Countrywide’s Angelo Mozilo: He Warned Us—But Washington Didn’t Want To Know

By Steve Sailer

The Securities and Exchange Commission filed an insider-trading civil suit earlier this month against perhaps the most widely loathed wheeler-dealer of the Housing Bubble: Angelo Mozilo, co-founder and longtime CEO of Countrywide Financial Corporation, the largest mortgage lender at the peak of the boom.

The Economist writes: “As is the way these days, the SEC’s case rests largely on internal emails.” [Accusing Angelo June 5, 2009]The SEC released excerpts from Mozilo’s emails to even more aggressive Countrywide executives in which the boss privately questioned his own firm’s new lax credit products. For example, on April 17, 2006, he sensibly lambasted Countrywide’s subprime 80/20 loans (in which borrowers would fund their nominal 20 percent downpayment by taking out a simultaneous second mortgage):

“In all my years in the business I have never seen a more toxic prduct [sic]. It’s not only subordinated to the first, but the first is subprime. In addition, the FICOs are below 600, below 500 and some below 400[.]“

Unfortunately, Mozilo’s intermittent spasms of skepticism didn’t have much effect—because he was also:

• Imploring government regulators to allow more zero down payment mortgages and liar loans in the name of fighting racist redlining;
• Publicly reassuring investors about the creditworthiness of Countrywide’s increasingly bottom-of-the-barrel borrowers;
• And…accelerating his own stock sales.

In February 2007, Countrywide’s shares peaked at over $45. The following summer the subprime resale market collapsed, setting off the current global economic collapse. Mozilo was lucky to talk hapless Bank of America into buying Countrywide in 2008 for less than one-tenth of its peak price.

Still, you can’t say that Mozilo didn’t warn you in countless speeches over the years that Countrywide’s corporate strategy depended upon pouring colossal sums down the rathole of lending to “underserved Americans” (i.e., minority and lower income borrowers).

For instance, in the top story in National Mortgage News on February 17, 2003:

“Mr. Mozilo labeled downpayments as ‘nonsense’ and said credit score requirements are ’still much too high.’… the outspoken industry leader called on his colleagues to ‘take a chance on making mistakes rather than foreclose on the opportunity’ to put minorities and other underserved families into homes of their own.”

Or consider Mozilo’s January 14, 2005 press release that trumpeted Countrywide’s commitment of one trillion dollars through 2010 to politically favored groups:

“The $1 Trillion We House America Challenge … embodies Countrywide’s long-standing commitment to lead the mortgage industry in closing the homeownership gap for minority and lower-income families and communities,” said Countrywide Financial Corporation Chairman and CEO Angelo Mozilo…

And that was up $400 billion from the $600 billion Mozilo had promised in 2003 during a prestigious Harvard address entitled The American Dream of Homeownership: From Cliché to Mission.

I may have mentioned this before—but a trillion dollars here, a trillion dollars there, pretty soon we’re talking about real money.

And that trillion dollar figure was not just talk. Mozilo testified to Congress on March 7, 2008:

“To date, we have met $850 billion of that goal, and we remain committed to beating the goal by 2010.”

Countrywide’s reckless strategy in 2005-2006 is readily visible in the federal government’s Home Mortgage Disclosure Act database. This graph shows Countrywide’s subprime lending in just the Riverside-San Bernardino exurbs of Southern California, which are home to close to one-tenth of all the defaulted dollars in America. In the Inland Empire, Countrywide quintupled its subprime lending in one year, with the great majority going to minorities.

This 2005 data was downloadable by investors and journalists in October 2006, months before Countrywide’s stock price reached its apogee. But who would be so uncouth as to use the HMDA database to raise doubts about minorities’ ability to repay mortgages? The HMDA exists to help the federal government and community organizers drive more lending to minorities, not less!

The roots of Countrywide’s catastrophic trillion dollar pledge go back to the early years of the Clinton Administration. As Steve Malanga explained in the Spring 2009 City Journal:

“Pressuring nonbank lenders to make more loans to poor minorities didn’t stop … If it didn’t happen, Clinton officials warned, they’d seek to extend [Community Reinvestment Act] regulations to all mortgage makers. … To rebuff the criticism, the Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown.”[Obsessive Housing Disorder]

Interestingly, the Secretary of Housing and Urban Development who signed that 1994 deal with Countrywide was Henry Cisneros, who later served on Countrywide’s Board of Directors from 2001 to 2007, the Bubble Years. Cisneros made over $6 million from Countrywide fees and stock options.

In his 2005 “$1 Trillion We House America Challenge” press release, Mozilo announced:

“We have also called upon one of our esteemed directors, the Honorable Henry Cisneros … Henry will put to use his long and respected experience as an advocate for affordable housing who understands the benefits to communities of homeownership.”

Cisneros chimed in:

“Countrywide’s $1 trillion commitment is very tangible proof of this company’s commitment to fair, affordable and responsible lending. This company is leading the industry in closing the homeownership gap …”

An October 18, 2008 New York Times article about Cisneros by David Streitfeld and Gretchen Morgenson, Building Flawed American Dreams, recounts:

“But until recently getting a mortgage was a challenge for low-income families. Many of these families were minorities, which naturally made the subject of special interest to Mr. Cisneros, who, in 1993, became the first Hispanic head of the Department of Housing and Urban Development. He had President Clinton’s ear, an easy charisma and a determination to increase a homeownership rate that had been stagnant for nearly three decades. Thus was born the National Homeownership Strategy, which promoted ownership as patriotic and an easy win for all.”

