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In the last few years, New Deal era “redlining” has come to be seen as one of America’s most horrific historic sins, on par with slavery, due to the profound research of America’s foremost public intellectual, Genius T. Coates, who made FHA redlining central to his argument for massive reparations to blacks.

Not surprisingly, there exists a symbiotic relationship between the obsessions of the Obama Administration and of Coates.

From the New York Times:

‘Redlining’ Home Loan Discrimination Re-emerges as Concern for Regulators

NEWARK — The green welcome sign hangs in the front door of the downtown branch of Hudson City Savings Bank, New Jersey’s largest savings bank. But for years, federal regulators said, its executives did what they could to keep certain customers out.

They steered clear of black and Hispanic neighborhoods as they opened branches across New York and Connecticut, federal officials said. They focused on marketing mortgages in predominantly white sections of suburban New Jersey and Long Island, not here or in Bridgeport, Conn.

Screenshot 2015-10-30 14.32.49

Apple Stores

In complete contrast to, say, Apple Stores, which can be found all over the South Bronx and the ungentrified parts of Brooklyn.

Oh, wait, sorry, no, Apple Stores can’t actually be found in poor neighborhoods in New York. It’s fine for Apple, the richest company in the world with something like $200 billion in unused cash sitting around, to do business where it thinks best, but banks are subject to federal regulatory oversight.

(By the way, it looks as if there are seven Apple Stores in Manhattan south of 76th street and about two or three in the Outer Boroughs, even though the Outer Boroughs have about 80% of NYC’s population. That’s actually a sizable convenience issue since Apple customers typically get their products serviced under warranty by taking them to the “Genius Bar” at the Apple Store. No doubt there are people mulling over right now how they can get their hands on some Apple Store Diversity rake-off, but Apple is smart, so it’s not that easy.)

Seriously, the moral theory of the 1977 Community Reinvestment Act was that banks that open branches in black neighborhoods to take deposits should also lend in the same neighborhoods. It wasn’t about forcing banks to lend in geographical areas where they don’t do business.

(One unexpected side effect of the CRA was that it hurt small black-owned banks, which traditionally tended to diversify their risks by taking deposits in black neighborhoods and lending in white neighborhoods.)

The results were stark. In 2014, Hudson approved 1,886 mortgages in the market that includes New Jersey and sections of New York and Connecticut, federal mortgage data show. Only 25 of those loans went to black borrowers.

Hudson, while denying wrongdoing, agreed last month to pay nearly $33 million to settle a lawsuit filed by the Consumer Financial Protection Bureau and the Justice Department. Federal officials said it was the largest settlement in the history of both departments for redlining, the practice in which banks choke off lending to minority communities.

Outlawed decades ago, redlining has re-emerged as a serious concern among regulators as banks have sharply retreated from providing home loans to African-Americans in the wake of the financial crisis.

Over just the past 12 months, federal, state and city officials have successfully required banks to expand minority lending programs and, in some instances, to pay penalties as part of redlining settlements in Buffalo; Milwaukee; Providence, R.I.; Rochester; and St. Louis. And more banks are facing scrutiny. The Justice Department now has more active redlining investigations underway than at any other time in the past seven years, officials said.

“Redlining is not a vestige of the past,” Vanita Gupta, the principal deputy assistant attorney general of the Justice Department’s civil rights division, said last month in a conference call with reporters.

The effect on minority communities can be profound. Homeownership is a cornerstone of economic mobility, and without a stable group of homeowners, neighborhoods can be left vulnerable to blight and disrepair.

The recent cases illustrate how redlining has evolved. Bankers no longer talk openly about denying loans to black people. Instead, officials said, some banks have quietly institutionalized bias in their operations, deliberately placing branches, brokers and mortgage services outside minority communities, even as other banks find and serve borrowers in those neighborhoods.

The intent of such management decisions is typically left unspoken, officials said. But in interviews with federal bank examiners, Hudson executives made their reluctance to venture into minority neighborhoods plain.

It is “like a whole other world,” one lending executive told examiners from the Consumer Financial Protection Bureau, explaining why the bank failed to generate any mortgage applications from a minority neighborhood here.

Fallout from the excesses of the subprime era in mortgage lending has, in some ways, set the stage for the discriminatory practices of today. As banks have tightened their credit lending standards to avoid risky loans, the percentage of blacks and Hispanics getting approved for mortgages has plunged.

Grappling with foreclosures, job losses and battered credit scores, many minority borrowers have found it difficult to qualify for mortgages under the more stringent rules.

Banks normally try to avoid borrowers who seem likely to default on their loans, but some stepped over the line, officials say, excluding entire communities and the creditworthy people who live in them.

In 2014, black people held 5.2 percent of the nation’s home loans, compared with 8.7 percent in 2006, according to the Federal Reserve Bank. Hispanics have struggled to regain lost ground as well, accounting for 7.9 percent of home loans in 2014, compared with 11.7 percent in 2006.

Obviously, 2006 should stand as our benchmark of prudent lending.

Federal and state officials said it was impossible to determine how widespread discriminatory lending had become. They believe a vast majority of banks are operating legally, but recent lawsuits have revealed striking disparities.

In Missouri, where Eagle Bank settled a redlining lawsuit with the Justice Department last month, the bank’s competitors generated five times as many mortgage applications from predominantly black neighborhoods in the St. Louis area as Eagle did, Justice Department officials said. The bank, which said it disagreed with the government’s findings, promised to set aside $975,000 to provide services for black residents and businesses.

And in Buffalo, Evans Bancorp settled a redlining lawsuit filed by Eric T. Schneiderman, the attorney general of New York, last month. The suit alleged that the bank focused its mortgage lending in communities that appeared on its “trade area” map, which excluded the predominantly black neighborhoods on the city’s East Side. Evans, which described the allegations as “unsubstantiated,” agreed to pay nearly $1 million to settle the suit. …

The issue is also achingly familiar. Until the 1960s, banks openly starved minority communities of home loans with the full backing of the federal government.

And the 1960s were only, what, five or ten years ago?

For decades, the Federal Housing Administration relied on so-called residential security maps to help decide which mortgages it would insure. The maps ranked and color-coded neighborhoods in cities across the country according to their perceived investment risk.

Affluent white neighborhoods that were “in demand” were typically shaded green. Black neighborhoods were shaded red and shut out of the conventional loan market. Here in Newark, for instance, every black neighborhood was deemed “hazardous” for investment in 1939, according to Kenneth T. Jackson, a historian at Columbia University.

And 1939 was, I don’t know, only 20 years ago.

With conventional loans so difficult to secure, many black people found themselves sidelined from the homeownership boom after World War II. Others were forced to turn to an underground economy that offered overpriced, predatory loans.

Even after the passage of laws that banned discriminatory lending in the late 1960s and ’70s, redlining persisted. Its modern-day form, though, is far less overt.

New Jersey banks no longer respond explicitly, as some did in the late 1930s, when asked, “Are there any areas in which loans will not be made?” (“Newark,” some said.)

Most of Hudson’s customers would have had no idea that the bank was excluding blacks and Hispanics, officials said.

A spokeswoman for Hudson did not respond to several requests for comment. But in a statement, Denis J. Salamone, the chief executive, said the bank believed it was meeting its fair lending obligations by buying loans originating in minority communities on the secondary market …

Founded by immigrants in 1868, Hudson was a darling of Wall Street for a time in the 2000s. Forbes magazine called it the “best managed bank of 2007” for steering clear of the subprime loans that sank other financial institutions.

Now the nation’s seventh-largest savings bank, it built its business on traditional mortgages and prided itself on its old-fashioned feel.

All the while, federal officials said, the bank was systematically avoiding minority communities as it expanded beyond its New Jersey roots into New York and Connecticut.

Of the 54 branches that Hudson acquired or opened from 2004 to 2010, only three were in predominantly black or Hispanic neighborhoods, according to the lawsuit filed by the Consumer Financial Protection Bureau and the Justice Department.

Okay, but wasn’t a resistance to dive into the minority lending business in 2004-2007 a key to Hudson not going bankrupt in 2008?

Predominantly black and Hispanic communities accounted for more than a third of its market in the region that included North Jersey and parts of New York, but the bank stationed only 12 of its 162 mortgage brokers in those communities. Last year, blacks accounted for just over 1 percent of Hudson’s mortgage approvals in the market that includes New Jersey and sections of New York and Connecticut; Hispanics accounted for 4 percent.

The government’s analysis of the bank’s lending data shows that Hudson’s competitors generated nearly three times as many home loan applications from predominantly black and Hispanic communities as Hudson did in a region that includes New York City, Westchester County and North Jersey, and more than 10 times as many home loan applications from black and Hispanic communities in the market that includes Camden, N.J. …

As part of the redlining settlement, Mr. Salamone, the bank’s current chief executive, has agreed to open two full-service branches in minority neighborhoods, to increase outreach to those neighborhoods, and to invest $25 million in a loan-subsidy fund to increase the amount of credit extended to black and Hispanic borrowers.

Hudson, which is expected to merge in November with M&T Bank Corporation, the nation’s 25th-largest bank, also agreed to pay a $5.5 million penalty. M&T recently settled its own federal lawsuit relating to accusations that it steered black borrowers to higher-cost mortgages than their white counterparts, among other concerns. In his statement, Mr. Salamone said M&T had reviewed and consented to Hudson’s agreement with the federal government.

This is actually the feds’ chokehold: approval of mergers and acquisitions. The fines are chump change, but the federal government’s ability to block lenders from mergers and acquisitions if the feds don’t like their level of minority lending is a key selection effect that determines who can get big and who must stay small.

Consider Washington Mutual and its CEO Kerry Killinger, which became the biggest mortgage lender bank in the 2000s and then went bottoms-up in the fall of 2008. Killinger got federal approval for acquisitions of 29 competitors over a couple of decades, including two historically catastrophic acquisitions in Southern California in which WaMu outbid rival suitors for federal approval by topping the other bidders’ promises of lower income and minority lending.

Back in 2009 in VDARE I figured out how the CRA’s chokehold on M&A approvals has a selection effect on the entire culture of the mortgage industry. Almost nobody else has figured this out, so it’s worth repeating at length. The following analysis helps explain one of the huge economic events of the prior decade, but it’s almost totally off the intellectual radar in 2015.

Consider Washington Mutual’s promise in 2001 that if it got federal permission to buy Dime Bank it would lend $375 billion to lower income and minority homebuyers. I asked in VDARE:

“How could the government hold a gun to the financial institutions’ heads and force them to make hundreds of billions in stupid loans? Sure, giving out $375 million in stupid loans to get the government off your back, that would make sense. $3.75 billion, maybe. $37.5 billion, conceivably. But $375 billion, no way. Nobody would promise to give away $375 billion to dubious borrowers unless they thought it was a great idea. They’d leave the industry before they’d promise to hand out $375 billion to people whom they doubted would pay it back.”

… Okay–but how does a bank get more market share and revenue growth?

