Misleading Words

Thomas Sowell, Lew Rockwell, August 2, 2011

{snip}

Recent statistics on the average wealth or net worth of blacks are a painful reminder that rhetoric favoring blacks does not mean that politicians using such rhetoric are actually helping blacks. The media seized upon the statistics published by the Pew Research Center to show that whites averaged far more net worth than blacks, and that this disparity was now greater than it was in years past. But what is even more revealing is that the net worth of blacks in 2009 was less than half of what it was in 2005.

What happened to cause such a sharp loss in such a few years? After all, the Republicans controlled both the Congress and the White House in 2005, and the Democrats had control by 2009. There was now a black President of the United States, with much of the media celebrating the beginning of a new era in race relations.

{snip}

A finer breakdown of the data on the net worth of blacks shows that the most drastic loss of net worth was in the value of the homes owned by blacks. This occurred after years of both Democratic and Republican administrations pushing policies designed to enable more blacks to buy homes.

Much of the media rallied behind the idea that there should be more home ownership by blacks. Editorials rang out across the land, denouncing statistical disparities between rates of home ownership by blacks and whites as showing racial discrimination in the private sector that needed to be corrected by the government.

Even when it was shown that blacks, on average, did not meet the same financial standards as whites, both politicians and the media denounced those standards as too stringent.

The St. Louis Post-Dispatch, for example, called for “fairer mortgage-lending standards” and declared that “lending institutions are being far more conservative than they have to be in determining the creditworthiness of minorities.” The Federal Reserve Bank of Boston likewise declared that “unreasonable measures of creditworthiness” were not “appropriate to the economic culture of urban, lower-income, and nontraditional consumers.”

The New York Times reported that “even within the same income group whites are nearly twice as likely as blacks to get loans.” Many in the media treated that as proof positive that racial discrimination explained differences in mortgage loan approval rates. They were not talking about racial differences in net worth in those days–much less taking note of the fact that blacks in the same income brackets as whites had far less net worth.

Racial discrimination was where it was at, as far as liberal politicians and most of the media were concerned. And the familiar “solution” was massive government intervention in the market. Government agencies, from the Department of Housing and Urban Development to the Federal Reserve leaned on lenders to lower lending standards, and the Department of Justice threatened prosecutions for discrimination if the racial makeup of people approved for mortgage loans did not match their preconceptions.

It worked. In fact, it worked so well that many blacks got loans that they could not have gotten otherwise. Now the statistics tell us, belatedly, that blacks lost out, big time, from this “favor” done for them by politicians.

{snip}

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  • E Pluribus Pluribus

    SOWELL: “The Federal Reserve Bank of Boston likewise declared that ‘unreasonable measures of creditworthiness’ were not ‘appropriate to the economic culture of urban, lower-income, and nontraditional consumers.’”

    ====

    The pervasive myth that minorities were discriminated against by mortgage lenders has its foundation in a 1992 study by the very institution Sowell quotes above, the Boston Federal Reserve. The Boston Fed study was a large part of the rationale for a two-decades-long attack on traditional lending standards, an attack that ultimately resulted in the collapse of the U. S. housing market in 2008, the dire effects of which are ongoing.

    The Boston Fed study of 1992 has been debunked by four separate research teams. Time line:

    1992 – July – A Federal Reserve Bank of Boston study indicates that “even after controlling for financial, employment, and neighborhood characteristics, black and Hispanic mortgage applicants in the Boston metropolitan area are roughly 60 percent more likely to be turned down than whites.” The study suggests racism is behind the higher loan denial rate.

    1993 – Forbes Magazine queries Boston Fed Senior Vice President and Research Director Alicia H. Munnell on the default rates of black and white mortgage holders in the Boston Fed’s 1992 study purporting to show that racism is behind the higher loan denial rate for blacks. The reporters learn that default rates on loans of whites and minorities are equal. This indicates no discrimination, they point out to Munnell. “[That] is a sophisticated point,” she replies. “You need that [lower default rates for blacks] as a confirming piece of evidence. And we don’t have it.”

    Forbes: Did you ever ask the question that if defaults appear to be more or less the same among blacks and whites, that points to mortgage lenders making rational decisions?