Cisneros rationalized to the NYT:

“It was, he argues, impossible to know in the beginning that the federal push to increase homeownership would end so badly. Once the housing boom got going, he suggests, laws and regulations barely had a chance. ‘You think you have a finely tuned instrument that you can use to say: ‘Stop! We’re at 69 percent homeownership. We should not go further. There are people who should remain renters,’ he says. ‘But you really are just given a sledgehammer and an ax.’ “

Mozilo was hardly a victim of the politicians, however. They were co-conspirators.

For example, Mozilo notoriously provided special discount mortgages to a host of politically connected “Friends of Angelo,” such as the chairman of the Senate Banking Committee, Chris Dodd (D-CN).

Mozilo pocketed an estimated $387 million from 2002 through 2006. As it turns out, of course, it would have been cheaper for all concerned if the Friends of Angelo in Congress had simply voted to give $387 million of the taxpayers’ money to Mozilo.

A tell-tale sign: According to his employment contract, Countrywide paid $95,000 annually for Mozilo’s “country club dues at Sherwood Country Club in Thousand Oaks, CA, Quarry Country Club in La Quinta, CA and Robert Trent Jones Golf Club in Gainesville, VA.” Why did the Southern California financier belong to a golf club in the Washington D.C. suburbs? Obviously, to aid in schmoozing Washington politicians, regulators, and Fannie Mae / Freddie Mac executives, who bought vast quantities of mortgage-backed securities from Mozilo.

Back when Mozilo was riding high, Jeff Bailey’s New York Times profile of him pointed out:

“By buying his mortgages and thus freeing up his capital to solicit even more business, Fannie and Freddie are a big reason Mr. Mozilo has driven Countrywide past the Citigroups and the Wells Fargos to the top of the mortgage heap. ‘If it wasn’t for them,’ he said of Fannie and Freddie, ‘Wells knows they’d have us.’” [The Mortgage Maker vs. the World, October 16, 2005]

(By the way, from the Unfortunate Metaphor Department:

“‘We didn’t really know what we were buying,’ said Marc Gott, a former director in Fannie’s loan servicing department. ‘This system was designed for plain vanilla loans, and we were trying to push chocolate sundaes through the gears.’ “[Pressured to Take More Risk, Fannie Reached Tipping Point, Charles Duhigg, New York Times, October 4, 2008])

It’s crucial to understand the subtle way in which government pressure for more minority lending affected the mortgage industry—selecting for success those executives like Mozilo who were both wildly ambitious and true believers in the diversity mantra.

As I pointed out in my VDARE.com analysis of the 2008 failure of Kerry Killinger’s Washington Mutual after it had pledged $375 billion in CRA lending to win FDIC approval for acquisitions, the government can’t force financial institutions to lend to likely deadbeats. You can always stay small and under the radar.

What the government can do, using a host of threats, is block from growing big those firms whose executives don’t share its dogma that lending more to minorities is a great idea.

Further, the government can excommunicate with anti-discrimination lawsuits anybody who expresses his skepticism on paper (or pixels). Imagine if a financial executive’s private emails turned up in discovery for a lawsuit had read: “Why are we lending so much money to Mexicans in the Inland Empire? How can Mexicans ever pay off these huge mortgages?” He would have been flayed alive in the press and in the courts.

So nobody in Corporate America puts their Doubts about Diversity into text where plaintiffs’ attorneys can later read them.

And that means they mostly don’t get communicated anymore—which explains much about why the Mortgage Meltdown, which has been highly concentrated among minority borrowers, was a surprise to so many.

Over the decades, the federal government changed the entire culture of the mortgage industry from penny-pinching skeptics to politically correct pollyannas.

Nobody took less persuading, however, than Mozilo. He always felt discriminated against by the old WASP financial elite. He said: “At least in my generation, when you are Italian in the financial services industry, you are terribly underestimated. A natural reaction for some in the financial community was to infer or suggest that perhaps you were associated with the Mafia.”

Bailey’s 2005 NYT article about Mozilo begins:

“A touch of resentment—based on income, education, social class—motivates countless ambitious people, though few will admit to it once they become successful. An exception is Angelo R. Mozilo … Modest origins—a butcher’s son from the Bronx who worked his way through Fordham University—drove Mr. Mozilo to push Countrywide past the mortgage businesses of far larger companies, including Citigroup, Wells Fargo and Washington Mutual. He readily admits to having a chip on his shoulder …”

Connie Bruck’s fairly sympathetic new article, Angelo’s Ashes: The man who became the face of the financial crisis, in the June 29, 2009 New Yorker (an abstract is online here) documents just how driven Mozilo always has been by his Commitment to Diversity. Mozilo’s sister told Bruck:

“He was always this Italian guy people didn’t want to accept. When he tans he gets really dark. My mother told me that when he worked in Florida he was asked to sit in the back of the bus.”

(Actually, in many photographs, Mozilo looks less brown than orange, more like an Oompa-Loompa in Willy Wonka and the Chocolate Factory, or the victim of a bad spray-on tan.)

Bruck notes:

“Mozilo always saw himself as providing mortgages to many who were like him — disenfranchised. (‘So they’re not upper-middle-class white people—so what?’ he would say. ‘They’re Hispanics, and maybe their money is not in a bank—but they are responsible.’)’

