org/series/BOPGSTB) and the two bubbles (stock and then housing) were the only thing keeping the economy going. (The trade deficit is a demand leak.)

    So without a bubble (or big government deficits) we have “secular stagnation.”

    For explanation read Plunder and Blunder (free) by Dean Baker (http://cepr.net/books/plunderandblunder.pdf).

    Also, Steve, there was a commercial real estate bubble near the end (http://econlog.econlib.org/archives/2010/01/commercial_real.html). (Which you may know, you commented there.)

    Read More
  26. davidl says: • Website

    Don’t know if Steve or readers saw this around the time of the meltdown–Rep. Issa touches on governmennt meddling in the housing market–re: marketing loans to minorities, including hmm Hispanics.

    Read More
  27. Dan Hayes says:
    @Mike
    There are many causes of the mortgage meltdown. Many of us commenters here at iSteve would agree on most of them, but weight them differently.

    My favorites: It all begins with deposit insurance. Banks don't have to be safe and secure when they have deposit insurance. Second, the transition of the Wall Street firms from partnerships to public companies. With the partnerships the partners had joint and several liability. As public firms... Ahh... Who gives an eff...

    Mike:

    One of the proximate causes of the eventual housing meltdown was that in congress Representative St. Germain surreptitiously increased FSLIC insurance on Savings & Loans in the middle of the night from $40,000 to $100,000.

    Read More
    • Replies: @Mike
    Dan, the limit is now $250,000 per account. You probably know that, and that limit was put in place after the Lehman debacle. Which is my... Oh, hell, I can hardly talk about it.

    If you have multiples of that amount of money, there are brokers that will assist you in placing as many insured accounts as you might need. One at this bank, another at this other bank, and then we can style the account a little differently, say from Mike to Michael, and still get that one covered too. One with my son's name with me listed as the beneficiary...

    Financial regulation is very corrupt.
  28. anon says: • Disclaimer

    Hey ….

    Bush was just trying to deal with our collective shame over redlining by FDR.

    Read More
  29. EdwardM says:
    @benjaminl
    For those of us who are true iSteve aficionados, it's fascinating to skim through the archives of August 2007, to momentarily glimpse the not-that-distant past:

    http://www.unz.com/isteve/2007/08/

    Much of the world is as depressing now as it was in 2007. However, for at least one of the topics -- quality of Simpsons episodes -- we have a marginally more precise answer now, thanks to Big Data:

    https://twitter.com/simongerman600/status/895677656192229376

    Why, even in the inferior later seasons, were episodes early in the season better than those later in the season? The writers ran out of good ideas earlier in the season and coasted for the rest — only to rediscover new good ideas on summer vacation for the next season?

    More likely it’s fatigue from the people doing the rating as the season wore on, to be replaced by anticipation of the new season that caused them to overrate early episodes.

    Read More
    • Replies: @Elsewhere
    You're reading the table incorrectly. The episodes in each season run downward.
  30. ia says:
    @JohnnyWalker123
    The majority of home foreclosures were of Non-Hispanic Whites, according to one study.

    During the first three years of the foreclosure crisis, from January 2007 through the end of 2009, we

    estimate that 2.5 million foreclosures were completed. The vast majority of these foreclosures were

    on owner-occupied properties with mortgages that were originated between 2005 and 2008.1

    • The majority (an estimated 56%) of families who lost homes were non-Hispanic and white, but

    African-American and Latino families were disproportionately affected relative to their share of

    mortgage originations.
     
    So investing in white areas probably isn't a good strategy.


    Avoid or short companies with growning diversity programs (love to figure a screen for that).
     
    Can anyone think of any examples of companies that have financially declined due to excessive diversity-related hiring?


    As long as the country is going down the tubes, we might as well make some money to pad our landing elsewhere.
     
    Short US-treasury bonds because inevitably there will be a debt crisis. The only problem is that we don't know when it'll happen.

    Can anyone think of any examples of companies that have financially declined due to excessive diversity-related hiring?

    Dell.

    One hundred-year-old Maytag was destroyed by a black CEO in 1.5 years who had been groomed by status-marking eloi chairman of the board.

    Not a private company but DC Metrorail is in a “death spiral” from black race nepotism.

    Just off the top of my head but there are many more.