    Munnell: No . . . I do believe that discrimination occurs.

    Forbes: You have no evidence?

    Munnell: I do not have evidence . . . No one has evidence. (1)

    1996 – A study by the Federal Reserve System and academic specialists finds — like the 1993 Forbes investigation — no evidence “of substantial levels of bias in mortgage lending.” Quoting from the abstract of the study:

    “Results of the analysis fail to find evidence of better performance on loans granted to minority borrowers. Indeed, black borrowers are found, all else being equal, to exhibit a higher likelihood of mortgage default than other borrowers. These findings argue against allegations of substantial levels of bias in mortgage lending.”

    1998 – October – Economists Stan L. Liebowitz and Theodore Day investigate the 1992 Boston Fed study suggesting racism in the mortgage market. They are “shocked at the poor quality” of the the data:

    ‘“When we attempted to conduct a statistical analysis removing the impact of . . . obvious data errors, we found that the evidence of discrimination vanished. Without discrimination there would be no reason to try to ‘fix’ the mortgage market. Nevertheless, our work largely evaporated down the memory hole as government regulators got busy putting the results of the Boston Fed study to use in creating policy. That policy, simply put, was to weaken underwriting standards.”

    The two economists warn: Bad loans today will mean dispossessed minorities tomorrow:

    “After the warm and fuzzy glow of ‘flexible underwriting standards’ has worn off, we may discover that they are nothing more than standards that led to bad loans . . . If this is the case, current policy will not have helped its intended beneficiaries if in future years they are dispossessed from their homes due to an inability to make their mortgage payments.” (2)

    1999 – Finance professors at the University of Illinois and at Wichita State University disclose findings on the creditworthiness of minorities consistent with the 1993 Forbes report, the 1996 Federal Reserve study cited earlier, and the 1998 findings of Liebowitz and Day:

    “[E]verything else being the same, minority applicants are probably less creditworthy, on average, than whites. Therefore, in the absence of fair lending laws, it is likely that minorities would be denied loans more frequently than whites and would pay higher interest rates and fees on approved loans . . . [F]air-lending laws have the perverse effect of forcing lenders to cross-subsidize minority borrowers from the higher profits they earn on white borrowers. Such cross-subsidization is inherently ‘unfair’ because it works as a tax on one group that is used as a subsidy for another.”

    NOTES:

    1) “The Hidden Clue,” By Peter Brimelow and Leslie Spencer, VDARE.com, first published in Forbes, Jan 4, 1993.

    2) “Mortgage Lending to Minorities: Where’s the Bias?” by Theodore Day and Stan J. Liebowitz. Economic Inquiry, January 1998): 1–27.

  • Question Diversity

    A finer breakdown of the data on the net worth of blacks shows that the most drastic loss of net worth was in the value of the homes owned by blacks. This occurred after years of both Democratic and Republican administrations pushing policies designed to enable more blacks to buy homes.

    As a matter of fact, it occurred because of years of both Democrat and Republican Presidents pushing affirmative action mortgages, but the crucial match thrown in the jug of gasoline was Bush’s demand for no down payment mortgages because blacks and Hispanics refuse to build up a nest egg. That disconnected the selling prices of houses from people’s abilities to lay a down payment on them, and that drove housing values way up in a speculative bubble that was bound to burst. Black “net wealth” is merely declining from that illusory peak of the speculative bubble, so their “high” net worth circa 2005 was an illusion, a fiction, legerdemain, as it was.

  • Anonymous

    here are some good explanations of how clinton’s scheme worked

    http://www.independent.org/pdf/policy_reports/2008-10-03-trainwreck.pdf

    http://www.nationalreview.com/articles/225898/planting-seeds-disaster/stanley-kurtz?page=1

    if it can be shown that barry obammaba helped “plant the seeds” of the collapse, he is eligible for the pigford farmer payout scam!