Bruck’s article suggests that Mozilo actually believes what he told Congress in 2008:

“By the early 1990s, the government had recognized the obvious truth that our housing finance system was leaving major segments of society behind. In 1992, a landmark study by the Federal Reserve Bank of Boston made it clear that there were systemic underwriting issues relating to the treatment of African American and Hispanic borrowers. Policymakers called upon the mortgage industry to change their practices and redouble their efforts to better serve minorities and underserved communities. While many in the industry discounted the Boston Fed study as flawed, at Countrywide, we stepped up to the challenge by creating our affordable lending initiative known as ‘House America.‘ “

Bruck’s New Yorker article supports Mozilo’s sincerity—or self-delusion:

“… In 1992, shortly after Mozilo became chairman of the Mortgage Bankers Association, the Federal Reserve Bank of Boston issued a report stating that it had found systemic discrimination by mortgage lenders against African-American and Hispanic borrowers. … Mozilo was appalled. He ordered that all Countrywide’s records on rejected minority applicants be sent to him, and he retroactively approved about half of them. …”

(This Boston Fed report was the one that Peter Brimelow and Leslie Spencer easily refuted in Forbes Magazine at the time, by demonstrating that it had misunderstood the meaning of mortgage default rates. But no-one, not just Mozilo, wanted to hear that.)

In 2002, a UCLA business professor named Eric Flamholtz suggested to Mozilo the disastrous strategy of trying to grow Countrywide’s share of the mortgage market from ten percent to an oligopolistic 30 to 40 percent. But to pursue its goal of market dominance, Countrywide’s marginal customers would inevitably have to be drawn increasingly from the ranks of those who had never qualified for a mortgage before: in other words, they’d be largely minority.

Result: Mozilo grew into the ultimate embodiment of the type of financial executive the federal government had been cultivating: a monster of ambition combined with a diva of diversity.

Bruck goes on:

“By 2004, Countrywide had become a leading U.S. mortgage lender to what it called ‘multicultural market communities.’ Mozilo always described Countrywide’s inclusion of minority and immigrant populations as both business and mission, and he had become perhaps the single most important advocate of those who believed in advancing homeownership as a means of achieving a more equitable society.”

According to The New Yorker, my kind of thinking about the Minority Mortgage Meltdown is personally and politically offensive to Mozilo:

“Several years ago, at the Midwinter Housing Conference, in Park City, Utah, after hearing some mortgage bankers saying that minorities didn’t deserve loans, he declared in a speech, ‘Homeownership is not a privilege but a right!’ Now he abhors the idea that the retrograde view has gained credence. As the Fox Business Network anchor Neil Cavuto said last September, ‘Loaning to minorities and risky folks is a disaster.’”

Sorry about that, Angelo. Tell you what: don’t worry yourself about bringing down the world financial system.

[Steve Sailer (email him) is movie critic for The American Conservative. His website www.iSteve.blogspot.com features his daily blog. His new book, AMERICA’S HALF-BLOOD PRINCE: BARACK OBAMA’S "STORY OF RACE AND INHERITANCE", is available here.]

The Case Of The “Disappeared” Subprime Minority Borrower

By Takuan Seiyo

It was on a bitterly cold and frosty morning, towards the end of the winter of ‘07, that I was awakened by a tugging at my shoulder. It was Holmes. The flashlight in his hand shone upon his intense face. I knew at once that something was amiss.

“Come, Watson, come!” he cried. “The game is afoot. Not a word! Into your clothes and come!”

My friend had recently sunk into his customary melancholy, his presence but a wailing violin behind a closed door. Nevertheless, as I was hurriedly getting dressed, I remembered that a change had come upon him on the previous morning.

Mrs. Hudson had just brought in the morning papers, along with our toast. I was fiddling with the dial of our new Marconi, when Holmes’ sharp cry from the breakfast table diverted my attention. He was marking with his fountain pen an item in the paper. The luster had returned to his eyes. Curious, I let go of the dial knob and leaned over Holmes’ shoulder.

The underlined column read: “Study: Minorities’ ‘dream’ foreclosed“, and underneath, “The subprime-mortgage crisis will cost black and Hispanic homeowners up to $256 billion—the worst financial hit for minorities in modern U.S. history”.

Just then, the Afro-American voice that had been carrying on in the radio program cohered into distinctive words:

“… money-lenders have already sucked the value out of whole communities, urban and suburban. The wealth loss is staggering: People of color have collectively lost between $164 billion to $213 billion over the past eight years, with Latinos losing slightly more than African Americans.”

Holmes was buttering his toast and listening.

“Before the crisis hit,” the distinctive voice was now choked with indignation, “it was estimated that it would take 594 years—more than half a millennium!—for Blacks to catch up with Whites in household wealth. Now, in the aftermath of the home mortgage massacre, it could take ten times as long—more than 5,000 years!—before Blacks achieve homeowner parity with Whites.”

Holmes leaned back in his chair with a whimsical smile, as the commentary concluded: “Looking backward, that stretches from now to when the great pyramids were built!”

I turned off the wireless and sat down at the table.

“A cup of tea, Watson?” Holmes said.

“A nation destroys its banking system and its currency to fake the putative minorities’ creditworthiness,” my friend continued as he poured my morning restorative, “… and showers unearned benefits on them. When the subterfuge falls apart, its impact on the same minorities is twisted around to bolster an imputation of racial discrimination.”

He stood up, tying the sash of his dressing gown.

“I say, Watson, from the point of view of the criminal expert, new opportunities are arising that may alleviate my singular boredom since the death of the late lamented Professor Moriarty.”

As we alighted into the hansom cab, I had a premonition that a new adventure had just begun, related somehow to that statement…

—After The Adventure of the Abbey Grange, with apologies to Sir Arthur Conan-Doyle

The financial debacle of a $1.4 trillion pool of subprime mortgages of which at least half are unpayable and 25% are irrecoverable did not start in a political vacuum. For years, the American political Establishment badgered the banking industry about the “racism” implied in its loan portfolio. The denial of mortgage loans to “minorities” at a greater percentage than denial to whites has been deemed a prima facie evidence of racial discrimination.