One major way: by buying other banks. And to do that, you have to pass through the CRA gauntlet. If you aren’t willing to lend to people the government wanted you to lend to, then you were out of luck at mergers and acquisitions game.

So, the CRA implicitly selected for Kool-Aid Drinkers, such as WaMu’s Killinger. They’re the ones whom the government allows to build empires. …

I missed understanding the impact of the CRA because I kept asking myself: “How could the CRA force a banker who thinks lending more to minorities is a bad idea to lend more to minorities?” I kept trying to imagine the CRA’s effect on the already crazy-stupid WaMu, and how that couldn’t have been all that significant.

But I should have been thinking about the other side of the coin: all the sane-smart banks that didn’t get to get big like WaMu did because the government rigged the acquisition process so that crazy-stupid banks were more likely to get merger approval. WaMu got permission from the government to make 29 acquisitions from 1990 onward. A smart-sane bank wouldn’t.

That WaMu sincerely believed that it was going to make a fortune handing big mortgages to mariachi singers, illegal immigrants, and Department of Motor Vehicle clerks etc. etc. seems clear. After all, WaMu not only originated about one out of every eight mortgages in the U.S., but it also held on to a fair number of them instead of securitizing them and dumping them on Wall Street.

WaMu explained its minority-oriented strategy over and over again.

Why was WaMu, with its derisible strategy, able to buy out so many big lenders? To understand it, think about it the other way around: why didn’t more prudent financial institutions outbid WaMu for acquisitions?

Say there are two banks, WaMu and Scrooge-Potter BanCorp. The latter is owned by Ebenezer Scrooge of Charles Dickens’ A Christmas Carol and Mister Potter of Frank Capra’s It’s a Wonderful Life. While WaMu is beloved for lending to anybody with a pulse, Scrooge-Potter BanCorp is widely loathed for taking a dim view of lending money to likely deadbeats.

They both would like to buy George Bailey’s Bailey Building and Loan Association. ACORN and the National Community Reinvestment Coalition announce they will protest vociferously against regulatory approval of the merger unless the winner pledges to make $50 billion in minority and low income loans.

Fearing a debacle of defaults, Scrooge-Potter BanCorp issues a two-word press release: “Bah, humbug”. And it drops out of the bidding.

WaMu announces: “Well, heck, we’ll promise to lend $55 billion.”

In fact, because Scrooge-Potter realized its quest was hopeless, WaMu got Bailey Building and Loan for less than it would have paid if the government wasn’t biased in favor of imprudent bankers. This gives WaMu more money to pursue more targets.

Lather, rinse, and repeat. The CRA means that WaMu gets big while Scrooge-Potter stays small.

Consider the indirect effects on Scrooge-Potter BanCorp. Who would want to go to work for a bank that can’t make acquisitions because it won’t play nice with the government on CRA? Scrooge-Potter can’t buy anybody, it can only be bought. So, how’s your job security at Scrooge-Potter looking? Wouldn’t it make more sense to go work for WaMu instead?

The CRA drives the climate of opinion in the entire mortgage industry. If you wanted to be able to buy other banks, you had to play ball.

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I like to collect academic studies documenting the interaction of America’s love affair with Diversity and Immigration with the Housing Bubble/Bust of the 2000s. From the The Annals of the American Academy of Political and Social Science, July 2015:

Variations in Housing Foreclosures by Race and Place, 2005–2012

Matthew Hall
Kyle Crowder
Amy Spring


This study describes the spatial and racial variations in housing foreclosure during the recent housing crisis. Using data on the 9.5 million visible foreclosures (public auctions and bank repossessions) occurring between 2005 and 2012, we show that the timing and depth of the foreclosure crisis differed considerably across regions and metropolitan areas, with those located in the Mountain and Pacific West regions experiencing the highest foreclosure risks. The crisis was patterned sharply along racial/ethnic lines, with metros and neighborhoods with large black and Latino populations—as well as racially mixed neighborhoods—having high rates of foreclosure. Our analysis also highlights the particular vulnerability of Latino households, who not only had very high individual risk of foreclosures but tended to reside in areas hit hardest by the crisis. The race-stratified geographic patterns of foreclosure revealed here are substantially more complicated than a narrative that depicts only the unique disadvantage of black households during the crisis, and likely reflect some level of specific targeting of minority populations and neighborhoods by predatory and subprime lenders.

I haven’t been able to find a copy of this for less than $30, so I haven’t read more than the abstract, but it appears to fit in closely with virtually every detailed study published in the last half year, along with my arguments in 2007-2008.

But what percentage, say, of 2016 Presidential candidates are aware of this connection?

Update: thanks to readers, here are some quotes from the paper:

The popular story of the crisis often includes narratives of foreclosures in white western suburbs (Economist 2011) and minority-heavy central cities in the Midwest (Haughney and Roberts 2009). … while black concentrations were mostly unrelated to average foreclosure rates in cities and suburbs, they were strongly conditioned by Hispanic shares. In both cities and suburbs, foreclosure rates were considerably higher in areas with larger Hispanic populations, with the highest rates being observed in suburban areas that were more than one-fifth Hispanic. …

Average foreclosure rates, however, varied sub- stantially by neighborhood racial composition. In all-white and Asian neighbor- hoods, there were fewer than 5 foreclosures for every 100 homes, and just 1 in 8 of such neighborhoods had foreclosure rates over 10 (“very high”). by contrast, mostly black and mostly Hispanic neighborhoods had foreclosures over 12.9 and 11.4, respectively, and nearly half of these neighborhoods had very high rates. For the most part, most neighborhood types, including a mix of whites and minority groups, fell somewhere between all-white and all-minority neighbor- hoods. the exceptions are Hispanic-white and integrated neighborhoods, which experienced especially high rates of foreclosure (14.0 and 15.1) and were very likely to fall in the “high” or “very high” foreclosure classification. …

Thus, despite media accounts of the crisis primarily targeting suburban white and urban minority neighborhoods, the descriptive patterns in table 3 sug- gest that white neighborhoods were mostly shielded from the worst of the fore- closure crisis, while black, racially mixed, and especially Hispanic neighborhoods were hit especially hard.3

Specifically, in all divisions, the lowest average foreclosure rates are observed in all-white or Asian neighbor- hoods. by contrast, racially mixed and solidly minority neighborhoods—e.g., mostly black and all-minority areas—consistently recorded some of the highest rates. Foreclosure rates among black-white and white-mixed neighborhoods in the Mountain division were in excess of one in four homes over the 2005 to 2012 period. the highest average rates were observed in Southern Atlantic integrated neighborhoods where one foreclosure for every three homes was logged. In all but one division where there were a sufficient number of block groups, mostly black neighborhoods had the highest or second-highest average foreclosure rate, followed by black-white neighborhoods, which ranked second-highest in four divisions. Mostly Hispanic and Hispanic-white neighborhoods also recorded exceptionally high rates of foreclosure in several divisions, including the Mountain west and South. A central point to take away from this analysis is that in each region, neighborhoods containing sizable shares of African American and Latino populations tended to be the most heavily burdened by foreclosures in almost every division of the country.

Basically, this 2015 statistical analysis comes up with a picture of the Bubble/Bust that looks an awful lot like the one I depicted in my 2008 short story “Unreal Estate” about two white brothers-in-law speculating on houses in the high desert exurbs of north Los Angeles County: the big losses tended to be in integrated neighborhoods where people were trying to buy their way out of diversity-related problems elsewhere. It turned out, though, as Buckaroo Banzai liked to say, “Wherever you go, there you are.”

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For the last seven years, academics have been quietly compiling a mountain of evidence that the Housing Bubble and Bust was, like I’ve been saying since 2007, intertwined with contemporary America’s sacred cow of Diversity. For example, from a 2015 issue of Real Estate Economics:

Immigrants and Mortgage Delinquency

Zhenguo Lin
Department of Finance
Mihaylo College of Business and Economics
California State University, Fullerton,

Yingchun Liu
California State University, Fullerton,

Jia Xie
Bank of Canada

… Through the years, administrations touted home owning as a way to put immigrant and low-income families on a path to social and financial stability by promoting a more involved citizenry.1

1Clinton and Bush administrations launched ambitious programs to promote home ownership, especially for low-income households. For instance, President Clinton’s National Homeownership Strategy set a goal of allowing millions of families to own homes, in part by making financing more available, affordable, and flexible. President George W. Bush famously said in 2002 that “We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home,” and in a 2004 speech he said again that “We’re creating … an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property.”

Actually, I don’t think Bush’s speeches on Increasing Minority Homeownership are all that famous unless you were in the mortgage industry or read iSteve.

Increased home ownership may not only build wealth for immigrant households, but perhaps equally important, it is a signal of assimilation and achievement of the “American Dream.” As a result, the expansion of housing credit in the United States from the mid-1990s to the mid-2000s was largely cheered, and home ownership by households of immigrants and others reached record-high rates in the mid-2000s. According to the Census, the home ownership rate among immigrant households increased from 46.5 percent in 1995 to 53.3 percent in 2006. Meanwhile, the home ownership rate among native-born Americans increased from 66.1 percent in 1995 to 68.8 percent in 2006. In other words, the gap in home ownership between immigrant and native households dropped from 19.6 percent in 1995 to 15.5 percent in 2006.

As the housing and economic crises developed in 2007-2009, however, immigrants were blamed by the media for the large increase in delinquencies, defaults, and foreclosures in the housing market that helped to trigger the housing crisis and ultimately facilitated the bankruptcies or near-bankruptcies of multiple financial institutions (Malkin, 2008).2

The citation is to a Michelle Malkin column.

Should immigrants really be blamed for the current housing crisis? In particular, are immigrants more likely to be delinquent on mortgages than natives and, if so, why?

Personally, I think those are great questions to ask; but, to be honest, the total number of people in the media who are interested in them consists pretty much of Michelle Malkin, me, and a handful of other disreputable sorts.

To shed light on these and related questions, we investigate the mortgage delinquency behavior of immigrant households by using the 2009 Panel Study of Income Dynamics (PSID) data.

… We use the 2009 wave of the Panel Study of Income Dynamics (PSID), that is collected by the University of Michigan Survey Center. PSID is a longitudinal household survey which started in 1968, with a sample of over 18,000 individuals living in over 5,000 families in the U.S. Individuals in each household were followed annually from 1968 to 1997, and biannually after 1997. …

We should note that all of the immigrant households in the PSID came to the U.S. before 1999. Hence, the duration of their stays ranges from 10 to 40 years …

We restrict the data used in the current study as follows: the sample includes only mortgage-indebted households, i.e., those who own (rather than rent) their primary residences and who have at least one mortgage on their primary residence. After omitting observations with missing values, the final data include information on 2,383 households. Around 6.7 percent (159) of the households are immigrant households, and around 5.6 percent (125) of native-born households are second generation households.

… The difference in the mortgage delinquency rates between immigrants (15.7%) and natives (4.4%) is significant.

It’s also big: the 20th Century immigrants’ self-admitted delinquency rate of 15.7% is over 3.5 times the size of the natives’ rate of 4.4%.