    And then there’s the federal government;

    “In fiscal year 2011, federal agencies obligated a total of around $537 billion in government contracts to businesses,” said GAO. “About $104 billion was obligated to small businesses (19 percent) and of this amount, just over one-third ($36 billion) was obligated to small businesses that identified themselves as minority-owned . . .”

    http://www.cnsnews.com/news/article/audit-35-federal-small-business-contract-dollars-went-minority-owned-firms

    In order to get obligated government contracts you have to be “socially disadvantaged” which doesn’t sound geared to let the best man win.

    Read More
  31. ia says:
    @Vullsain
    Let me get this straight, poor lending practices to minority neighborhoods brought the Western Financial Industry to it's knees? I remember the screams and yells and gnashing of teeth from the Masters of the Universe who lost money after the dot com crash imploring Greenspan and the Federal Reserve to cut interest rates, a national credit bubble in housing was knowingly produced with easy money policy. The Bush Administration including the FHA, the ratings agencies, Congress, the MSM the Securities firms all looked the other way as the the bubble developed. Once a financial tsunami has been unleashed it is almost impossible to stop, everyone who was already in was making money and state and local governments could feast on the tax revenues. It was an obvious racket at the time and there were multiple warnings from prudent observers , including the National Real Estate Assessors who testified to congress that real estate agencies were gaming the system and would not give business to assessors who would not artificially inflate prices. Remember the acronyms from the loan originator insiders in real estate worried about the inevitable crash YWBH (you won't be here) and IWBH (I won't be here) or how about Goldman Sachs selling AAA rated mortgage bonds to their clients even though the default rates on the bonds were junk and at the same time buying reinsurance from AIG knowing they would explode. Repeat and rinse, but next time another excuse will need to be used, the Clinton Community Reinvestment Act may not have been prudent but was by far not the main cause for the plundering and rot in our financial/political system.

    Why was it originally called “subprime crisis?”

    Read More
  32. ia says:
    @Kyle McKenna

    Peter Brimelow pointed out in Forbes that minorities did not have lower default rates
     
    Technically, Mr Brimelow indicated that more (potential) minority borrowers were weeded out before loan originations occurred, because of their poorer credit ratings, among other things.

    The Boston Fed authors apparently assumed that equal default rates meant all minority applications are an equal credit risk compared with whites. But they`re wrong. These census tract mortgages had already passed through the loan approval process-which had presumably rejected a higher proportion of minority applicants on the way. So the fact that white and minority default rates finished up equal meant mortgage lenders knew what they were doing.
    http://www.vdare.com/articles/the-hidden-clue
     

    Correct.

    A Freddie Mac study concluding that far more black people have bad credit than white people, even when both have the same incomes, has come under attack in Congress, and some experts have questioned whether it oversimplifies a complex  issue.

    The study’s [Freddie Mac] authors defended their conclusions but said they probably should have chosen language other than “bad credit” or “good credit” because they were trying to say whether people had trouble paying their bills.

    The [Freddie Mac] researchers, relying on data from credit reports, designated people as having “bad credit” if they had two bills overdue more than 30 days in the past two years, one bill more than 90 days late, a lien, a judgment or a bankruptcy. Their data showed that a higher percentage of African Americans with incomes of $65,000 to $75,000 had “bad credit” than whites with incomes below $25,000.

     (Washington Post 10/05/99 by D’Vera Cohn)[former link **Read More

  33. https://en.wikipedia.org/wiki/Orality

    is the practice of communicating only in speech, without writing things down in memos that might be subject to legal discovery. In recent millennia, people have lost the ability of keeping track of complex plans and arguments without the aid of writing. We need to recover the ability to think and plan without the crutch of written language.

    Read More
  34. It’s interesting looking at the time delay between the subprime collapse, which your average investor barely took note of, and the real collapse in September of 2008, which everybody noticed. The book and the movie “The Big Short” illustrated this, showing how Michael Burry and Steve Eisman, while ultimately correct in their guess, got the timing of the full collapse wrong. Indeed, in late fall of 2007 the Dow hit an all time high in the low 14000′s. The next major event to rock the markets was the Bear Stearns collapse the following spring. But even after that, the Dow rebounded back to the low 13000′s in late May 2008. Turns out this was the dead cat bounce that was the last chance for everyone to get out. One wonders if the next collapse will follow a similar pattern: 1. A growing chorus of doomsayers predicts the collapse (which I’m starting to see a lot of now), 2. The market defies expectations, hitting all time high after high, causing a lot of the naysayers to second guess, 3. A calamitous event rocks the markets, yet they prove resilient and continue brief upward momentum, 4. The final collapse comes.