“Classical socialism called for direct state ownership of the means of production, distribution, and exchange”, wrote Peter Brimelow in a 1993 National Review article discussing a clash he had had in Forbes Magazine with the race-drunk mortgage industry critics.

“Neosocialism just aims at political control. Socialism claimed to be more efficient. Neosocialism claims to be more equitable. Above all, neosocialism professes to combat ‘racism,’ since this magic word cows all opposition. Apparent neosocialist objective of the season: commandeering the banking system and forcing it to subsidize key client constituencies.” [Racism At Work? By Peter Brimelow, National Review, April 12, 1993].

Brimelow related how the Wall Street Journal had carried five stories in late 1992 alleging, based on raw rejection rates, that lenders were discriminating against minorities. Such allegations were obvious rubbish, as they took no account of standard credit considerations like employment, income, and net worth.

Finally, the WSJ reported on a Federal Reserve Bank of Boston study that did correct for these criteria, and still found that minorities were rejected at a slightly higher rate. [Mortgage lending in Boston: Interpreting HMDA data (Working Paper 92-7)] This difference, the Boston Fed had concluded, could only be due to racism.

Brimelow and his Forbes magazine co-author Leslie Spencer had inquired of the Boston Fed whether it had taken under account default rates for black and white mortgage holders. It had, the Boston Fed’s Research Director replied, and it had found equal default rates. [The Hidden Clue, Forbes, January 4, 1993]

Brimelow then pointed out that this proved pure market forces were working in mortgage lending. Mortgage lenders were somehow able to weed out impartially credit risks, reducing defaults down to the same rate for whites and blacks.

“[That] is a sophisticated point”, responded the Boston Fed’s Research Director. “I do believe discrimination occurs”, she reiterated, but then conceded, “I do not have evidence … no one has evidence”.

“They don’t have evidence, but they sure have convictions”, concluded Brimelow, presaging how the Boston Fed study’s fatal flaw would be passed over by the mass media. He concluded:

“Neosocialism, however, is not science. What’s going on here is a witch-hunt, conducted by the religious Left and aided by key elements of the civil service. The innocent victims will be the banking system, the savers of America, the economy, and ultimately liberty itself. The craven banking industry cannot be expected to resist. It is time conservatives stopped piously chanting about capital-gains tax cuts and woke up to the fact that their capital is under attack”

The same wishful assumptions masquerading as “research” by high public officials and reported by journalists as the truth were examined by four specialists, who published their findings in a 1996 paper, Mortgage Discrimination and FHA Loan Performance [PDF]. Their conclusion:

“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.”

Three years later, two finance professors, Stanley D. Longhofer and Stephen Peters, pointed to the same fatal flaw behind all the caterwauling about the higher rejection rates for black and Hispanic mortgage applicants.

The US Fair Housing Act and the Equal Credit Opportunity Act prohibit discriminatory lending considerations by reasons of race, gender, marital status, religion, national origin, familial status, and handicap. Longhofer and Peters stated that, grand labels notwithstanding, these laws have nothing to do with fairness: they target social inequality, not bigotry. It’s socialism through the back door.

“[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.” [Why Is Mortgage Discrimination Illegal? A Fresh Look at the Mortgage Discrimination Debate, Longhofer and Peters, Cato Institute, PDF]

Thirty years of faked research and horrendous noise from “social justice” carnies, all amplified by the left-driven mass media, and the political elite figured out which direction held out the most rewards. A heavy dose of demagoguery followed. Some of these sub-eligible politicians, such as Congressman Barney Frank, Chairman of the Financial Services Committee, are still on the job, acting as though they have no part in the financial train wreck they have instigated.

Finally, with further pushing by different government branches and agencies, mortgage lenders found a solution to inconvenient reality. It was the subprime loan, with sub-viable variations such as “interest-only” and “no-money-down.”

No forces were available to combat the American economy’s unbalancing by cultural Marxists, socialists, noisy “minority” chieftains and power-hungry opportunists. Instead of leading a counteroffensive, the federal government (mostly under Republicans) pushed toward the fall. And the bankers went along—even though it was their depositors’ capital they were converting to cotton candy.

Banks started dishing out mortgages as though they were consolation prizes for the poorly educated of shaky employability, or achievement awards for the undisciplined and uneducable with no collateral.

Overwhelmingly, these prize-winners have been “people of color.”

Presto! Many more “people of color” could achieve “the American Dream”—some a few times over, as people with no money and no assets were able to buy several houses each, hoping for a quick and profitable flip.

And the occupants of CEO suites were happy too. They had gained points with neosocialist/ “minority” lobbies and their vast cohorts of useful idiots. Not to mention the favors of weathervane politicians—and enormous end-of-year bonuses to boot.

In trampling on rules of sound banking going back at least to medieval Italy, our financial wizards discovered the eternal quest of alchemy—how to convert lead into gold, for a while at least, before it turns into garbage. Employing PhD’s in high mathematics, they diced and mixed financial offal, stuffed it into sausage skins, gave this dubious bologna properly pinstriped labels such as “Mortgage-backed Securities“ and “Collateralized Debt Obligations”, and sold it off by the slice to equally greedy and heedless financial institutions down the line.

From inception through each change of hands, each putrid sausage slice (“tranche“) generated fat fees for its handlers.