Screenshot 2015-10-12 23.56.28

We find that immigrants are more likely to be delinquent on mortgages than natives, even after controlling for a rich set of household demographic and socioeconomic status and mortgage characteristics. This finding is unlikely to be driven by unobservable financial constraints, local housing market conditions or unobservable characteristics of the metropolitan areas where immigrants tend to cluster. There is evidence of imperfect immigrant integration: the relatively high delinquency rate of immigrants is mainly driven by the relatively recent immigrants who have been in the U.S. for 10 to 20 years.

The paper doesn’t give the raw delinquency rate for the 25% of the immigrants in the sample who arrived from 1989-1999 (keep in mind that no immigrants arriving after 1999 were included in the sample, so these are the most recent ones we’ve got). But I’d guesstimate the delinquency rate for the most recent immigrants in the sample was six to nine times as high as the natives’ delinquency rate.

And the delinquency rate in 2009 for immigrants arriving from 2000 onward was likely even higher than for the highly delinquent cohort that arrived in 1989-1999. My guess would be that immigrant mortgage-holders who arrived in 1989-2009 would have been delinquent about an order of magnitude more often than white native mortgage-holders.

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The shadowy concept of a municipal coup goes back at least to the feds setting up and arresting Washington D.C. mayor Marion Barry in 1990. Similarly, the revival of New Orleans over the last ten years since Hurricane Katrina has some of the indications of a slow white coup overthrowing the old black/creole of color power structure and its poor black base of support. The black mayor who was in charge in 2005 is now in jail and the white family that used to run the city government is back in the mayor’s office.

The celebrated improvement in New Orleans public schools seems to have much to do with firing lots of black administrators and teachers. From the NYT:

The Myth of the New Orleans School Makeover

WAS Hurricane Katrina “the best thing that happened to the education system in New Orleans,” as Education Secretary Arne Duncan once said? Nearly 10 years after the disaster, this has become a dominant narrative among a number of school reformers and education scholars.

Before the storm, the New Orleans public school system had suffered from white flight, neglect, mismanagement and corruption, which left the schools in a state of disrepair. …

“We don’t want to replicate a lot of the things that took place to get here,” said Andre Perry, who was one of the few black charter-school leaders in the city. “There were some pretty nefarious things done in the pursuit of academic gain,” Mr. Perry acknowledged, including “suspensions, pushouts, skimming, counseling out, and not handling special needs kids well.” …

Meanwhile, black charter advocates charge that the local charter “club” leaves little room for African-American leadership. Howard L. Fuller, a former Milwaukee superintendent, said the charter movement won’t have “any type of long-term sustainability” without meaningful participation from the black community. ..

A key part of the New Orleans narrative is that firing the unionized, mostly black teachers after Katrina cleared the way for young, idealistic (mostly white) educators who are willing to work 12- to 14-hour days.

And also from the NYT:

Racially Disparate Views of New Orleans’s Recovery After Hurricane Katrina

NEW ORLEANS — As the 10th anniversary approaches of Hurricane Katrina and the catastrophic levee breaches in New Orleans, a new survey finds a stark racial divide in how residents here view the recovery.

Nearly four out of five white residents believe the city has mostly recovered, while nearly three out of five blacks say it has not, a division sustained over a variety of issues including the local economy, the state of schools and the quality of life. …

But comparisons are also made difficult because many of those here in the city now are not those who left. The L.S.U. survey found that more than a quarter of the city’s current residents had moved here since Katrina. Those who did so were wealthier and more likely to be white and college educated than those who lived here before 2005.

My impression of visiting New Orleans a couple of years after the hurricane is that it looked like a great place to have a trust fund. Not much of a city for earning a living, but a nice place to spend inherited wealth.

• Category: Race/Ethnicity • Tags: New Orleans, Political Economy 
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An annual autumnal tradition here at iSteve is the crops-rotting-in-the-field stories about why we’re all going to die unless farmers get to import more peasants from Latin America to work cheap for them from such agriculture-savvy outlets as the New York Times, Washington Post, and Wall Street Journal. In 2015, it’s still summer, but from today’s WSJ:

On U.S. Farms, Fewer Hands for the Harvest
Producers raise wages, enhance benefits, but a worker shortage grows with tighter border
Updated Aug. 12, 2015 9:03 a.m. ET

Last year, about a quarter of Biringer Farm’s strawberries and raspberries rotted in the field because it couldn’t find enough workers.

You might think that, what with the well-known water shortage in California idling part of the country’s most labor-intensive farmlands, that we could skip the crops-rotting-in-the-fields ritual this year, but PR firms need to generate billings whether or not the hysteria makes even less sense than usual.

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Economist Scott Sumner offers some learned macroeconomic theorizing on 

Germany’s mysterious recovery 

Scott Sumner 

In the past 10 years Germany as gone from being the “sick man of Europe” to the star of the eurozone. This partly reflects the strong job creation that preceded the recession, perhaps due to the labor market reforms of 2003. However the post-2007 performance is even more amazing. There was almost no increase in unemployment during the recession, and the unemployment rate has fallen to relatively low levels during the recovery.

Why has Germany’s unemployment rate fallen 3 points since the end of 2007, while America’s is still 2 points higher?

I would suggest that one straightforward clue can be deduced from looking at population changes from 2000 to 2008 (assuming Google’s handy time charts can be trusted)

Germany’s population fell by about 100,000 (-0.1%) from 2000 to 2008. Germany used to have a lot of immigration from Turkey, but the country has been quietly cutting back on that as it turned out that the Turks quickly stopped working and went on welfare. Ironically, some of the denunciations of Thilo Sarrazin’s bestseller against mass immigration, Germany Abolishes Itself, no doubt came from insiders who agreed with it but didn’t want to draw attention to the fact that they’d been implementing some of it avant la lettre.

In contrast, the population of the U.S. grew by about 21,800,000 from 2000 to 2008 (+7.8% in just 8 years).

Even more strikingly, Spain’s population grew from by 5,200,000 (+13.1%).

During the 2000 to 2008 period, in contrast to tightening-up Germany, the U.S. and Spain both had similar immigration policies focused on importing large numbers of Latin Americans. The Spanish theory was that they would get better Latin Americans than the Americans because the Latin immigrants already spoke the national language of Spain so they would be more economically productive faster. Also, because it’s more expensive to get to Spain from Latin America, Spain expected to get a higher class of Latin American immigrant.

These Spanish immigration ideas actually seem pretty sensible compared to the lowbrow, emotional American views, as enunciated by President Bush in a Presidential Debate in 2004:

“… you’re going to come here if you’re worth your salt …”

But, being slightly smarter about immigration than George W. Bush hasn’t saved Spain from catastrophe. Currently, the unemployment rate in Germany is 5.1% and in Spain it’s 25.8%.

Obviously, there are a lot of other things going on in these comparisons, such as the Euro.

But, just looking at these very simple numbers explains a lot.

• Tags: Political Economy 
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From the 2011 book Lost Bank by Kirsten Grind about Washington Mutual, which collapsed spectacularly in 2008: In mid-2003, a market researcher named Kevin Jenne is sent to Orange County and Illinois to conduct focus groups on WaMu customers who had recently acquired Option Adjustable Rate Mortgages. These allowed borrowers to choose anything from 15 year fixed repayment to letting them pay only 1% interest for five years while the principal “negatively amortized” (and then the hammer would come down around 2008 when the interest rate reset to the current index and the principal left to be paid off was larger than when they started). Jenne’s assignment was to study these Option ARM borrowers to learn how to persuade more people to get Option ARM mortgages.

The 31 people who attended the dual sessions had two things in common: all of them held Option ARM loans, and few, if any understood what that meant.  

Jenne listened patiently, as, over and over again, the borrowers described what they believed to be their loan terms. They had gleaned startlingly few details about their loans from the mortgage broker or the WaMu loan consultant who had helped them through the process. Most of them knew they held adjustable-rate loans. They also thought the loan was cheaper than a regular mortgage, because they didn’t have to pay as much each month. Approval hadn’t been a hassle, the customers said — WaMu had required little paperwork or income documentation. That’s where their knowledge stopped. “From their perspective, it was a low payment loan, and that’s all it was,” Jenne said. “No one understood the option thing.” 

Some of the borrowers in the focus groups were first-time homebuyers, still awed by their new ability to capture the American Dream. Recently, President George W. Bush had announced plans to increase minority homeownership by 5.5 million people, piggybacking on the goals of his predecessor, President Bill Clinton. “We want people owning something in America,” Bush declared at an expo in New Mexico. “That’s what we want. The great dream about America is, I can own my own home, people say.”

In reading Bush’s minority mortgage speeches denouncing redlining, downpayment requirements, and onerous paperwork requirements such as pay stubs, a recurrent phenomenon is Bush’s Yoda-like reverse syntax. Did Bush always sound like this, or just on the topic of minority mortgages?

The focus group borrowers, some of them members of minorities, were effusive about their buying power. “They had been told by so many people that they couldn’t afford one,” Jenne said. Now they could. 

According to the federal Home Mortgage Disclosure Act database that exists to make sure minorities get enough loans, over half of the dollars lent in Orange County in 2003 by Washington Mutual’s subsidiary Long Beach Mortgage went to Hispanics.

Few of them understood what negative amortization meant, or that it could make their debt grow in the long run. …  

Half an hour into the first session with borrowers in Orange County, Jenne could tell that quizzing these people on their loan terms was futile — they didn’t know their loan terms. He got up, excused himself, and left the room. … Jenne walked into another room at the sterile interrogation facility, behind a two-way mirror, where two mortgage production employees from the Home Loans Group had been observing the discussion. … “I don’t think we’re asking the right questions,” Jenne told them. The questions he had put together seemed useless. But the mortgage employees disagreed. They wanted him to ask about indexing, even though the customers barely understood interest rates. “Find out what the index means to them,” they instructed Jenne. 

… He asked the group of borrowers: “How does your interest rate change?” 

No one responded. 

“It changes, right?” Jenne probed. 

The borrowers looked around the table at one another. Finally one said, “Yeah, it changes.” 

“I think it’s indexed,” offered one woman. 

“Yeah, yeah, indexed!” agreed another. They had answered a question correctly! 

“Well, what’s it indexed to?” Jenne asked. 

Another long awkward pause ensued. 

“My loan is indexed to the Nikkei,” proclaimed one borrower. 

Another long, awkward pause ensued. 

“Your mortgage is based on the Japanese stock market?!” Jenne thought to himself. “Of course I didn’t say that, he said later. “But I’m going, ‘Oh, my heavens.’” Strangely, in another focus group, in Illinois, another borrower also believed his loan was indexed to the Nikkei. Jenned never discovered where borrowers had received that information. “I don’t think they were being told this by someone,” said Jenne. “I think that the only index they had heard of, like on TV or something, was the Nikkei. It was just bizarre.

