Posted on 09/30/2011 6:52:50 AM PDT by dangus
In the late 1990's, a terrible bargain was struck: Banks would agree to federal "anti-discrimination" policies, but in return, they could trade the risks of making bad loans, bundling good loans and bad loans into CDOs, or "collateral debt obligations."
While the very intelligent Sen. Phil Gramm (Republican of Texas), was a major proponent of this deal, he doesn't really deserve the blame. If both sides of the deal played honorably, it was a reasonable deal apart from its color-consciousness: Blacks did not default on loans any less than whites did, despite greater difficulty in getting loans. Based on long term financial history, home location, educational attainment, etc., a black person earning the same money as a white person would be less likely to successfully pay off the loan. But that meant that bank loaning policies had a "disparate effect" on blacks. And given the federal role in insuring mortgages, this "disparate effect" was arguably illegal under Civil Rights law.
The problem was that the Clinton administration shortly issued an executive order (#13166) which broadened "discriminated groups" to include "language minorities." President Bush then expanded the scope of EO # 13166 to include Sallie Mae and mortgage lenders.
If you went to school in America, you're supposed to learn English. If you legally immigrated to America, you're required to know English. So who in America doesn't know English? Some elderly people who didn't attend public school way back before it was mandatory. (Such people typically spoke German and French.) But most are illegal immigrants, amnestied former illegal immigrants, refugees, and reunified family members given special exemptions to language requirements.
Such illegal and quasi-legal immigrants and refugees are not going to be good candidates for loans. But the Bush administration made clear: unless you give as many loans to these people as to English-speaking, American-born citizens, we're going to label you racists, sue you, and destroy your bank.
For years, the banks didn't mind. If a house was foreclosed on, the bank reacquired an asset which had probably appreciated in the meanwhile. But still, there weren't enough loans being made to non-English-speakers because non-English-speakers couldn't begin to apply for a loan. Banks were soon offering zero-money-down loans to illegal aliens to bulk up the proportion of loan recipients who were "protected language minorities." When that didn't work, the Bush administration forced Sallie Mae to develop an army of people to convince illegal aliens to sign up for mortgages.
Meanwhile, states and the government created an artificially tight housing market by using unreasonably zoning and environmental regulations to all but ban private development of housing across countless metropolitan areas. So illegal aliens weren't getting mortgages on reasonable, $80,000 homes, but were bidding up the prices on $600,000 homes!
Then the housing market stalled. Now banks weren't guaranteed to recoup delinquent mortgages by selling the house at prices higher than the mortgage value. But the banks COULDN'T just quit lending to "langauge minorities." They quit lending altogether. Declines in house prices accelerated.
It was very, very easy for illegal aliens to end up under water. Their jobs were the easiest to eliminate, once American citizens were also desperate to find work. But since they had paid no money down, and were financially incapable of refinancing or getting ahead on their mortgage, they were under water with slightest drop in housing prices.
Worse still, it's very difficult for an American professional to simply walk away from their identity. Their assets include not only liquidatible assets such as the mortgage, but also intangible assets such as their college degree. On the other hand, illegal aliens have few of these other assets. THE MOMENT AN ILLEGAL ALIEN'S MORTGAGE IS UNDER WATER, WALKING AWAY IS THE SENSIBLE THING TO DO.
(Is this slamming on illegal aliens? No. If someone gave me impossibly low mortgage rates to buy a house with no money down, I'd take it. Who turns down a "free house?" But who would gives illegal aliens free houses? Only someone forced by the government to do so.)
Look at where all the underwater mortgages in 2008 were: Every county in the top twenty counties had experienced massive growth between 1998 and 2008. And in every case, illegal immigrants were a massive portion of that growth: Prince William County, VA (DC metro), southern Florida, Las Vegas metro, Phoenix metro, outlying regions around Los Angeles, and so on.
Only once housing prices had fallen so far (20% or more) did defaulting mortgages go mainstream.
So which banks went under? Those who specialized in CDOs (such as Bear Stearns), community banks in communities dominated by illegal aliens, and lenders who specialized in high-risk loans (Fannie Mae).
But the economy continued to worsen. Usually, housing sales lead a recovery. Once prices are low, people who have deferred buying a house make up for lost time. Not now. Banks are still terrified to lend, because for every so many safe risks, they have to loan to someone who has no motivation for successfully paying his mortgage. Immigrants go home when the economy goes bad. That frees up jobs for American workers, but it also means fewer houses are needed. So DESPITE the lack of housing construction, there is still an excess of housing on the market.