But reality is stubborn. The underlying loans went sputtering, then died. The new, miracle collateral reverted to the ordure it had always been. Mortgage lenders started dying off from collateral toxemia. The sausage makers—the major financial powerhouses of the United States and Europe—started writing off tens, eventually hundreds, of billions of dollars in “nonperforming” assets. Insurance companies that guaranteed all that pungent charcuterie, and the guarantors of the fermenting meat byproducts that went into them—Fannie and Freddie to you—started swooning too.

In February 2008, the forward estimated total of total losses in the global banking industry was $600 billion. By mid-July 2008, that estimate had risen to $1.6 trillion. With the $10.1 trillion equity loss in the global stock market between December 2007 and July 2008 alone, the subprime debacle qualifies as the greatest financial disaster in history.

That’s before the demise of Lehman Brothers, the world’s largest underwriter of mortgage bonds; the US Federal Reserve’s $85 billion loan to rescue the world’s largest insurance company, AIG, from a similar fate; and the shotgun marriage of America’s largest brokerage house, Merrill Lynch. And before the black week’s wipe-out of another $3.6 trillion dollars in equity, reversed when the government announced a plan to buy all US stocks, bonds, mortgages and bank deposits for a down payment of $1 trillion plus fateful installments down the road.

And it’s before this financial system shock has fully fed through into the real economy, precipitating what Steve Sailer has aptly named “The Diversity Recession“.

The mega-hustlers who steered venerable financial institutions into this mega-iceberg, are not hurting. The press described the CEOs of two of the greatest malpractitioners of banking, Merrill Lynch and Citigroup, as having “fallen on their swords”—but not for these types such a noble end. Stan O’Neal, the ousted CEO of subprime-bombed Merrill Lynch, received a $160 million “retirement” package. The golden chute for Chuck Prince, the CEO who led Citigroup to the biggest loss in its 196-year history, was $42 million. John Mack, the CEO of Morgan Stanley, had to forego his 2007 bonus, but it’s some consolation that at the height of the subprime scam, in 2006, he copped $41 million.

Dick Fuld, the CEO of bankrupt Lehman, took home $45 million in 2007, so he won’t have to mourn the vaporization of his 401k. “Jimmy” Cayne, the former CEO of the former Bear Stearns, similarly burned on his vested stocks, presumably retired to his $28 million apartment in the Plaza Hotel, to lick his wounds.

The banks themselves have not had to drink the hemlock they had brewed either. Instead of falling under the weight of their own malpractice, except for Lehman they have basked in the largesse of the Federal Government. Technically, it’s not a bailout using taxpayer money—just a wide-open “discount window”, a spigot from which poured over a quarter trillion dollars in just four days in mid-September ’08. But it’s a bailout nonetheless, as pointed out by Barry Grey on the World Socialist Website:

“The government-backed bailout plan for Citigroup and Wall Street underscores the increasingly parasitic and socially destructive operations of American and world capitalism”, says this socialist writer. “The role of the SIVs [Structured Investment Vehicle, funds that raise capital by selling short-term securities at low interest and then buy long-term securities at higher interest, very often packaged, subprime mortgage loan products] exemplifies the degree to which immense wealth is generated for a layer of multimillionaires and billionaires on the basis of financial manipulations almost entirely divorced from the process of production and socially useful investment.”

Exactly right, says this anti-socialist. America’s main industry, finance, has turned out to be a pyramid scheme of reckless, interlocking bets, essentially a stratospheric swindle.

But all this is just one side of the picture. For at the other end of the spectrum from the princes of finance are the mostly “minority” rubes who bought houses they could not afford with money they did not have, based on income data they had falsified, egged on frequently by crooks in the employ of companies such as Ameriquest—that self-lauded “proud sponsor of the American Dream“. And there are enough of them, and their skin tones are compelling enough, to generate enormous political pressure for government action to bail them out too.

Entering “subprime minority“ into Google recently yielded 544,000 links, with typical items reading:

• Minority Subprime Borrowers—Minorities Pay More for Home Ownership
• Study Finds Disparities in Mortgages by Race
• Study Finds Subprime Lending More Prevalent in Minority, Low-Income Communities in New York Metropolitan Area
• Minorities Discriminated against in Credit Markets, Study Finds
• Minorities Often Pay More for Mortgages, Study Says
• Minorities hit hard by rising costs of subprime loans
• Subprime Mortgages Concentrated in City’s Minority Neighborhoods

Even this small sample reveals the main sources of the incessant harangue: ethnic grievance lobbies, socialist fronts, and their three megaphones: lawyers, academics and the Mainstream Media.

To save greed-demented bankers and freeloading borrowers from themselves, the Fed has repeatedly cut interest rates and pumped tens of billions of dollars at artificially low rates to the subprime-tainted banks. As of September 7, 2008, the Bush administration, on behalf of the American taxpayer, essentially wrote a check for $200 billion to bail out the two fences of illicit mortgage loot—Fannie and Freddie to you—and assumed over $5 trillion in their liabilities, doubling the national debt.

When Fannie and Freddie were profitable, their profits went to the investors. Now that they have losses, those have been assumed by the US taxpayer.

And so we have a government practicing selective socialism on behalf of insatiable corporations on one end and improvident individuals on the other—at the expense of the vast majority in between.

It’s socialism that plunders the renters, the old and retired, the savers and the bond investors in order to shower their money onto home owners-by-error, the debtors, and speculators in financial fancy.

This is even more unjust and stupid than simple socialism, for that socialism aimed to plunder a rich minority in order to benefit the middle and bottom majority. This American mutation, however, aims to plunder the middle majority in order to bail out the bottom and top minorities of race and riches.

The refreshingly named Dr. Housing Bubble has named this fiscal mega-crime “Crony Capitalism for Dummies.”