The borrowers did seem worried about the loan terms. One of them said, “It’s really scary to me what’s going to happen in five years.” Another echoed the same sense of foreboding with a slightly more compressed time frame. “Something terrible happens in three years.” Said a third borrower: “I’m a little nervous about it. I have this feeling of impending doom. It’s almost too good to be true.”

On the other hand, the borrowers seemed comfortable in their ignorance. “Despite their lack of understanding, participants were almost universally happy with their loan choice,” the report noted. …

The Home Loans Group wanted Jenne to recommend ways to market the Option ARM. So, Jenne and his team noted in their follow-up report that the best way to off-load the product onto customers was to tell them little about it. That avoided the problem of complicated loan terms and words that no one understood. “Focusing on the right ‘need to know’ information is critical to developing more Option ARM sales. Participants seemed easily overwhelmed by the product details,” the report concluded.

… Jenne came to believe that the Option ARM wasn’t just a bad idea — it might be evil. “After awhile, I lost that feeling,” Jenne said. “Then I came back to it later on. And then I thought, ‘No, no, this product is definitely evil.’” 

Whether or not [CEO] Kerry Killinger saw Jenne’s research on America’s hot new mortgage product — and it’s likely that he didn’t se it — WaMu doubled its annual Option ARM production to $68 billion in one year. By early 2005, WaMu promoted its loan as its “signature mortgage.” It made up more than 25% of all the mortgages WaMu made or purchased.

A few observations:

The vast Mexican surge into places like Orange County over the last few generations represented basically Fresh Meat to exploit for Newport Beach MBAs with spreadsheets. When you hear the Donor Class of the GOP talking about the need for “immigration reform,” that’s what they mean: more Fresh Meat.

These dialogues capture quite well the happy-go-lucky agreeableness combined with an aversion to hard mental effort that are a trademark of Mexican-Americans in Southern California (and perhaps elsewhere). When Michael Barone talks about Mexicans as the New Italians, he misses a key distinction: Italian-Americans tend to be suspicious and pessimistic. They put a lot of cognitive effort into trying to understand why this too good to be true offer is too good to be true. They save a lot because they expect the worst.

Mexican-Americans tend to spend a lot because they expect the worst, but it would also be too much work to figure out what might happen, so why not have a good time now?

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Via Kevin Drum, the Wall Street Journal says:

Michael Feroli, chief U.S. economist for J.P. Morgan, estimates that since the recession, the worker flight to the Social Security Disability Insurance program accounts for as much as a quarter of the puzzling drop in participation rates, a labor exodus with far-reaching economic consequences.

Thank goodness we let in all those illegal immigrants to do the jobs Americans are just too disabled these days to do. Who knew that working class Americans would suffer an epidemic of vague back pain and balky knees after decades of business, political, and economist elites conspiring to hammer down their wages through non-enforcement of immigration laws? Fortunately, our political, economic, intellectual, and moral betters somehow sensed that their fellow citizens would be getting more disabled in the future (apparently, arthroscopic surgery has been disinvented, or something), so our leaders brilliantly took action ahead of time to make sure America had an ample supply of unskilled foreign laborers to replace the Americans overwhelmed by this mysterious epidemic of disability. 
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The econosphere has been abuzz for several years with NYU professor Paul Romer’s plan to bring the benefit of Good Institutions to Central America by building “charter cities” in the banana republic of Honduras. (Here’s Romer’s 2011 TED talk.) As economist Daron Acemoglu has explained, the only thing that differentiates a rich country from a poor country is that the former has Good Institutions. So, what the Third World needs is for American economists to plan for them private chartered cities with world class Good Institutions. It’s a no-brainer.

Thus, Romer worked out a deal with the government of Honduras to turn state of the art development economics theorizing into reality by building three private cities in Honduras.

What could possibly go wrong? Who could object to such a high-minded, altruistic initiative? 

Well, there are always petty carpers everywhere. For example, a Honduran peasants rights lawyer named Antonio Trejo Cabrera disliked Romer’s proposal. The Montreal Gazzette reported yesterday:

Trejo had also helped prepare motions declaring unconstitutional a proposal to build three privately run cities with their own police, laws and tax systems.

In Honduras, however, they have time-honored ways of cutting through red tape and nuisance lawsuits:

Antonio Trejo Cabrera, 41, was shot five times while attending a wedding in the capital, Tegucigalpa, the Peasant Movement of the Valley of Bajo Aguan said in a statement. 

Trejo was a lawyer from three peasant co-operatives in the Bajo Aguan, a fertile farming area plagued by violent conflicts between agrarian organizations and land owners. More than 60 people have been killed in such disputes over the past two years. The lawyer had recently helped farmers gain legal rights to several plantations…. 

Just hours before his murder, Trejo had participated in a televised debate in which he accused congressional leaders of using the private city projects to raise campaign funds.

Meanwhile, Professor Romer has announced (see Marginal Revolution) that he has been frozen out of his oversight role by the government of Honduras, so he’s washing his hands of the whole deal.

An earlier American intellectual who had had big plans for Honduras, the filibuster William Walker, who wanted to add Central American countries to the United States as slave states, died by firing squad in Honduras in 1859. Professor Romer should be glad he’s out of there without enduring the fate of Walker and Trejo. 

It almost seems as if land ownership in Central America is very serious stuff. (Remember the Death Squads of the 1980s?) Maybe it’s hard for American theoreticians to figure out what’s really going on in places like Honduras because the truth is only whispered about among locals for fear of ending up like the brave Attorney Trejo.

Perhaps political power does come out of the barrel of a gun.

This fiasco resembles a miniature version of how the Harvard econ department helped provide intellectual air cover for budding oligarchs stealing much of the assets of Russia in the 1990s. Isn’t it about time for economists to do some soul-searching and collective self-criticism?

• Category: Economics • Tags: Political Economy, Real Estate 
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In the New York Review of Books, celebrity economists Daron Acemoglu and James Robinson write in to complain that reviewer Jared Diamond wasn’t quite rapturous enough about their new book attributing virtually all differences in national wealth to their unfalsifiable theory that it’s all caused by the White Man hogging the good institutions: rich countries, by definition, have good institutions and poor countries have bad institutions, which is the fault of European colonialists, so all that poor countries need to do is get themselves some of those good institutions.

In response, Diamond patiently explains once again what ought to be obvious concepts, such as that geographic differences, including the prevalence of tropical diseases, actually do play a role:

Even while they are still alive, workers in the tropics are often sick and unable to work. Women in the tropics face big obstacles in entering the workforce, because of having to care for their sick babies, or being pregnant with or nursing babies to replace previous babies likely to die or already dead.

While I appreciate Diamond fighting the good fight here, I have to reflect that he helped bring Acemogluism on himself with his impressive but disingenuous Guns, Germs, and Steel. When you think to yourself, “I’m going to shade the truth a little to make some money, but surely future generations will rectify the misleading impression that political correctness persuaded me to make,” it may well turn out that instead you just motivate a new generation like Acemoglu to try to make lots of money like you not by putting forward more accurate theories, but instead trying to top you by putting forward far more stupid theories.

• Tags: Political Economy 
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For the longest time we’ve been hearing about how racism caused the subprime mortgage meltdown by causing financial companies to charge blacks and Hispanics more fees and interest. And that’s why they couldn’t pay back their loans: not because they didn’t have enough money but because they were being charged too much for their loans. This is in contrast to the more realistic view [i.e., mine] that the main cause was imprudent financiers like Angelo Mozilo using the War on Redlining as an excuse to get out from under traditional regulations on mortgages, like requiring documentation of income.

But when the Obama Administration settles on these discrimination charges, it’s always for a pittance compared to the hundreds of billions involved.

From the New York Times:

Wells Fargo, the nation’s largest home mortgage lender, has agreed to pay at least $175 million to settle accusations that its independent brokers discriminated against black and Hispanic borrowers during the housing boom, the Justice Department announced on Thursday. If approved by a federal judge, it would be the second largest residential fair-lending settlement in the department’s history.

An investigation by the department’s civil rights division found that mortgage brokers working with Wells Fargo had charged higher fees and rates to more than 30,000 minority borrowers across the country than they had to white borrowers who posed the same credit risk, according to a complaint filed on Thursday along with the proposed settlement.

Wells Fargo brokers also steered more than 4,000 minority borrowers into costlier subprime mortgages when white borrowers with similar credit risk profiles had received regular loans, a Justice Department complaint found. The deal covers the subprime bubble years of 2004 to 2009. …

Thomas Perez, the assistant attorney general for the civil rights division, said the practices amounted to a “racial surtax,” adding: “All too frequently, Wells Fargo’s African-American and Latino borrowers had no idea they could have gotten a better deal — no idea that white borrowers with similar credit would pay less.”

I don’t see any mention of the race of the mortgage brokers who were getting bad deals for minorities. The financial industry had, in cooperation with the government, made a huge effort to bring in more minority brokers and salesmen. This giant Minority Outreach wasn’t just to please the politicians, of course. As with buying cars, where salesmen notoriously exploit the insecurities and lack of financial acumen of black and Latino customers, NAMs tend to be easy meat for mortgage brokers of their own race. The problem is that they are also less likely to pay off their loans.

… The Justice Department estimated that the minority borrowers who had been steered into costly subprime loans would receive an average of $15,000, while the victims who had been charged more costly fees would receive $1,000 to $3,500. In addition, the bank has agreed to give $50 million to a program that assists people in making down payments or improving their homes in eight metropolitan areas: Baltimore, Chicago, Cleveland, an area east of Los Angeles, New York, Oakland/San Francisco Bay Area, Philadelphia and Washington. 

Lending data showed, for example, that in 2007 customers in the Chicago area who borrowed $300,000 from Wells Fargo through an independent broker had paid an average of $2,937 more in broker fees if African-American, and $2,187 more if Hispanic, compared with white borrowers with a similar credit risk, the complaint said. 

Similarly, it said, the data showed that nationwide, an African-American borrower who had qualified for a regular loan was 2.9 times more likely to be steered into a subprime loan, and a Hispanic borrower was 1.8 times more likely, than were similarly creditworthy white borrowers. Subprime loans, which are intended for riskier borrowers, carry higher interest rates.

Of course, the article doesn’t mention the default rates by race.

Wells Fargo was also facing lawsuits by several entities beyond the Justice Department, including the city of Baltimore, the state of Illinois and the Pennsylvania Human Rights Commission. It settled with all of them as part of the deal, putting to rest its fair-lending cases from the bubble years. 

The focus of the settlement is Wells Fargo’s failure to police the behavior of its independent loan brokers. The complaint said that the bank had set basic credit guidelines but then had allowed the brokers discretion to charge higher rates or steer people into less attractive loans without ensuring there was no discrimination based on race or national origin 

Wells Fargo and the Justice Department were unable to agree on whether the data had showed any evidence of discrimination in the lending practices of the bank’s in-house “retail” mortgage agents. Instead, they agreed to a methodology to evaluate that data further. If it finds evidence of discrimination, the victims would receive similar compensation on top of the $175 million Wells Fargo has already agreed to pay. 