    Read More
  35. Cortes says:

    The notion that mortgages by minorities were responsible for the crash ought to be dispelled. In a previous attempt at posting I outlined the effects of spiral scamming of lenders (with collusion of officers of said lenders and the involvement of underresourced singleton practices of lawyers and surveyors) by groups selling A B C D E F G H I J over periods of less than 24 months with a rise in prices overall of 400%.
    Part of my duties was signing court-ready official declarations about the authenticity of documents.
    No longer am I in that position but ex colleagues tell me that it’s going on again.
    FYI.

    Read More
  36. Mike says: • Website
    @Dan Hayes
    Mike:

    One of the proximate causes of the eventual housing meltdown was that in congress Representative St. Germain surreptitiously increased FSLIC insurance on Savings & Loans in the middle of the night from $40,000 to $100,000.

    Dan, the limit is now $250,000 per account. You probably know that, and that limit was put in place after the Lehman debacle. Which is my… Oh, hell, I can hardly talk about it.

    If you have multiples of that amount of money, there are brokers that will assist you in placing as many insured accounts as you might need. One at this bank, another at this other bank, and then we can style the account a little differently, say from Mike to Michael, and still get that one covered too. One with my son’s name with me listed as the beneficiary…

    Financial regulation is very corrupt.

    Read More
    • Replies: @Dan Hayes
    Mike:

    Thanks for the update. I wasn't aware of the present stratospheric limits and how they can be manipulated.

    From what you have told me, the St Germain corruption era was petty ante compared to what's going on now.

    Live and learn from the Unz Review! Thanks again.
  37. Dan Hayes says:
    @Mike
    Dan, the limit is now $250,000 per account. You probably know that, and that limit was put in place after the Lehman debacle. Which is my... Oh, hell, I can hardly talk about it.

    If you have multiples of that amount of money, there are brokers that will assist you in placing as many insured accounts as you might need. One at this bank, another at this other bank, and then we can style the account a little differently, say from Mike to Michael, and still get that one covered too. One with my son's name with me listed as the beneficiary...

    Financial regulation is very corrupt.

    Mike:

    Thanks for the update. I wasn’t aware of the present stratospheric limits and how they can be manipulated.

    From what you have told me, the St Germain corruption era was petty ante compared to what’s going on now.

    Live and learn from the Unz Review! Thanks again.

    Read More
    • Replies: @Ivy
    Any alert teller can help you get a multiple of the 250K ceiling into accounts using any number of vestings. In fact, if they know you have the money and don't ask, then they have some awkward performance reviews. Wells Fargo drove that car until the wheels fell off.
  38. Ivy says:
    @Dan Hayes
    Mike:

    Thanks for the update. I wasn't aware of the present stratospheric limits and how they can be manipulated.

    From what you have told me, the St Germain corruption era was petty ante compared to what's going on now.

    Live and learn from the Unz Review! Thanks again.

    Any alert teller can help you get a multiple of the 250K ceiling into accounts using any number of vestings. In fact, if they know you have the money and don’t ask, then they have some awkward performance reviews. Wells Fargo drove that car until the wheels fell off.

    Read More
  39. Elsewhere says:
    @EdwardM
    Why, even in the inferior later seasons, were episodes early in the season better than those later in the season? The writers ran out of good ideas earlier in the season and coasted for the rest -- only to rediscover new good ideas on summer vacation for the next season?

    More likely it's fatigue from the people doing the rating as the season wore on, to be replaced by anticipation of the new season that caused them to overrate early episodes.

    You’re reading the table incorrectly. The episodes in each season run downward.

    Read More
    • Replies: @EdwardM
    Whoops. Thanks. The charts make more sense when one reads it correctly. :-)
  40. EdwardM says:
    @Elsewhere
    You're reading the table incorrectly. The episodes in each season run downward.

    Whoops. Thanks. The charts make more sense when one reads it correctly. :-)

    Read More
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