What’s going on is a base perversion of both morality and justice. It substitutes an innocent party to be punished for the malfeasance of another.

All the “noble” government efforts to prop up falling dominoes stoke inflation, devaluing savings, and sabotaging the responsible, provident citizen.

As of August 2008, inflation in the United States is rising at the fastest pace since 1981. The government, knowing this, cooks the books.  Summer ‘08 inflation rates were up to 12.5%, but the government Core Consumer Price Index figures were 7% lower. To know the truth, one has to rely on American equivalents of samizdat, in the best USSR tradition.

A de facto devaluation of the dollar has now accelerated so much that a formal devaluation may be necessary. Therein lies the specter of the Weimar Republic: people exchanging wheelbarrows of banknotes for a loaf of bread…and a strong, indignant leader saving them from the nightmare with passionate oratory, national socialism, and the goose-step.

Already bank branches are under siege by people facing foreclosure who were primitive enough to sign mortgage papers that they did not understand, in a language they often did not know—English.

In effect, what’s going on in the realms of both the subprime Wall Street swells and the little mortgage borrowers with subprime intelligence is a slow but relentless pressure to unravel contracts entered into by consenting adults. That is an erosion of Contract Law, the very foundation of civilized society.

This farce in four acts, with wigs, masks and costumes, trapdoors, sliding plywood scenery and weeping violins in the orchestra pit has been enacted for 40 years without letup for one reason only: to camouflage or otherwise deny racial group differences in IQ, and in mean ethnocultural traits such as the importance attached to education and to obeying the law. In the realm of statistical reality, all these, and not “racism”, bear directly on the chances of material success in life—including home ownership.

The statistical facts imbedded in the last paragraph are  considered so unacceptable in this country that the verb “to disappear” is deployed here in its transitive mode, the way it has been in the political practice of banana republics. Nevertheless, these phenomena are not only observable in one’s daily life—if one but unplug those electrodes implanted in the brain since kindergarten—but are based on thousands of peer-reviewed studies going back 100 years. Corollary issues of ethno-cultural group differences have been studied with conclusive results for almost as long. [Race and Psychopathic Personality, By Richard Lynn, American Renaissance, July 2002]. But woe is him who dabbles in proscribed science.

“Minorities” register mean group IQs of 70 for sub-Saharan Africans, 85 for Afro-Americans and Polynesians and 88 for the main “minority” in the US, the Mexican mestizos, versus 100 for American whites. (The latter containing subgroups with an IQ mean as high as 115.) This is as close to science as anything has ever got in the social sciences. An authoritative review of the last 30 years of relevant research is here and a comprehensive understanding of the subject is available for the intelligent layperson at websites such as gnxp.com or Steve Sailer’s archive, the best available bridge between the relative science and common sense interpretation.

The implications of the mean IQ differences for success in education, employment, home ownership etc. are overwhelming and, again, covered in depth by major researchers, ad infinitum. Here is Professor Linda Gottfredson:

“People with IQs between 75 and 90 are 88 times more likely to drop out of high school, seven times more likely to be jailed, and five times more likely as adults to live in poverty than people with IQs between 110 and 125. The 75-to-90 IQ woman is eight times more likely to become a chronic welfare recipient, and four times as likely to bear an illegitimate child than the 110-to-125-IQ woman.” [The General Intelligence Factor, Linda Gottfredson, Scientific American, Volume 9, Number 4, Winter 1998.]

Due to the mathematical properties of the bell curve, 68.3% of the distribution lies within one standard deviation (“sigma”) from the mean, and 95.5% lies within 2 sigmas. Since the sigma in intelligence studies of the American population is set at 15, that has deep implications relative to educational and other attainments.

An IQ of 100 is considered necessary for a successful completion of high school—real completion of a real high school, as opposed to the “social promotion” of the dumb through the already dumbed-down curriculum in American Schools (11). With a mean IQ of 100 for American whites, 50% of them have the capacity to acquire that high school graduation ticket to further knowledge and prosperity. But a mean IQ of 85 for American blacks means that only 15.9% of them have that capability. Nonwhite Mexicans have a slightly higher ratio. Nature, unlike Lake Wobegon, does leave children behind.

The subprime scandal is only one example of the political elite’s willful blindness. Other adventures of “disappeared” minorities:

• The US Transportation Security Administration spends $5 billion a year to delay, harass and annoy 677 million passengers on 10.3 billion occasions per year for the sake of weeding out their toothpaste tubes and making them feel equally debased as they crawl toward the selection chute beltless and barefoot.

All this in order not to have to notice that a definite statistical portrait—excluding the overwhelming majority of all passengers—emerges from tabulating the ethnic and demographic markers of the thousands of terrorists who have attacked American and European targets over the last quarter century.

• The American educational systems spends over half a trillion dollars per year K-12 education—but it’s a Sisyphean labor.

In a 2007 comparison of 29 OECD countries, the US came up  first in education expenditure, spending approximately $10,000 per year, per pupil, while scoring (among 15 year olds) 24^th in math and 17^th in Science. In the latest reading skills comparison of 44 countries, the US was 23^rd.. Meanwhile, to cite one of many, the Czech Republic spends on education about $3,000 per year per pupil, yet in international comparisons it’s 6^th in math, 5^th in science and 2^nd in reading.

Could it be, perchance, that America ’s vaunted “strength in diversity” has been overhyped when compared to boringly “nondiversified” societies—the Czechs, the Finns, the Japanese?

Per US Government statistics, 42% of students enrolled in American public schools in 2005 were “minorities”, and 20% spoke a language other than English at home.