Under federal civil rights laws, a lending practice is illegal if it has a disparate impact on minority borrowers, even without evidence of discriminatory intent.

Allow me to make a prediction. Financial firms will cut back on their Minority Outreach for awhile, until such point as the Good Times are rolling again, at which point politicians will demand it and we’ll go through the whole cycle all over again.

… In December, the division settled a similar lawsuit with Bank of America for $335 million over loan discrimination by its Countrywide Financial unit. In May, SunTrust Mortgage agreed to pay $21 million in a similar case.

Countrywide was the biggest mortgage lender in the country, so that puts some perspective on the Discrimination Caused the Meltdown theory.

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From my new column in Taki’s Magazine:

The struggles of even the best-connected California celebrities to nail down every last one of the permits they need to build on their own property helps demonstrate why differences in topography drive Californians toward voting for environmentalist Democrats and Texans toward pro-business Republicans. … 

In Southern California, U2 guitarist The Edge (born David Evans) has been battling for a half-dozen years to build five mansions on his 156 acres of ridgeline overlooking Malibu’s Surfrider Beach, an average of one home per 31 acres. His well-heeled neighbors have gone to war to prevent him from taking such liberties with their view. 

California and Texas are the two largest states in the Electoral College, so it’s worth considering the bedrock reasons they vote the way they do. Having lived in both California and Texas, my guess is that their divergent politics are shaped by the shape of their land.

Read the whole thing there.

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A few weeks ago I posted the analysis by Robert Fitch, an old white power-to-the-proles lefty, of Obama’s role in Chicago’s real estate wars.

Now in the Daily Caller, Neil Munro has a long article shedding light on President Obama’s role in Chicago’s real estate disaster, using as a focal point the one case in which Obama ever spoke up in court (according to a 2008 Chicago Sun-Times article), a disparate impact discrimination lawsuit against Citibank to get more mortgages for minorities.

President Barack Obama wants his 2012 re-election campaign to focus on Gov. Mitt Romney’s private-sector record, but his own private-sector history shows that he promoted and profited from the nation’s disastrous real-estate bubble. 

One striking example comes from the president’s 1995 housing-discrimination class action lawsuit: It provided him with legal fees, greased his political donations and boosted his role in Chicago politics. 

While he made personal gains, his lead African-American client, Selma Buycks-Roberson, declared bankruptcy in 2001 — and again in 2008 as she received a home foreclosure notice, according to unpublicized federal and city records obtained by The Daily Caller.

Read the whole thing there.

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Three years ago, I blogged about how the culture of the bond rating companies, such as Warren Buffett’s Moody’s, had been very slowly corrupted by the logic of the conflict of interest that went back to the 1970s by which they stopped being paid by buyers of securities and started being paid by issuers. This logical problem didn’t become a terrible real world problem until the 2000s with the mortgage-backed securities disaster. I drew an example from golf:

Casey Martin, who was born with a terrible birth defect that crippled one of his legs, leaving him in recurrent pain, starred on Stanford’s famous mid-1990s college golf team along with the full-blooded Navajo Notah Begay, who went on to win four times on the PGA tour before alcohol brought him down, and with Eldrick Woods Jr., who, last time I heard, remains employed in a golfing capacity. 

Despite his disability, Martin enjoyed enough success on the minor league Nike tour to qualify for the PGA tour in 2000. His lawsuit under the Americans with Disability Act to be allowed to use a golf cart on the PGA tour went all the way to the Supreme Court, where he won in 2001. 

Martin’s was not a popular victory with players, with both Jack Nicklaus and Arnold Palmer protesting that it would open the door to other players getting a note from their doctor to be chauffeured about the course. 

It was easy to imagine a player with a bad back like Fred Couples trying to get permission for a cart, and then the whole thing descending into carts everywhere.
And yet, eight years later, the PGA Tour hasn’t slid down the slippery slope. So far, as far as I can tell, a cart has only been used once by somebody other than the severely unlucky Martin: Erik Compton rode in one tournament last fall because he had gotten his second heart transplant only a few months before. 

Essentially, golf has a fairly healthy culture of sportsmanship where top players don’t want to be seen as abusing loopholes. So, it hasn’t been hard so far to restrict cart-riding to rare human-interest stories like Martin and Compton.

As dearieme commented at the time:

This accords with my observation that conservatives are very shrewd at seeing the direction of social change but prone to overestimating its speed. That’s because they overlook how conservative people can be, which is pleasingly paradoxical.

Golf has a highly conservative culture, basically one of “What would Old Tom Morris do?” 

It was fortunate that its origin culture was Scottish rather than English because it avoided most of the hypocrisy and cheating over amateurism that plagued tennis up to 1968 (when Wimbledon finally admitted professionals) and the Olympics even later. The Scots had a somewhat less classbound society than the English, so if a man wanted to make his living from golf, as Morris did at St. Andrews in the mid-19th Century, that was honorable. It was more honorable to be an amateur, like Bobby Jones in the 1920s, and they had their own Amateur tournaments, but the amateurs did not see themselves as tainted by striving against the professionals in the Open tournaments. 

By the way, the partially crippled Casey Martin, unsurprisingly, couldn’t play well enough to stay on the PGA tour. Six years ago, he retired and became the golf coach at the U. of Oregon. A week ago, at age 40, he qualified for next week’s U.S. Open at Olympic in San Francisco.

• Tags: Golf, Political Economy, Sports 
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Over at Marginal Revolution, Tyler Cowen links to a study of why child labor expanded so much during the laissez-faire era of the industrial revolution. The comments are mostly the usual libertarian chest-pounding, leading up to Roy Swanson’s:

I got my first job when I was nine. Worked at a sheet metal factory. In two weeks, I was running the floor. Child labor laws are ruining this country.

Well played, sir. 

On second reading, I’ve come to believe this is a pitch-perfect parody of 21st Century libertarianism. Having never worked in a sheet metal factory, I couldn’t say for sure, but I would guess that there are a lot of opportunities for sheet metal workers to lose fingers or even heads without adequate adult supervision.

[Update: Commenters have pointed out that Rob Swanson is the libertarian Tea Party government bureaucrat (the one who looks like Teddy Roosevelt) on the TV sitcom Parks and Recreation. Sorry about ham-handedly explaining the entire joke. But, at least, I did recognize it was supposed to be funny.]

When I was majoring in economics, history (especially of Britain), and business at Rice in the 1970s, child labor in Dickensian England was a major intellectual sore spot. 

The libertarians were just beginning their ascendance in the academy. Rice, a science / engineering-focused college in the booming oil capital of Houston, was unusual among elite universities because its faculty averaged less to the left than was the norm in the 1970s. While the economics department was increasingly libertarian, it was striking at the time that even the history department had two star converts to pro-market ideas in Allen Matusow and Martin J. Wiener, who is obscure in America but subsequently became hugely controversial in England in the early 1980s because of his influence on Thatcherism via Keith Joseph.

A major PR problem for laissez-faire ideas back then, however, was the extremely well documented history of a previous era when laissez-faire ideas had been dominant: in England in the first 3/4ths of the 19th Century. In particular, nobody who read about the era wanted to go back to not regulating child labor.

Since then, the Dickensian Era has become less of a problem for intellectual libertarians. People don’t read Dickens as much. Nobody watches Oliver! the 1968 Best Picture winner (I played Oliver Twist’s grandfather, Mr. Brownlow, in the St. Francis De Sales elementary school’s 1970 production of Oliver!). Time passes and less and less is remembered.

Over the centuries, laissez-faire argumentation for low wages has shifted from insisting upon the iron necessity of child labor to the wonderfulness of open borders. But the combination of monetary interest driving intellectual arguments remains very similar. 

Perhaps the best critique of the ideological rigidity of laissez-faire England comes from Paul Johnson’s 1972 A History of the English People. This preceded his famous conversion to neoconservatism in the brilliant Modern Times of 1983. But in 1972, Johnson was the last heir of Orwell in his English patriotic democratic socialism. In in 2007, I explained how Johnson’s analysis could be applied to current debates over immigration:

We don’t think of the British as being terribly ideological. But during the second quarter of the 19th Century, their justifiable national pride in developing economics for once overwhelmed the vaunted British common sense. A dogma based on a crude interpretation of the works of Malthus and Ricardo presumed that low wages were crucial to profits, just like the sophomoric economics of today’s open borders crowd. 

Back then, the ruling class didn’t fulminate over plucking chickens but over sweeping chimneys. 

Consider the fates of the little boys, from age four on up, who were widely employed by master chimney sweeps to clamber up inside long flues and knock down the soot, at horrific cost to their health. Paul Johnson writes in A History of the English People (p.285), “often they were forced up by the use of long pricks, and by applying wisps of flaming straw to their feet. They suffered from a variety of occupational diseases and many died from suffocation.” 

The ruling ideology of the age assumed that, as regrettable as this might be, the laws of economics required it. 

After all, how else would chimneys ever get swept? 

The first bill banning the employment of children under eight from chimney sweeping passed Parliament in 1788. But, like many immigration laws in America today, it was ignored. So was the 1834 act. 

Then, the greatest reformer of the Victorian Era, Anthony Ashley Cooper, the seventh Earl of Shaftesbury, began his almost endless crusade to abolish child labor inside chimneys. Like William Wilberforce, the victor over the slave trade, Shaftesbury was a Tory, an evangelical Anglican, and a relentless parliamentarian.
In 1840, Shaftesbury carried a bill to regulate child chimney sweeps over ”resistance that can only be called fanatical”, in Johnson’s words. 

It also was not enforced. 

Three more of Shaftesbury’s bills failed in Parliament in the 1850s. He succeeded in 1864, but the legislation proved ineffective “due to a general conspiracy of local authorities, magistrates, police, judges, juries, and the public to frustrate the law. Boys continued to die…” including a seven-year-old who suffocated in a flue in 1873. 

Shaftesbury finally succeeded in passing effective legislation in 1875. 

And, of course, that winter everyone in Britain froze to death due to clogged chimneys. 

Oh, wait … sorry, that was in Bizarro Britain, where the reigning interpretations of economics actually applied. Rather like in Senator Kennedy’s Abnormal America, where nobody will be able to afford to eat chicken without the Liberal Lion’s amnesty and guest worker programs. 

In the real Britain, however, the master chimney sweeps quickly found other ways to clean chimneys. 

What we’ve learned since the early Victorian Era is that the world works in ways more responsive to intelligent effort than was imagined by Thomas Malthus: 

- High wages can often spur technological advances that more than make up for their costs. 

- The key to economic prosperity is not low wages but high human capital.
In contrast to Dickensian England, with its Scrooge-like obsession with cheap labor, Americans traditionally enjoyed high wages because the country was underpopulated relative to its natural resources. This inspired American entrepreneurs to invest in labor-saving innovations, which, in a virtuous cycle, allowed even higher wages to be paid. 

The most famous example: Henry Ford doubling his workers’ salaries in 1914 after inventing the moving assembly line. 

