Blaming the victims of the crisis

Analysis: Gary Lapon

ary Lapon exposes the right-wing myth that "irresponsible" African American and immigrant borrowers triggered the housing crisis.

October 21, 2008

Protesters and family gathered to stop the eviction of Melonie Griffiths-Evans in the Dorchester neighborhood of Boston (Jonathan McIntosh)

THE U.S. economy is in the midst of the worst crisis since the Great Depression. In response, segments of the ruling class have sought to deflect working class anger using a despicable and well-worn strategy: blatant racism.

They seek to shift the blame for the current crisis away from those who are actually responsible and onto the victims--the disproportionately African American and Latino low-income borrowers who were scammed into the sub-prime mortgages that are the chief cause of the crisis in that housing market that sparked the broader crisis.

In a recent Washington Post column, Charles Krauthammer, who repeatedly referred to the majority of people as "the mob," stated that "only a fool or a demagogue" would see predatory lending as a major cause of the financial crisis. Instead, he blamed an imaginary "bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination."

Fox News chimed in with the same argument. As reported on the Media Matters Web site, Fox News' Neil Cavuto conflated giving home mortgages to minorities with risky lending practices, saying there should have been "a clarion call that said, 'Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster.'"

Minorities also were targeted by Mark Krikorian, head of the anti-immigration group FAIR. In his blog on the Web site of the right-wing magazine National Review, Krikorian posted Washington Mutual's final press release before its collapse--titled "WaMu Recognized as Top Diverse Employer--Again." Krikorian called his post "Cause and Effect?," implying that the bank's hiring of minorities is behind its failure. "I really thought this was a joke, but it's not," he wrote.

In a National Review article titled "Illegal Loans: A Criminal Business," Michelle Malkin claimed to show "how illegal immigration, crime-enabling banks and open-borders Bush policies fueled the mortgage crisis," which she refers to as the "illegal-alien home-loan racket."

In the article, Malkin jumps from complaining about loans made to undocumented immigrants to pointing out that foreclosure rates are disproportionately high in Latino neighborhoods, which she calls "illegal-alien sanctuaries."

Republican politicians also got into the act. On September 25, at a House hearing, Rep. Michele Bachmann (R-Minn.) placed blame for the collapse of Fannie Mae and Freddie Mac on Bill Clinton's supposedly overzealous enforcement of Community Reinvestment Act (CRA) "quotas" that "forced" banks to encourage diversity by lending "on the basis of race."

This is absurd on its face, since about half of all sub-prime loans were made by mortgage companies that aren't regulated by the CRA at all.

To his credit, Rep. Keith Ellison (D-Minn.) debunked Bachman's racist nonsense and placed the blame for the crisis where it belongs: on deregulation, falling wages and predatory lending. He wrote that "research clearly shows that the majority of the predatory loans that have led us to this financial mess were originated by non-bank financial institutions and other entities that did not have a CRA obligation and lacked strong federal regulatory oversight. Shifting the blame for the current economic crisis to laws that allow equal access and opportunity to communities of color is ridiculous."

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THESE ATTACKS--particularly the absurd idea that "misplaced generosity" on the part of banks supposedly forced to lend to minorities and the poor is to blame for the current crisis--are without foundation. It is an effort to shift the blame from the real culprits: the criminals on Wall Street and their bipartisan cronies in Washington.

African Americans have faced hundreds of years of slavery, Jim Crow racism and institutional racism that persist to this day. And housing was--and remains--a major aspect of this continued racial oppression.

One key element of housing discrimination is redlining, the practice of denying loans in Black neighborhoods. In 1935, the government's Home Owners' Loan Corporation, at the behest of the Federal Home Loan Bank Board, labeled African American neighborhoods as "risky." The result: Blacks were denied loans and forced to pay more for substandard housing.

As Petrino DiLeo points out in the International Socialist Review, legislation like the Community Reinvestment Act of 1977 has had a limited impact. Although the CRA prohibited discrimination based on race or national origin in terms of access to credit, "during the past 30 years, the form of financial racism has shifted from being a question of the denial of credit to one where credit is offered on predatory terms."

In recent years, African Americans were given sub-prime mortgages at over twice the rate of low-income whites. These loans typically have adjustable interest rates that are now on the rise. As a result, foreclosures are increasing and erasing the savings of Black families, who on average have 63 percent of their net worth in home equity.

African Americans are today disproportionately represented among the one in six homeowners who owe more than their house is worth--and many face skyrocketing mortgage payments to boot.

The banks, not minority or low-income borrowers, are to blame for the sub-prime fiasco. They paid mortgage brokers more for sub-prime loans, encouraging them to hand them out like candy, even to people who qualified for standard mortgages. That's because the riskier loans yielded returns at higher interest rates, which translated into higher rates of return for investors and fatter commissions for the investment banks.

Thus, while the banks are being bailed out with over $700 billion taken from the pockets of the working class, the victims of predatory sub-prime lenders--disproportionately low-income, African and Latino workers--are being thrown out of their homes and onto the street.