“Minorities” is a euphemism that has nothing to do with population percentages but everything to do with “disappearing” the inconvenient truth of mean racial group differences that handicap the “minorities”, but not the majority, in education and wealth acquisition.

In reckoning with these metrics lie the answers to all societal woes of the Third World-infused multiracial society. We have a criterion by which to stop the pouring of further enormous treasure down a bottomless well to “correct” what are not the faults of society but the woof and warp of the manifest forces of nature—or God, to one so inclined. We have a yardstick by which to assess the national interest with regard to unrestricted immigration. We have a map by which to pursue more effective solutions to the problems of crime, welfare, education, cultural dissolution and more.

But perhaps not in our lifetime—not until many more people can be described by  Irving Kristol’s quip that a conservative is a liberal who has been mugged by reality.

Ultimately, each individual must be judged on his own merit. His group’s mean characteristics are essentially irrelevant.

But by granting racial group preferences to “minorities” based on the spurious assertion of racial discrimination, demagogues and bien pensant liberals actually compel truth-seekers to dig for statistical findings related to such groups, to refute the fraudulent charges of “racism”.

Instead of condemning the suicidal magnanimity of bestowing home ownership on the mostly-“minority” improvident whose only qualifications were their skin tones and loudmouth advocates, America is busy pouring ashes on its head because of the inevitable consequences of folly that, by incredible coincidence, fall disproportionately on the selfsame “minorities”.

It’s not often in history that such extraordinary delusions have been so pervasive, with such negative consequences. But instead of facing reality and learning to work with it, our Moriartys lunge at our Sherlocks and wrestle them over the precipice of the Reichenbach Falls—to the ultimate doom of the whole of society.

It’s a fraud to attack those who speak out on racial differences as “racists”, as though reckoning with salient characteristics of group averages denies the potential of individual members of such groups. It’s inexcusable to brainwash generations of vulnerable schoolchildren that a pervasive “racist” environment is responsible for the under-achievement of “minorities” It’s the “minorities’” own  hereditary qualities that are in free play here: IQ, parents, ancestral culture, the hand that fate has dealt.

The cultural Marxist, or useful idiot, intent on shouting down reality and seeing “racism” everywhere, may drown in a lake whose mean depth is four inches, while protesting that the second and third tallest men in the world, who are Chinese, invalidate comparisons of the mean height of the Chinese and the Dutch.

For forty years now, and perhaps for the first time in 350 years, the West, en masse, has been retreating from the Enlightenment that had catapulted it to the pinnacle of civilization. The forces of reason, empiricism, truth-seeking, basic freedoms (before they became “rights”); the flowering of genius in all areas of human endeavor, all are in retreat everywhere at the same time.

A liberal dogma, a totalitarian taboo divorced from any reality that has ever existed, has taken hold. The new Nicean creed posits that discrimination, i.e. the perception of differences between groups—males v. females; shepherd Muslims v. urban post-Christians; Mexican mestizo peasants v. Danish professors of physics; High Protestant culture v. Hmong tribal custom—are the greatest, the cardinal, sin.

The overwhelming preponderance of black multimillionaires in sports and Rap passes without a comment. No affirmative redress action is available for short Ashkenazi Jews and Bengali Indians who feel unfairly excluded from the NBA. But the preponderance of whites in the sciences, the professions and upper corporate ranks, and the material rewards that accrue to that, are seen as racism that requires a disastrous re-engineering of society.

In finance, we have gone laissez faire on a group of reckless buccaneers disguised in Savile Row finery, selling spoiled meat from the back seats of Maybach limos. But we have banished laissez faire in the main area where it is salutary: liberty to pursue happiness with the hand of cards one has been dealt by fate and DNA, played with will and character by the rules of pure meritocracy. And this, rather than the subprime meltdown of faked homeownership, is the destruction of the American Dream.

A roomful of Professor Moriartys could not have conceived a more diabolical scheme to destroy, morally and materially, the United States.

Takuan Seiyo [Email him] is a multiethnic and multilingual Euro-American immigrant, writer and former international media executive. A happy and highly contributive Californian for decades, TS left as a demographic, political and fiscal refugee. He is now content to live in Japan, a country that does not actively pursue its own extinction, where he is an oft-fingerprinted and respectfully discriminated-against minority. An earlier, shorter version of this essay appeared in print in the Quarterly Review,  March 2008.

Sailer’s Next Big Idea: Immigration Brings “Diversity Deduction”—Not A “Diversity Dividend”

By Steve Sailer

At least since September, I’ve been pounding the table in VDARE.com about the most overlooked cause of the Crash of 2008: President Bush’s 2002-2004 crusade to raise minority homeownership by 5.5 million households through easy credit (for example, eliminating down payments) in order to bribe minorities into becoming Republican-voting homeowners.

Needless to say, our ruling class hasn’t much paid attention to me. Republicans didn’t want to hear about Bush messing up again. Democrats didn’t want to think about the role “diversity” played in the disaster.

The causal connection, though, is so obvious that the establishment press is starting to echo my analysis.

For example, the long New York Times article White House Philosophy Stoked Mortgage Bonfire [by Jo Becker, Sheryl Gay Stolberg, and Stephen Labaton, December 21, 2008 appears to have been drawn in part from my VDARE.com columns, such as my September 28, 2008 essay Karl Rove—Architect of the Minority Mortgage Meltdown.

And on Sunday, the Washington Post pointed out in Karl Vick’s Silver Lining of Subprime Slips Away in Calif. Suburb [December 28, 2008] about a Central Valley town that blacks flocked to from violent Oakland:

“And if Stockton [CA] today is the foreclosure capital of the nation—as several surveys show it to be—it also showcases a little-known upside of the ‘subprime crisis’: the elevation nationwide of hundreds of thousands of African Americans into homeownership.”