In the long run, the cheap labor obsession debilitated the English economy. After the brilliant innovations of the early Industrial Revolution, the English textile industry tended to stagnate. Paul Johnson explains: 

“Factories paid higher wages than domestic industries; all the same, they were very low, chiefly because most of the factory hands were women and children. Low wages kept home consumer demand down; worse still, they removed the chief incentive to replace primitive machinery by the systematic adoption of new technology.” 

And then there was the long run impact on Britain’s economic culture. Johnson writes: 

“State limitations of human exploitation came too late, and were too ineffective, to make the quest for productivity a virtue; the English did not discover it until the twentieth century, by which time the trade union movement had constructed powerful defenses against it.” 

Victorian Scroogeonomics helped engender its own nemesis. It drove the British working class far to the left of the American working class, leading to both the nationalization of major industries in the 1940s and a hatred of productivity improvements among unions, exemplified in the 1959 Peter Sellers’ movie I’m All Right, Jack.

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The late Robert Fitch, a veteran critic of New York real estate insiders, gave a speech to the Harlem Tenants Association on November 14, 2008 applying his brand of analysis to the history of Obama’s rise in Chicago. 

In fact, as Obama knows very well, for most of the last two decades in Chicago there’s been in place a very specific economic development plan. The plan was to make the South Side like the North Side. Which is the same kind of project as making the land north of Central Park [i.e., Harlem] like the land south of Central Park. The North Side is the area north of the Loop—Chicago’s midtown central business district—where rich white people live; they root for the Cubs. Their neighborhood is called the Gold Coast. For almost a hundred years in Chicago, blacks have lived on the South Side …

And in the 1980s, the argument began to be made that the public housing needed to be demolished and the people moved back into private housing. For a while, the election of the city’s first black Mayor, Harold Washington, blocked the demolition. But Washington died of a heart attack while in office, and after a brief interregnum, the Mayor’s office was filled in 1989 by Richard M. Daley—whose father had carried out the first urban renewal. Daley was his father’s son in many ways. By 1993, with subsidies from the Clinton Administration’s HOPE VI program, the public housing units began to be destroyed. And by 2000 he’d put in place something called The Plan for Transformation. It targeted tens of thousands of remaining units. 

With this proviso: That African Americans had to get 50% of the action—white developers had to have black partners; there had to be black contractors. And Daley chose African Americans—as his top administrators and planners for the clearances, demolition and re-settlement. African Americans were prominent in developing and rehabbing the new housing for the refugees from the demolished projects—who were re-settled in communities to the south like Englewood, Roseland and Harvey. Altogether the Plan for Transformation involved the largest demolition of public housing in American history, affecting about 45,000 people—in neighborhoods where eight of the 20 poorest census tracts in the U.S. were located. 

But what does this all have to do with Obama? Just this: the area demolished included the communities that Obama represented as a state senator; and the top black administrators, developers and planners were people like Valerie Jarrett—who served as a member of the Chicago Planning Commission. And Martin Nesbitt who became head of the CHA. Nesbitt serves as Obama campaign finance treasurer; Jarrett as co-chair of the Transition Team. The other co-chair is William Daley, the Mayor’s brother and the Midwest chair of JP Morgan Chase—an institution deeply involved in the transformation of inner-city neighborhoods thorough its support for—what financial institutions call “neighborhood revitalization” and neighborhood activists call gentrification. 

William Daley went on to serve as Obama’s second chief of staff, following Rahm Emmanuel, who is now mayor of Chicago.

If we examine more carefully the interests that Obama represents; if we look at his core financial supporters; as well as his inmost circle of advisors, we’ll see that they represent the primary activists in the demolition movement and the primary real estate beneficiaries of this transformation of public housing projects into condos and townhouses: the profitable creep of the Central Business District and elite residential neighborhoods southward; and the shifting of the pile of human misery about three miles further into the South Side and the south suburbs. 

Obama’s political base comes primarily from Chicago FIRE—the finance, insurance and real estate industry. And the wealthiest families—the Pritzkers, the Crowns and the Levins. But it’s more than just Chicago FIRE. Also within Obama’s inner core of support are allies from the non-profit sector: the liberal foundations, the elite universities, the non-profit community developers and the real estate reverends who produce market rate housing with tax breaks from the city and who have been known to shout from the pulpit “give us this day our Daley, Richard Daley bread.” Aggregate them and what emerges is a constellation of interests around Obama that I call “Friendly FIRE.” Fire power disguised by the camouflage of community uplift; augmented by the authority of academia; greased by billions in foundation grants; and wired to conventional FIRE by the terms of the Community Reinvestment Act of 1995. …

Yes, Obama worked with Ayers, but not the Ayers who blew up buildings; but the Ayers who was able to bring down $50 million from the Walter Annenberg foundation, leveraging it to create a $120 million a non-profit organization with Obama as its head. Annenberg was a billionaire friend of Ronald Reagan and Margaret Thatcher. Why would he give mega-millions to a terrorist? Perhaps because he liked Ayers’ new politics. Ayer’s initiative grew out of the backlash against the 1985 Chicago teachers’ strike; his plan promoted “the community” as a third force in education politics between the union and the city administration. Friendly FIRE [i.e., liberal, multiracial Finance, Insurance, and Real Estate interests] wants the same kind of education reform as FIRE: the forces that brought about welfare reform have now moved onto education reform and for the same reason: crippling the power of the union will reduce teachers’ salaries, which will cut real estate taxes which will raise land values. 

Is Obama a minion of Richie Daley? It’s true that Obama has never denounced Daley. He actually endorsed him for Mayor in 2007. Even after federal convictions of Daley’s top aides. After the minority hiring scandals. And after the Hired Truck scandal which showed that the Daley machine shared its favors with The Outfit. But the Daley dynasty has expanded far beyond wiseguy industries. The Mayor’s brother, William Daley, who served on Obama’s transition team, also serves now as a top executive of J.P. Morgan Chase. He heads the Midwest region. And chairs J.P. Morgan Chase Foundation, the core of friendly FIRE. Here’s an excerpt from a recent report: “…[we] achieved significant progress toward our 10-year pledge to invest $800 billion in low- and moderate income communities in the U.S.—the largest commitment by any bank focused on mortgages, small-business lending and community development. In 2006, we committed $87 billion, with total investment to date of $241 billion in the third year of the program. Played a leadership role in the creation of The New York Acquisition Fund, along with 15 lenders and in conjunction with six foundations and the City of New York. The Fund is a $230 million initiative to finance the acquisition of land and buildings to be developed and/or preserved for affordable housing.“ 

It’s also true that key Black members of the Obama inner circle are Daley Administration alumnae—but they’ve moved up—now they’re part of Chicago FIRE. Like Martin Nesbitt. Obama is Nesbitt’s son’s godfather. He’s the African American chairman of the CHA. But his principal occupation is the vice presidency of the Pritzker Realty group. Although they’re not well known outside of Chicago, the Pritzkers rank among the richest families in the U.S. There are ten Pritzkers among the Forbes 400: Thomas is the richest at2.3 billion. Anthony and J.B. are next at $2.2 billion; Penny in fourth, at $2.1 billion—Daniel, James, Gigi, John, Karen, and Linda weigh in with $1.9 billion. Penny is finance chair of the Obama campaign. Martin is the treasurer. 

Daley saw Obama as a potential rival for the mayor’s office. After Daley brushed aside Rep. Bobby Rush’s challenge for his job in 1999, Daley turned around and provided some quiet aid to Rush in 2000 to help turn back Obama’s challenge to Rush. Daley saw Rush, a former Black Panther, as easy to beat, but saw Obama as potentially a greater long term challenge.

Penny Pritzker herself has had a rocky career as a commercial banker. In 1991, she founded something called the Superior Bank of Chicago which pioneered in sub-prime lending to minorities. Superior was an early casualty of the sub-prime meltdown, though, crashing in 2001 when it was seized by the FDIC. Depositors filed a civil suit against Penny charging that Superior was a racketeering organization. The government charged that Superior paid out hundreds of millions of dividends to the Pritzkers and another family while the bank was essentially broke. There was a complex settlement in which the Pritzkers were forced to pay hundreds of millions in penalties; but the agreement contained provisions that may enable the Pritzkers to earn hundreds of millions. Notwithstanding the Superior bank disaster, Penny is being touted as Obama’s next Secretary of Commerce. 

Valerie Jarrett is another black real estate executive. Described as “the other side of Barack’s brain,” she also served as finance chair during his successful 2004 U.S. Senate campaign. Jarrett was Daley’s deputy chief of staff – that was her job when she hired Michelle Obama. Eventually Daley made her the head of city planning. But Jarrett doesn’t work for Daley anymore. She’s CEO of David Levin’s Habitat—one of the largest property managers in Chicago—and the court-appointed overseer of CHA projects. Habitat also managed Grove Parc, the scandal-ridden project in Englewood that left Section 8 tenants, mostly refugees from demolished public housing projects, without heat in the winter but inundated with rats. Grove Parc was developed by Tony Rezko, who’s white. And his long-time partner Allison Davis, who’s black. 

Let’s look at Rezko and then Davis. It was Rezko’s ability to exploit relationships with influential blacks—including Muhammad Ali—that enabled him to become one of Chicago’s preeminent cockroach capitalists.

Rezko was Ali’s business manager in the 1980s because he was the business manager for the Muhammad family behind the Nation of Islam.

Altogether, Rezko wound up developing over 1,000 apartments with state and city money. There was more to the Obama-Rezko relationship than the empty lot in Kenwood. Rezko raised over $250,000 for Obama’s state senate campaign. While Obama was a state senator he wrote letters in support of Rezko’s applications for development funds. But Obama ignored the plight of Rezko’s tenants who complained to Obama’s office. Rezko’s Grove Parc partner, Allison Davis, was a witness in the Rezko trial, he’s pretty radioactive too. But you could see why Rezko wanted to hook up with him. 

Davis was the senior partner in Davis Miner Barnhill & Galland, a small, black law firm, where Obama worked for nearly a decade. As the editor of the Harvard Law Review, Obama could have worked anywhere. Why did he choose the Davis firm? Davis had been a noted civil rights attorney and a progressive critic of the first Daley machine. But in 1980 Davis got a call from the Ford Foundation’s poorly known, but immensely influential, affiliate LISC—the Local Initiatives Support Corporation—that had just been founded. LISC, whose present chair is Citigroup’s Robert Rubin, connects small, mainly minority community non-profits with big foundation grants and especially with bank loans and tax credit-driven equity. LISC wanted to co-opt Davis in their ghetto redevelopment program. He agreed and the Davis firm came to specialize in handling legal work for non-profit community development firms. Eventually Davis left the firm to go into partnership with Tony Rezko. Meanwhile, Obama did legal work for the Rezko-Davis partnership. And for Community Development Organizations like Woodlawn Organization. 

