Mortgage Mess Proves It: Only the Poor Can Help the Poor

For the purposes of explaining the mess that is the mortgage market today, we might view America as two groups of people – neither of which understands the other. And this dichotomy may well lead us to even bigger problems of the same kind, especially if Democrats find themselves controlling both the White House and Congress come January.

The first group is essentially a permanent underclass. These are people who have grown up in generational poverty. Many of them have never known anyone who was gainfully employed and economically self-sufficient. No one has ever modeled for them how to behave responsibly and successfully in society. They are poor, not because America lacks opportunity, but because they don’t know how to access the opportunity that is, in fact, plentiful.

The second group consists of most of the rest of us. We have jobs, pay our bills and make our way through life largely through our own efforts. It bothers us that so many people live in poverty, but we don’t really know what to do about it. Since we feel compelled to try something, we get behind efforts of the federal government to provide low-interest home loans, free or discounted health care and lots of other things. We get behind training programs, encourage private companies to hire poor people and give money to nonprofit organizations that work toward these goals.

LOOK AT THIS FROM THE NY TIMES 2003

September 11, 2003

New Agency Proposed to Oversee Freddie Mac and Fannie Mae

By STEPHEN LABATON

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

... Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

‘’These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,’’ said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee.’’The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.’’

Representative Melvin L. Watt, Democrat of North Carolina, agreed.
‘’I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,’’ Mr. Watt said

They are poor, not because America lacks opportunity, but because they don’t know how to access the opportunity that is, in fact, plentiful.

Unfortunately, this analysis doesn't go far enough. Saying the permanent poor are permanently poor because they "don't know how to access opportunity" only explains the "poor" part. The "permanently" part is because many of these people don't have the cognitive ability to learn how to access opportunity or have the necessary forethought to even realize that accessing opportunity would be good and helpful thing. If that is the reality, then the true permanent poor are permanently poor. Society can choose to help them in various ways, but it would be helpful if those ways did not encourage social pathologies (such as more children born directly into poverty). Otherwise, the "flight of the able" continues unabated. Or, I should say, the "flight of the willing and able," as there probably are a few "able" who prefer to live in the 'hood. (Even so, their lives will be different from the less cognitively able though their external environment is the same.) At this point in our history, anyone who wants to go to college can find a way to (if they are cognitively able). Anyone who wants to find a job can find a way to do something (if they are cognitively able). Anyone who wants to flee the poverty scene can figure out how to get out (if they are cognitively able). It's time to stop pretending that if we just teach the permanent poor "how" to access opportunity, they will. That's just not borne out in our long experience.

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