Without such massive immigration, employers would train more workers, or improve productivity through automation, during tight labor markets. These gains in production would last through economic downturns. Instead, companies relied on a cheap workforce which is no longer available.
To fix the economy, we need a presidential candidate who recognizes that illegal immigration is a chief cause of the economic downturn, and is resolved to remove the regulations that require banks to loan to "language minorities" who are illegal immigrants and prevent employers from relying on illegal immigration as a cheap alternative to increasing productivity.
The last thing we need is to elect the governor who is the single biggest to effective border control in America, believes that massive illegal immigration is good for the economy, and who would give illegal immigrants $100,000 in tuition benefits when they can't even legally drive in Texas.
Then I sincerely wish you’d clarify which board Gramm was appointed to (BoD or BoA), and whether this was a paid position.
Ping!
How would Ken Lay...or Enron, benefit from this legislation?
Thanks for a more reasonable reply than I earned. :^)
Another feature of Lamar Smith’s bill currently being considered in Congress to bring E-Verify to all 50 states is a mandate for “no-match” letters, a program which was suspended by Obama’s executive order. These no-match letters would send letters to each employer and address of a user of a given social-security number, informing them that that the social security number is being used in multiple locations. This would alert anyone whose ID has been stolen, and prevent multiple people from using the same SSN to dodge E-Verify.
Misleading because that is Romney's figure for 4 years at the University of Texas...IF an illegal immigrant could meet the academic requirements to get into UT and had the money to pay instate tuition...which would be rare.
Ironically, as liberal as UT is the illegals likely would be among the more conservative kids on campus.
About 25 years ago the student body pres was a Black lesbian.
Sorry if I misread. I got the distinct impression the author believed a falsehood I find to be very widely held.
That somehow our gains during the boom were real, and could have been sustained if the government, or the banks, or the evil greedy (insert villains of your choice) hadn’t screwed things up.
Very few people appear willing to recognize that the money we “made” on real estate during the boom wasn’t real. This is the nature of booms - their gains are illusory (unless you are wise or lucky enough to sell at the right time), and when it collapses you’re likely to wind up lower than if the boom hadn’t happened.
IOW, we haven’t “lost” nearly as much as it appears. A great deal of what was lost never really existed. It was an illusion.
Excellent analysis. I was not aware of the Bush Executive Order. That was criminally negligent to issue that order. His compassionate conservatism proved to be as much of a disaster as outright socialism. I realize Clinton started this madness, but Bush did not have to continue it.
Clue me.
Thanks, but to be clear: the original Executive Order (13166) was issued by Clinton; I was faulting Bush for zealously implementing it, far beyond what Clinton could implement before he left office.
Thanks.
The article’s not entirely clear (because it’s not its focus), but it looks like there may be yet something ELSE Gramm did to screw over America in this whole process. I’d like to know more about this “energy swap:” Enron invented carbon credit trading. Did Wendy Gramm first issue a waiver from environmental regulations based on trading swaps?
Ever notice how corrupt, Southern politicians always are portrayed as having quite the long drawl? I always thought his was anti-red-state bias by the media, but there may be something to it.
The long drawl is partly the result of a parasite which formerly infected Deep Southerners. They’d remain intelligent, but their speech faculties were damaged. So whereas Northerners were known for taking a lot of words for saying not much, Southerners were forced to take the time to carefully consider their words. (I’ve never seen the original study; I learned it from a college-level immunology instructor who had studied at Tulane, so I’ve believed it, but can’t swear to it.)
But the point is that this problem with parasitic infections has long, long been eradicated. The drawl has been perpetuated simply because it’s how people expect Southern gentleman to talk. In other words, it’s almost always a deliberate affectation, a put-on.
Slick Willie didn’t use the drawl. He was aiming to come across as a good-ole-boy who pulled himself up by his bootstraps, so affected more of a hick accent.
bfl
I’ll clue you in, based on what I merely presumed was his point..
The banking bill which caused the CDO banking crisis was Gramm’s deal. I basically argued that Gramm had failed to consider its consequences. Why did he commit such a greivious failure?
Ken Lay didn’t necessarily benefit from *this* banking bill, but establishing that Gramm pulled strings for one corporate crony makes it easy to imagine that his interests in the banking bill was also corporate cronyism. It establishes a pattern.
OK. Good points.
I’m all for a regulation that can basically stipulate that only permanent legal residents and citizens can borrow money to purchase real estate through conventional means (private financing notwithstanding).
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