In 1994, the LA Times reports, Obama appeared in Cook County court on behalf of Woodlawnn Preservation & Investment Corp., defending it against a suit by the city, which alleged that the company failed to provide heat for low-income tenants on the South Side during the winter. There were several cases of this type, but as the Times observes, Obama doesn’t mention them in Dreams from My Father. In the 1960s, under the leadership of Arthur M. Brazier, Bishop of the Apostolic Church of God, Woodlawn gained a reputation as Chicago’s outstanding Saul Alinsky-stylec ommunity organization. Mainly, TWO [The Woodlawn Organization] battled the University of Chicago’s urban renewal program. But gradually, Brazier’s political direction changed. Now TWO is partnering with UC in efforts to gentrify Woodlawn. When Barack Obama left Jeremiah Wright’s church, he switched to Brazier’s Apostolic Church of God.

I don’t believe that’s fully true.

Brazier is typical of a much larger group—real estate reverends—who play the Community Development game and in the process have acquired huge real estate portfolios. But it’s really a national phenomenon. Here in New York we have Rev. Calvin Butts whose church has a subsidiary, the Abyssinian Development Corp. In partnership with LISC, the ADC now boasts a portfolio of $500 million in Harlem property alone. Rev. Floyd Flake of the Allen African Methodist Episcopal Church in Jamaica, Queens has a sizeable portfolio of commercial property too. Chicago’s disciples of development include Wilbur Daniel. He’s the Pastor of Antioch Missionary Baptist Church in Englewood who really did exclaim “Give us this day our Daley bread,” meaning free land and free capital for real estate development. Daniel’s prayers were answered in 2001, when with Daley’s help, Antioch was chosen to be the lead church in Fannie Mae’s $55 billion House Chicago plan for the redevelopment of the South Side. How has Obama earned the support and allegiance of friendly FIRE? Where does he stand on the Plan for Transformation? 

Generally speaking, he’s been careful not to leave too many footprints. If you google Obama and public housing, nothing comes up. But in 1995, a year before he ran successfully for state senate seat from South Side, in Dreams from My Father he wrote about his encounters with Rev. Jeremiah Wright. Obama says he was impressed by Wright’s emphasis on the unity of the black community. But he’s a little skeptical of too broad a unity; of achieving unity without conflict. He says, “Would the interest in maintaining such unity allow Reverend Wright to take a forceful stand on the latest proposals to reform public housing?” Here he’s referring to Clinton’s Hope VI—that provided matching federal money for the demolition of public housing. And the corresponding local initiatives, which culminated in the Plan for Transformation. “And if men like Reverend Wright failed to take a stand, if churches like Trinity refused to engage with real power and risk genuine conflict, then what chance would there be in holding the larger community intact?” 

I have to stop now and put Karnak’s envelope to my forehead. What we see is that the Chicago core of the Obama coalition is made up of blacks who’ve moved up by moving poor blacks out of the community. And very wealthy whites who’ve advanced their community development agenda by hiring blacks. Will this be the pattern for the future in an Obama administration? I can’t read the envelope. But I do believe that if we want to disrupt the pattern of the past we have to make some distinctions: between the change they believe in and the change we believe in; between our interests and theirs; between a notion of community that scapegoats the poor and one that respects their human rights—one of which is not to be the object of ethnic cleaning. Between Hope VI and genuine human hope.

Putting this in a larger perspective, it’s reasonable to believe that Obama was drawn to Chicago in 1985 by the excitement of the Council Wars racial struggle between Mayor Harold Washington and the retrograde white leader Fast Eddie Vrodolyak in what seemed like a zero sum racial battle. But Obama found, when he finally got to know real life poor blacks in 1985-1988, that they weren’t as uplifting as he had assumed from watching PBS fund-raising documentaries about the Civil Rights era. But he slowly started to realize that who he really liked were affluent, well-educated blacks. So, he bailed for Harvard Law School, intending to come back and lead blacks back to power in the mayor’s office.

Over time, however, Richie Daley became mayor and he was more than happy to cut reasonable blacks in on the profits that could be made by clearing out Cabrini Green and the like, just as long as they’d play ball with Friendly FIRE. Michelle Obama had a wealth of contacts — she’d been Jesse Jackson’s babysitter, she worked for Daley’s deputy Valerie Jarrett, and she liked money — and Barack Obama was naturally drawn into this little world centered around Jarrett and Penny Pritzker.

On the other hand, let me point out a subtle distinction. I suspect that the secret end game envisioned by the more hardheaded liberal white leaders (I’m looking at you, Mayor Emmanuel) is likely not just to yuppify the Near South Side and move poor blacks to the Far South Side of Chicago where they can still vote in Chicago elections. Instead, the hard men want to use Section 8 rental vouchers to send poor blacks packing clear out of Chicago to hickvilles like Champaign-Urbana, while middle class blacks move themselves to inner ring suburbs, leaving only Obama-like upscale blacks in Chicago. This would slowly destroy black political power in Chicago, leaving behind only token affluent blacks and pockets of black poverty around the worst toxic waste sites in the industrial deep South Side.

For example, last year, Mayor Emmanuel’s Chicago Police Department sent a 40-man SWAT team into just about the last two ungentrified houses in Lincoln Park, only seven blocks from Penny Pritzker’s new mansion, to find pretexts for evicting the owners, an extended family of poor blacks.

Assume you are Mayor Emmanuel, and assume you want two decades or so in office like both Daleys got. Your job is going to be a lot more fun in 20 years if Chicago follows Manhattan and D.C. in whitifying rather than go down the path of Detroit and Cleveland.

But, as of 1995, Obama and his spiritual adviser, Jeremiah Wright, objected to what was looming on the horizon as a remote possibility: the more massive economic cleansing of blacks from not just the good parts of Chicago like Cabrini Green and the South Lakefront, but from the inland parts, where Wright’s church was and where Obama had done his rather feckless community organizing.

Wright is quoted in Dreams, and Obama echoed Wright’s argument in a 1995 Chicago Reader interview, that middle class blacks shouldn’t flee to the suburbs to keep their sons from being gunned down. They should make a stand in Chicago (at least farther south than the potentially immensely valuable land around the loop and lakefront). Obama said in 1995:

“The right wing talks about this but they keep appealing to that old individualistic bootstrap myth: get a job, get rich, and get out.” … 

So, Obama here is agreeing with Wright’s stance against black flight to the suburbs, which in Dreams from My Father is symbolized by Wright telling his secretary not to move to the suburbs to keep her son safe. But, as Fitch suggests, Obama’s opaque statement in Dreams – “And if men like Reverend Wright failed to take a stand, if churches like Trinity refused to engage with real power and risk genuine conflict, then what chance would there be in holding the larger community intact?” — can be interpreted to mean that Obama wants to play a dual game that Rev. Wright is too stubborn even though it would be in his own interests: Obama wants to play palsy-walsy with people like the Pritzkers, but also to make sure that public housing project blacks are only relocated as far as the South Side, where they can still vote and still attend Rev. Wright’s church, not all the way to exurban hickvilles like Round Lake Beach.

Obama told the Reader in 1995:

“I want to do this as much as I can from the grass-roots level, raising as much money for the campaign as possible at coffees, connecting directly with voters,” said Obama. “But to organize this district I must get known. And this costs money. I admit that in this transitional period, before I’m known in the district, I’m going to have to rely on some contributions from wealthy people—people who like my ideas but who won’t attach strings. This is not ideal, but it is a problem encountered by everyone in their first campaign.

“Once elected, once I’m known, I won’t need that kind of money, just as Harold Washington, once he was elected and known, did not need to raise and spend money to get the black vote.”

Obama took time off from attending campaign coffees to attend October’s Million Man March in Washington, D.C. His experiences there only reinforced his reasons for jumping into politics.

“What I saw was a powerful demonstration of an impulse and need for African-American men to come together to recognize each other and affirm our rightful place in the society,” he said. “There was a profound sense that African-American men were ready to make a commitment to bring about change in our communities and lives.

“But what was lacking among march organizers was a positive agenda, a coherent agenda for change. … 

“But cursing out white folks is not going to get the job done. Anti-Semitic and anti-Asian statements are not going to lift us up. We’ve got some hard nuts-and-bolts organizing and planning to do. We’ve got communities to build.”

But, of course, in 2000, Obama’s plan to follow Harold Washington’s career path to the mayor’s office by first getting elected to the House of Representatives was derailed by the whupping he got from ex-Black Panther Bobby Rush in black districts. When he recovered from his depression, he gerrymandered his district to include the rich white Gold Coast north of the Loop that, culturally, is his natural base. When Michelle threatened to leave him unless he came up with a workable career strategy, he gave up on winning major power in the callous world of Chicago politics, where voters expect their politicians to be more than just elegant symbols of the electorate’s own refinement, but instead to deliver the goods. Obama thus reworked his goals to winning statewide and even national office by taking his ethereal everything-to-everybody act on the road to the more naive parts of white America.

One big question is what precisely was Obama’s role in real estate driven changes in Chicago that Fitch outlines. The answer appears to be: eh, not that much. He was there, he looked dignified, he uttered sonorous speeches, he was friends with the players, he tried to foster compromises that would advance the interests of the rich, white and black, without damaging the interests of demagogues like Rev. Wright by driving blacks all the way out of Chicago.

But, as far as I can tell, he doesn’t appear to have been a major player himself. He doesn’t seem to have been a driving force in the dealmaking. Was this out of scrupulousness (ethical, racial, or careerist)? Or is Obama, on the whole, just more decorative than dynamic?


To flesh out this subtle point about black flight to the suburbs, it’s worth quoting from Dreams from My Father at length about Obama’s first meeting with Rev. Jeremiah Wright:

Eventually a pretty woman with a brisk, cheerful manner came up and introduced herself as Tracy, one of Reverend Wright’s assistants. She said that the reverend was running a few minutes late and asked if I wanted some coffee. As I followed her back into a kitchen toward the rear of the church, we began to chat, about the church mostly, but also a little about her. It had been a difficult year, she said: Her husband had recently died, and in just a few weeks she’d be moving out to the suburbs. She had wrestled long and hard with the decision, for she had lived most of her life in the city. But she had decided the move would be best for her teenage son. She began to explain how there were a lot more black families in the suburbs these days; how her son would be free to walk down the street without getting harassed; how the school he’d be attending had music courses, a full band, free instruments and uniforms. 

“He’s always wanted to be in a band,” she said softly. 

As we were talking, I noticed a man in his late forties walking toward us. He had silver hair, a silver mustache and goatee; he was dressed in a gray three-piece suit. He moved slowly, methodically, as if conserving energy, sorting through his mail as he walked, humming a simple tune to himself. 

“Barack,” he said as if we were old friends, “let’s see if Tracy here will let me have a minute of your time.” …

“Some people say,” I interrupted, “that the church is too upwardly mobile.” 

The reverend’s smile faded. “That’s a lot of bull,” he said sharply. “People who talk that mess reflect their own confusion. They’ve bought into the whole business of class that keeps us from working together. Half of ’em think that the former gang-banger or the former Muslim got no business in a Christian church. Other half think any black man with an education or a job, or any church that respects scholarship, is somehow suspect. 