  • Anonymous

    And just how did blacks lose out? a great many had very low if any down payments, and if they went into foreclosure they ended up with a year (if not more) of free rent. Those that refinanced took out a big chunk of cash that they will never repay. Hard to see where blacks lost out in all this. Bill Clinton’s extra strength CRA gave black folks a great opportunity to create wealth. They could buy homes with none of the obstacles that whites had to overcome for the last 200 years. They could have access to credit, they could have had home appreciation, they could have had inheritances to leave their children, all they had to do was to make the house payments on time. This was a choice they made, not something that was forced on them. No one told them they couldn’t take a 2nd job to make the house payment, no one forced them to buy the escalade or the rims. To the contrary, Mr. sowell, the world lost out when blacks stopped making the mortgage payments, not blacks.

  • olewhitelady

    Responsible blacks have been buying homes for decades. The problem is, of course, that politicians demanded that more and more blacks be able to purchase real estate. The obvious fact that many of them didn’t have the resources didn’t matter. The push was so intense that people with no income and no job were sold houses. And many low-IQ blacks apparently didn’t have enough sense to figure out that the government wasn’t going to pay the mortgage! “Obama money” or reparations would foot the bill. Many blacks will take whatever is offered to them. They don’t even think about the next minute. If someone wants to rob a store, let’s go! If a helpless white is handy to beat or rape, why not?

    In the last half century, we’ve ignored what millenia taught us about blacks.

  • Fritz

    “Blacks lost out big”. What a joke! It’s stupid to feel sorry for people who were given loans not on the merits of their ability to repay them, but on the color of their skin. I feel sorry for the hard working responsible people who paid their mortage on time and ended up losing “big” because of affirmative action lending. I’m one of those people who were scratching their heads 15 years ago, wondering how all these low-wage Latinos around me where able to buy houses all around me that I couldn’t even afford. Now that the crap has hit the fan, not only are the Latinos being forclosed on, the Blacks who formerly lived in the housing projects east of me, are coming in in droves under section 8. Why are Blacks so far behind after 40 years of affirmative action housing, hiring and educating? Because you can’t make a silk purse from a sow’s ear.

  • Anonymous

    Did I miss something, or does this article say absolutely nothing about what the real issue is here? No government policy can overcome the vast genetic disparity, which results we see objectively in economic outcome.

    Surely, Sowell isn’t suggesting that this is merely a problem created by “liberal” politics. Regardless of whether a “conservative” or “liberal” approach is taken to the so-called “problem” of disparity of Black/White wealth, the outcome will still be the same, with Blacks always on the bottom.

    Blacks cannot compete with Whites economically, even on a skewed playing field that handicaps Whites with affirmative action and government subsidies for Blacks.

    Even if you cut off the right arms of every White person in America, we’d still finish far ahead of Blacks as a group economically. Mr. Sowell, despite being a generally reasonable Black conservative, must know this but dare not speak it.

  • anomymous

    The problem was no more than giving people loans with higher future payments they could not afford and that they could not liquidate unless the price of real estate increased forever.

    Likely, most of the people who lost their homes had stable incomes. That’s what most people do — trade their riskier or less obtainable options for job security and stable income. In that way, whites, blacks, Asians and Hispanics are not really different.

    Don’t let the corrupt and irresponsible mortgage industry turn everything upside down. They’re the professionals. It’s their job to tell people what they can afford. Look at most of the proposals for future reform. These involve rules that make it hard for the average person to own a home, like requiring gargantuan down payments. These rules are designed to curb the misconduct and lack of self control of the lenders, not the foolishness of the borrowers. If lenders do not make loans that exceed the known stable income of the borrowers you will not have a problem even with zero down mortgages.

  • Anonymous

    Conservative Thomas Sowell once pointed out, in 1950 the black employment rate was higher than it was for whites.

  • Anonymous

    “Surely, Sowell isn’t suggesting that this is merely a problem created by “liberal” politics. Regardless of whether a “conservative” or “liberal” approach is taken to the so-called “problem” of disparity of Black/White wealth, the outcome will still be the same, with Blacks always on the bottom.”

    ————————————–

    Of course he knows it. Sowell is just like any other black. He will never admit to his race as being what they really are.

    BTW, I do not believe there are any “conservative” blacks such as Sowell in the first place. They mouth whatever they want to, but that does not mean they really believe it. I am sure he makes more money by being “conservative” since there are so few of them, and he can be sure to get the publicity from the “right wing”.

  • Cui Bono?

