Wall Street in Black and White

Why are poor blacks being blamed for the mortgage meltdown?

The offensive new vogue in cable TV talking points goes something like this: Wall Street is melting down because the government forced banks to make loans to poor people—especially poor minorities. They claim that the entire weight of the global financial collapse rests on the shoulders of unqualified poor, minority borrowers who got loans as a form of economic affirmative action. The evil institutions in this talking points scenario are the formerly quasi-government secondary home mortgage-lending creatures Fannie Mae and Freddie Mac.

For several days, I had been hearing a diluted version of these talking points around the edges of various cable news shout-fests. It wasn't until Larry Kudlow, cable host, former Reagan administration official and former Bear Stearns principal, appeared on "Morning Joe" on MSNBC that I was smacked into full alertness. My jaw dropped as he began talking about the subprime mortgage crisis. "Not everybody can own a home. Some people have to rent, that's just the way it is," he said. Kudlow rattled off his theory that Congress forced banks to make low-income loans with no documentation of a borrower's ability to repay. Countrywide Financial, the notorious subprime lender, was forced to make loans to neighborhoods that banks once "redlined." Wracked with liberal guilt, lenders folded under government coercion to make bad loans, he claimed.

The co-hosts rejected this nonsense and escorted Kudlow from the set, not completely in jest. As Kudlow was escorted off, Joe Scarborough could be heard saying incredulously, "Watch the Kudlow show, where you will probably hear that poor people are responsible for the assassination of President Kennedy."

If only it were just a joke. In reality, these cable talking points have now morphed into an orchestrated Internet campaign of "homemade" videos with shades of Willie Horton. The fake story line reintroduces the trope of the irresponsible welfare queen who was given a house but who was so stupid and unthankful as to lose it all in an entrepreneurial misadventure. The argument then descends into standard racial farce.

Usually, the videos feature white males glaring into the camera, while their eyes dart back and forth to a script off-camera. This band of outraged Joe Six-Packs gives the example of a beneficiary of an "Extreme Makeover" new home who used the home as collateral for a loan to fund a small business that failed. The house went into foreclosure and was sold at auction. This is a sad story that has absolutely nothing to do with the subprime loan crisis.

Another Mr. Six-Pack shouts that the entire financial crisis was caused by a Congress "hellbent on affirmative action, using mob-style extortion tactics to threaten" banks into making bad loans to "predatory borrowers" without documentation.

No need to dance around it: The story line is a complete lie.

The campaign to racialize a global financial meltdown operates in a fact-free zone. A national study of the performance of banks covered by the Community Reinvestment Act (CRA) shows that these government-backed banks were much less likely than other lenders to make the kinds of risky, high-cost home purchase loans that helped fuel the foreclosure crisis. The average interest rate for CRA loans was much lower than other lenders. CRA banks were more than twice as likely as other lenders to keep the loans they write instead of selling them off to the highest bidder.

By and large, the problem with subprime lending was that independent, unregulated brokers pushed inappropriate loans to poor borrowers and to many American middle-class and wealthy consumers who could not qualify for their second or third vacation home and who took a "liar's loan" from brokers, not covered by CRA. These loans were then sliced and diced into mortgage-backed securities by Wall Street investment houses that then sold them to the financial institutions of the world.

The Wall Streeters often used shaky accounting schemes to buy the loans from brokers who were not regulated by anyone. These brokers took their generous commissions and ran. Like the first people to cash out of a pyramid scheme, the brokers were out of the picture before they could be held accountable for fraud, misrepresentation or other coercive tactics they used to sell the bad loans. Thus, a system of non-accountability flourished outside of the regulated financial system, in what Floyd Norris of the New York Times calls the "shadow banking system."

A crisis arose from a perfect storm: There was the loose-money era created by low interest rates set by then-Fed Chairman Alan Greenspan and a burgeoning, unregulated financial sector. Then we saw the integration of financial systems around the world. Many older CEOs did not really understand these new and complex financial instruments that were too good to be true. Even if the CEOs did, they had no incentive to rein them in because they brought huge profits to their companies, and golden parachutes to them, when things collapsed.

The racial scapegoating in this financial crisis has echoes of another political season two decades ago. Willie Horton, a convicted murder, raped a Maryland woman and beat up her boyfriend while he was out on a weekend furlough from Massachusetts, where Michael Dukakis was then the governor. In 1988, during the winning presidential campaign of George H.W. Bush, the late Lee Atwater, Bush's strategist and a mentor to Karl Rove, announced, "By the time this election is over, Willie Horton will be a household name." The ad based on Horton, made by a political action committee, became infamous because it never mentioned Horton's race. It featured just a picture of Horton's close-up prison mug shot looking fearsome and warlike with uncombed, nappy hair, a beard and an ice-cold stare.

Being the crafty Republican strategist that he was, Atwater, in choosing to make Willie Horton a household name, affixed a black face to the national problem of crime. This Machiavellian manipulation distorted the fact that 16 white prisoners and only two black prisoners had been furloughed under the program. But facts lost out in the '88 election. H.W. won.

Present-day circumstance cannot fall prey to the same manipulation. Racializing a complex global financial panic is an unforgivably incendiary tactic that has special significance because Barack Obama is the first black nominee for president of either major political party. This campaign, unlike Michael Dukakis' campaign in 1988, is more vulnerable to crude racial manipulation. We have witnessed the claims that Obama is a Muslim, an unpatriotic, American-hating radical, with a wild wife and a raving black pastor. The Atwater Alumni Club seems to forget that their patron saint, Lee Atwater, recanted the Willie Horton tactics and apologized to Dukakis before he passed away in 1991.

Still, the bare-knuckle strategies persist. The sub-slime ploys continue as the Joe Six-Packs of America inject race into a global financial panic. Enough! I hope that this election year, Americans push these race-baiting tactics back into the racial Stone Age where they belong.

Emma Coleman Jordan is a professor of law at Georgetown University Law Center, where she teaches Banking, Commercial Law and Economic Justice. She is the author, with Angela Harris, of Economic Justice: Race, Gender, Identity and Economics (2005);When Markets Fail: Race and Economics (2006); and A Woman's Place Is in the Marketplace (2006).