“We don’t buy into these false divisions here. It’s not about income, Barack. Cops don’t check my bank account when they pull me over and make me spread-eagle against the car. These miseducated brothers, like that sociologist at the University of Chicago [William Julius Wilson], talking about ‘the declining significance of race.’ Now, what country is he living in?” 

But wasn’t there a reality to the class divisions, I wondered? I mentioned the conversation I’d had with his assistant, the tendency of those with means to move out of the line of fire. He took off his glasses and rubbed what I now saw to be a pair of tired eyes. 

“I’ve given Tracy my opinion about moving out of the city,” he said quietly. “That boy of hers is gonna get out there and won’t have a clue about where, or who, he is.” 

“It’s tough to take chances with your child’s safety.” 

“Life’s not safe for a black man in this country, Barack. Never has been. Probably never will be.” 

A secretary buzzed, reminding Reverend Wright of his next appointment. We shook hands, and he agreed to have Tracy prepare a list of members for me to meet. Afterward, in the parking lot, I sat in my car and thumbed through a silver brochure that I’d picked up in the reception area. It contained a set of guiding principles-a “Black Value System”-that the congregation had adopted in 1979. … There was one particular passage in Trinity’s brochure that stood out, though, a commandment more self-conscious in its tone, requiring greater elaboration. “A Disavowal of the Pursuit of Middleclassness,” the heading read. “While it is permissible to chase ‘middleincomeness’ with all our might,” the text stated, those blessed with the talent or good fortune to achieve success in the American mainstream must avoid the “psychological entrapment of Black ‘middleclassness’ that hypnotizes the successful brother or sister into believing they are better than the rest and teaches them to think in terms of ‘we’ and ‘they’ instead of ‘US’!”

It’s informative to quote that “value” in full from Trinity’s website, much of which Obama left of Dreams:

8. Disavowal of the Pursuit of “Middleclassness.” Classic methodology on control of captives teaches that captors must be able to identify the “talented tenth” of those subjugated, especially those who show promise of providing the kind of leadership that might threaten the captor’s control. 

Those so identified are separated from the rest of the people by: 

Killing them off directly, and/or fostering a social system that encourages them to kill off one another. 

Placing them in concentration camps, and/or structuring an economic environment that induces captive youth to fill the jails and prisons. 

Seducing them into a socioeconomic class system which, while training them to earn more dollars, hypnotizes them into believing they are better than others and teaches them to think in terms of “we” and “they” instead of “us.” 

So, while it is permissible to chase “middleclassness” with all our might, we must avoid the third separation method – the psychological entrapment of Black “middleclassness.” If we avoid this snare, we will also diminish our “voluntary” contributions to methods A and B. And more importantly, Black people no longer will be deprived of their birthright: the leadership, resourcefulness and example of their own talented persons.

Keep in mind that Senator Barack Obama donated $26,770 to Jeremiah Wright’s church in 2007, according to his tax return. That’s while he was running for President.

How do we make sense of all of this seemingly conflicting information about Obama? I suspect the simplest answer is that Obama never quite made sense out of it all either.

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Economist Christopher Foote of the Boston Fed, who debunked the Freakonomics abortion-cut-crime theory in late 2005 by pointing out that Steven D. Levitt’s results stemmed from a couple of dumb mistakes in his programming, and two colleagues have a paper arguing against the mortgage meltdown being, in the words of the Oscar-winning documentary, an Inside Job (or, at least, of misaligned incentives):

Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis 

Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen 


This paper presents 12 facts about the mortgage market. The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those  distorted  beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.

Foote et al presents 12 “myths” about the mortgage meltdown that they say don’t hold up to scrutiny. While I find this to be an excellent framework for thinking about causes of the mortgage disaster, personally, I find some of the myths seems pretty reasonable even after reviewing Foote’s graphs. 

For a concrete example, consider the size of required downpayments. Morgenson and Rosner (2011) write that because of the Clinton Administration’s emphasis on homeownership:

[I]n just a few short years, all of the venerable rules governing the relationship between borrower and lender went out the window, starting with the elimination of the requirements that a borrower put down a substantial amount of cash in a property (Morgenson and Rosner 2011, p. 3).

It is true that large downpayments were once required to purchase homes in the United States. It is also true that the federal government was instrumental in reducing required downpayments in an e?ort to expand homeownership. The problem for the bad government theory is that the timing of government involvement is almost exactly 50 years o?. The key event was the Servicemen’s Readjustment Act of 1944, better known as the GI Bill, in which the federal government promised to take a ?rst-loss position equal to 50 percent of the mortgage balance, up to $2,000, on mortgages originated to returning veterans. The limits on the Veteran’s Administration (VA) loans were subsequently and repeatedly raised, while similar guarantees were later added to loans originated through the Federal Housing Administration (FHA). 

Okay, but here’s the graph they use to document this assertion, showing Loan to Value percentages in Massachusetts over the years. Notice anything?
Yes, the aqua LTV 100 (i.e., zero down or even cash back) spiked from about 8 percent in 2002 to 24 percent in 2006 at the peak of the bubble.  

Here’s a graph from USA Today that I found at Dr. Housing Bubble, showing California’s similar spike in zero down home-buying:
The First-Time Buyers (41% in 2006) are especially important because that’s mostly where new demand comes from, and incremental demand is much of what drives up prices.

In general, Foote et al frequently argue that because various policies or conditions existed well before the crisis, such as less than 20% downpayments, then loosening downpayments didn’t contribute much to the bubble and bust. But, that’s overlooking the famous Boiling Frog problem: turning up the heat gradually might not cause a noticeable problem for the frogs in the pot for awhile, but eventually it does. 

Moreover, in the case of lower and lower downpayments, there appears to have been a phase shift when requirements hit zero down. A 3.5% downpayment required for a VA or FHA loan might not sound like much, but cash on the barrel-head scares off the total riff-raff and conmen, plus the government regulations lessened fraud in appraisals and the like. The zero down loans that George W. Bush greenlighted to federal regulators in his October 15, 2002 speech at the White House Conference on Increasing Minority Homeownership were a not insignificant cause of the Bubble.

Still, I would agree with Foote that Tulip Mania-style overoptimism is a big part of the explanation. But where did this over-optimism come from? 

I woud argue that a host of evidence, such as the biggest appreciation and biggest losses happening in the four Sand States of California, Nevada, Arizona, and Florida, that “diversity” played a huge role, especially in the ban on critical thinking about diversity that has been inculcated in the U.S. An immigration bubble preceded and then egged on a housing bubble, and nobody was supposed to say anything bad about it, especially not in internal company documents that could get your firm in trouble for a discrimination lawsuit.

It’s really asking a lot of people to tell them over and over that only evil ignorant racist losers notice patterns and then expect them to notice the patterns and respond intelligently.

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Jack Strocchi offers another theory of why corporate elites favor immigration besides keeping labor costs down and labor unions weak:

There is no doubt something to the theory that the New Right wanted to Open Borders to crush wages. On the flip ideological side It’s clear that the New Left supported Open Borders to “elect a new people” and pad welfare rolls.  

But the most pressing reason to Open Borders is to boost retail turnover, particularly in household formation goods (including houses), particularly in the era of declining birth rates. The easiest way to turn a profit and amortize the cost of capital is to increase turnover, extra sales go right onto the bottom line.

Say you are the head of the American division of a big, fairly capital intensive toilet paper company with major operations in the U.S. You want sales to grow so you can run your already-built factories closer to full capacity. But demand per capita for toilet paper is flat. So, your best hope for growth is to add some capitas in the U.S. to buy more of your product: e.g., via immigration.

Now, the downside of immigration from your perspective would be if some of the immigrants started their own big toilet paper companies to increase competition against you. But, there are a lot of industries where this isn’t that big of a threat. 

Moreover, there are a lot of sources of immigrants where this isn’t that big of a threat. For example, importing into America the fraction of ambitious Swedes who are fed up with Sweden’s restrictions on their entrepreneurial energies could be a problem for established American corporate interests in the long run. On the other hand, importing unambitious Mexicans is not likely to produce much additional competition for the Fortune 500.

So, what’s not to like about immigration from the point of view of the Toilet Paper Barons?

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A commenter writes:

Jeff W. said… 

I have finally figured out why The Powers That Be hate immigration restriction so much. I’m sure there are a number of reasons. But one big reason is this: 

Western governments for years have been trying to maximize the resources they obtain from money printing. All Western governments have been continually running deficits and financing them with newly-created fiat. 

One thing that derails money printing is a wage-price spiral. That’s what got going in the 1970′s. Around 1979-80, Paul Volcker had to jack up interest rates very high to get inflation back under control. 

In the 1980′s, The Powers That Be decided that they would continue money printing, but they would also take action to head off a wage-price spiral. So… 

- Continuing pressure to add women to the workforce
- Open door import policy to force down U.S. wages
- Open borders. 

They succeeded. You never hear about a wage-price spiral anymore.  

A protectionist trade policy and immigration restriction would get wages rising, which would make conditions difficult for the money printers. They would have to slow down or even halt their operation. That would be bad for big banks, the military-industrial complex, Social Security, and Medicare.  

All of the biggest and most powerful interest groups in America support continued money printing, and that necessitates open borders to keep wages low.

You can see this in all the newspaper articles where reporters (not just pundits) say things like “low wages are good for the economy.” Nobody ever talks about this, but it’s stuck in people’s heads. It’s sort of 1970s Folk Wisdom for subscribers to The Economist.
One interesting question is whether wage-price spirals and/or cost-push inflation actually happened in the 1970s. It was endlessly debated during the 1970s whether unions were causing inflation. Interestingly, the ideological lines in the debate were often reversed in the U.S., with Milton Friedman’s monetarist school absolving the AFL-CIO (because inflation had to be the fault of the Fed), while neoliberals tended to blame the unions.
Was this controversy ever resolved? 
Back in the 1970s, I spent a huge amount of time thinking about macroeconomics, but I don’t believe I got much return on my investment. So, I don’t have much opinion on macroeconomic controversies anymore. 
Perhaps America and Britain had different experiences, with Britain having stronger union power. The Labour Party was founded as a third party explicitly for the good of the trade unions. A half century later, it became the ruling party and nationalized the commanding heights of industry. This caused a subsequent conflict of interest in wage negotiations in nationalized industries: Labour as both the instrument of the unions and Her Majesty’s Government, was sitting on both sides of the table, not just in effect but by definition. This led to a lot of people in Britain feeling jobbed by the Labour Party. Eventually, that led to Labour’s spell in the wilderness and its reformulation as New Labour, a broad-based party.

• Tags: Political Economy 
Steve Sailer
About Steve Sailer

Steve Sailer is a journalist, movie critic for Taki's Magazine, columnist, and founder of the Human Biodiversity discussion group for top scientists and public intellectuals.

The “war hero” candidate buried information about POWs left behind in Vietnam.
The evidence is clear — but often ignored
The unspoken statistical reality of urban crime over the last quarter century.
The major media overlooked Communist spies and Madoff’s fraud. What are they missing today?
What Was John McCain's True Wartime Record in Vietnam?