    Don’t let the corrupt and irresponsible mortgage industry turn everything upside down. They’re the professionals. It’s their job to tell people what they can afford.

    The Federal Government started and created the subprime mortgage mess by putting guns to lending institutions’ heads to lend to unqualified non-whites. The Feds insisted that ANY “disparate impact” between whites and non-whites in lending is evidence of racial bias, never mind that blacks and hispanics have profoundly lower credit ratings than whites and long histories of nonpayment on loans. Clinton, Bush and Obama were determined to “end redlining” (or “reverse redlining” in Obama’s case).

    Any bank merger, branch expansion, or new branch creation could be postponed or prohibited if a CRA ‘protest’ were issued by a ‘community group.’ This can cost banks great sums of money, and the ‘community groups’ understood this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.

    Not to let the mortgage lending institutions off the hook — they took the ball and ran with it to satisfy government and activists’ demands.

    To wit, loans were handed out freely to the following:

    >

    >

    So, to summarize, the CRA, backed by government force, threatened lending institutions with “government oversight”, fierce regulations and scrutiny if they didn’t lend to unqualified non-whites. Bankers aren’t stupid; racial activists and some politicians are.

    And, ask Cui Bono? Who benefited? The banksters? The Politicians?

    Non-whites?

    There you’ll find your answers.

  • Fer de Lance

    Now the statistics tell us, belatedly, that blacks lost out, big time, from this ‘favor’ done for them by politicians.

    Blacks were merely part of the fall-out. The no-downpayment option was targeted specifically at Hispanics as part of the Bush/Rove ( “ownership society”/”close the homeownership gap”) plan to turn Hispanics into GOP voters.

    Stupidly believing that Hispanics will become GOP voters by offering them no-downpayment loans is THE crucial part of Bush’s role in the mortgage meltdown disaster.

    Did it work?

    As I wrote on another thread recently:

    Sixty-seven percent of Hispanic voters voted for Obama while only 31 percent voted for Republican candidate John McCain.

  • Anonymous

    #10

    You’re wrong about that. Most prominent, conservative blacks are intelligent and well connected enough to become successful race hustlers, community organizers, diversity enforcers, etc, if they wanted to.

    They don’t do so, even in the face of better remuneration, because they actually do believe in conservative ideology. Most white “respectable conservatives” are faking it; witness the failure of the Republican party to offer any real conservatism since Reagan.

    The government’s irrational pro-ownership, anti-rent agenda has hurt everyone.

  • berin

    Another example of the failure of liberal ideas. They believe that ‘we’re all the same’ in spite of contradictory evidence accumulated over centuries of objective observation. “None is so blind as he who will not see”. As a matter of fact they believe whites are an inferior race since only they are ‘racist’.

  • BerekHalfhand

    Sowell is a good man, and I personally admire him, particularly for his defence of dead white males (Google it).

    However, no society is fully shaped by the characteristics of its exceptions and outliers.

  • WASP

    If you are interested in the mortgage melt-down, rent a movie called “Inside Job”

    It is available on Net Flix. A bit better than most of the movies on this subject and blames politicians on both sides of the isle.

    Yes, the Dems. cooked up easy mortgages for minorities to get houses. The Reps. objected at first but then went along because it seemed to be helping the economy. I am in real estate and I saw neighborhoods turning black and prices were going… UP? I knew something was wrong but knew nothing of sub-prime banking or stock default swaps. Some people got very rich off of this and our grand kids will be paying it off.

  • Question Diversity

    About this debate about whether Tom Sowell, Walter Williams et al., actually are “conservative” (soi-distant) or are faking it — Does it really matter? Even if they are really “conservative,” it’s only because “conservatism” doesn’t mean anything. Anonymous at 7 said it best above, black “conservatives” are only “conservative” because they somehow blame the externality of white liberal public policy for the achievement gap or the prosperity gap or the wealth gap or the yadda yadda gap. The only difference between a black liberal and a black conservative is do you blame the “racism” of white conservatives or white liberals for black failure? Virtually no blacks would cite the nature of blacks themselves for black failure.

    The voting booth is a private affair, so we’ll never know if the Sowells of the world really didn’t vote for Obama. I wouldn’t be surprised if they did, or they half-voted for Obama by not voting for McCain. Colin Powell confessed to voting Obama.

  • Anonymous

    13 — Anonymous wrote at 12:27 PM on August 3:

    #10

    You’re wrong about that. Most prominent, conservative blacks are intelligent and well connected enough to become successful race hustlers, community organizers, diversity enforcers, etc, if they wanted to.

    They don’t do so, even in the face of better remuneration, because they actually do believe in conservative ideology. Most white “respectable conservatives” are faking it; witness the failure of the Republican party to offer any real conservatism since Reagan.

    The government’s irrational pro-ownership, anti-rent agenda has hurt everyone.

    ——————————–

    Don’t buy what you are selling. Everyone “thought” Powell, Rice, Cosby etc were “conservatives” also until they turned and showed their true “color”.

    As for,

    Most white “respectable conservatives” are faking it; witness the failure of the Republican party to offer any real conservatism since Reagan.

    Reagan wasn’t all that he has been made out to be by the Republicans. He also did damage to White America. As for your “white respectable conservatives faking it” I know that. But I also know how blacks think (yes even the “conservative ones”). NO one knows how Sowell or any other really voted for Obama. Of course they all claim they did not and never would, but we have heard that lie before. I don’t trust even the “nice” blacks when it comes to race and their agenda against Whites.

  • MrGJG

    I feel sorry for people like Dr. Sowell.

    I believe he really is part of that ‘talented tenth’ we speak of.

    It must be torture to be part of a race you know in your heart got genetically short shrifted.

    There are only 2 brothers I can think of who don’t tip-toe around their kinfolks pathologies.

    Jesse Lee Peterson and Rev. David Manning.

    You can probably add Larry Elder.

  • Anonymous

    Like poster #14 I too wondered 10 years ago just how all those $9.00 per hour security guards and janitors where I worked were able to buy those houses that cost about $400,000 to $500,000.

    Wonder what those homes are worth now?

  • margaret

    “Most white “respectable conservatives” are faking it; witness the failure of the Republican party to offer any real conservatism since Reagan.’

    Poster #10 Ronald Reagan may be a conservative whatever that is, but he was absolutely no friend to Whites.

    He could have eliminated affirmative action or at least forced a 12 percent quota for blacks instead of enire government agencies filled by blacks and hspanics with no White employees at all.

    Instead affirmative action got worse and worse under his regime as older Whites retired and only blacks were hired for federal, state and local government jobs.

    Ronald Reagan was no more a friend to Whites than is Obama’s pastor Rev White and Obama himself.

    Befoer the election National Review had a long article re how a president by using executive orders could have stopped affirmative action in its tracks. After all, President Lincoln suspended habeas corpus for the entire civil war. Wilson and Roosevelt used executive orders to participate in WW1 and WW2 on the British/French side long before we officially got into the war.

    So the White working class voted for Reagan and what happened? More and more and worse affirmative action, especially in government jobs.

    I have said it before and said it again. All these so called conservative issues, lowered taxes, national debt, strangling regulation of business, abortion, gays, have absolutely nothing, nothing to do with the survival of the White race and restoration of 14th amendment rights to White Americans

  • Anonymoose

    11 — Cui Bono? wrote at 11:31 AM on August 3:

    re #8: The Federal Government started and created the subprime mortgage mess by putting guns to lending institutions’ heads to lend to unqualified non-whites.

    —————————————————

    Less a factor than you think. No one, as far as I know, in every case forced mortgage professionals to steer people into loans where the future payments would exceed the borrower’s stable income. Repeat: If you make the mortgage payment congruent with the borrower’s likely present and future income, you will not have a problem. In that way, mortgages are no different than rent.

    In the San Joaquin Valley in California, the bubble was driven by people from the SF Bay Area who thought they could by a big box of a house for $400,000 with nothing down and get someone else to pay for it. I knew that anyone who could pay $1,700 a month rent or more would be able to buy their own house. And they did. These speculative buyers were white for the most part.

    I blame the whole thing on the mortgage industry. On the people who work in, that is to say. Study the post you commented on a little more carefully.

    I know a lot of people like to blame everything on Washington and the federal government. But a lot of the people who in the mortgage and real estate industry are some real gems, believe me.