Vick goes on to quote a black activist:

“For every $1 of net worth in a household headed by a white person, a household headed by a minority has 13 cents. Earlier this decade it was 6 cents … It is all because of homeownership that we’ve at least moved up to 13 cents.”

Sadly, not for long.

Additionally, in Saturday’s New York Times, Peter S. Goodman and Gretchen Morgenson profile one of the most egregious subprime lenders, Washington Mutual ["WaMu"]. (By Saying Yes, WaMu Built Empire on Shaky Loans, December 27, 2008). Their anecdotes about “stated income” mortgage fraud give a sense of the ethnic angle:

“Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer. Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved. …

“On one loan application in 2005, a borrower identified himself as a gardener and listed his monthly income at $12,000, Ms. Zaback recalled. She could not verify his business license, so she took the file to her boss, Mr. Parsons. He used the mariachi singer as inspiration: a photo of the borrower’s truck emblazoned with the name of his landscaping business went into the file. Approved.”

In short, my Big Idea—that there’s been a Minority Mortgage Meltdown, precipitating a Diversity Recession—is now well on its way from scurrilous, racist calumny to part of the Mainstream Media’s [MSM] Conventional Wisdom [CW].

Isn’t it great that Pulitzer Prizes can now be awarded to webzine writers?

So now let me suggest another even less welcome Big Idea for the rest of the media to get around to in the next several months:

• The Crash is, at a fundamental level, a readjustment to demographic change. America’s immigration-driven shifting ethnic balance means that the average human capital of U.S. residents is now lower than was assumed.

The Crash is telling us that this readjustment can no longer be papered over or postponed.

There are three kinds of financial crashes—in order of severity:

1. A liquidity crisis, in which lending drops because lenders worry that some people and institutions are too broke to repay.
2. A solvency crisis, in which lending drops because lenders know that many people and institutions are too broke to repay.
3. A wealth crisis, in which lending drops because nobody is as wealthy as they had thought they were.

Unfortunately, we appear to be at Level Three. Much of the wealth we thought we had two years ago didn’t really exist.

Why not?

One reason is that there was supposed to be what we should call an immigration-driven “Diversity Dividend”. But of course it turned out to be politically-correct hot air.

Notice that a large majority of defaulted mortgage dollars are in just four states: California, Nevada, Arizona, and Florida. Each has a long history of massive Hispanic immigration.

Now if you assume, as you are constantly assured, that every ethnic group is equal in productive capacity per capita, a huge influx from south of the border would have to make land prices go up.

So, naturally, the Housing Bubble would be concentrated in the four Hispanic-impacted states.

Essentially, the Bubble was a speculative bet that Hispanicization of the population was “good for the economy.“

If you had been lectured for your entire life on the virtues of multiculturalism, as most young Wall Streeters have been, that assumption made perfect sense. Or, to be precise, its converse—that diversity is not strength but weakness—is nowadays literally almost unthinkable to well-socialized younger people.

California’s strength was its diversity, right? So, of course, Californians could pay off all those half million dollar with zero down payment mortgages. They’re diverse!

But in fact, as we’ve since seen, there is no “Diversity Dividend”. The law of financial gravity wasn’t suspended in California.

The real—and quite frightening—question: is there a “Diversity Deduction”?

There’s no doubt that, say, Mexicans tend to be more economically productive in America than in Mexico, due to the superiority of American institutions and American managers. But how much more productive?

The conventional wisdom in America is that the simple act of immigration makes immigrants equally, if not more, productive, than the average American. When you point out that there’s no statistical evidence for this widespread belief, then you are told that their children will no doubt rise up to complete equality. When you point out that Latino sociologists have studied this question out to the fourth and fifth generations after immigration and concluded that convergence just doesn’t eventuate—well, typically the conversation ends.

From 1970 to 2007, the minority share of the U.S. population doubled, from 17 percent to 34 percent. The Census Bureau predicts that minorities will exceed 50 percent by 2042—only a third of a century from now.

Hispanics and blacks tend to average somewhere around two-thirds of the income of non-Hispanic whites. That suggests that the increase in minority share of the population over the last 37 years lowered the national income by about five percent, compared to what it would have been if the increase had been in proportion to the U.S. racial balance in 1970.

However, the disparity in net worth between whites and non-Asian minorities (NAMs) is much greater than the income gap, running about an order of magnitude.

This suggests that the per capita wealth shortfall caused by demographic change is more like 15 percent.

And, it’s only going to get worse—unless immigration policy is changed.

Now.

With the Immigration Act of 1965, which unleashed mass immigration again after a forty-year pause, our ruling class in effect decided that the U.S. would not evolve into a Switzerland, but instead into a Brazil.

This doesn’t just mean intensified racial division and social stratification—a land of gated communities and favelas.  It also means systematically poorer economic performance.

[Steve Sailer (email him) is movie critic for The American Conservative. His website www.iSteve.blogspot.com features his daily blog. His new book, AMERICA’S HALF-BLOOD PRINCE: BARACK OBAMA’S "STORY OF RACE AND INHERITANCE", is available here.]

Is Neil Cavuto racist?

The Left is accusing Neil Cavuto of racism for asserting that “pushing for more minority lending” contributed to the mortgage meltdown. Here’s the clip from Sept. 18:

Isaiah Poole at Firedoglake:

The assertion that a $700 billion Wall Street bailout became necessary, even in part, because financial institutions were catering to black people is deeply offensive and profoundly false. Yet it is not just the blather of an insensitive, right-wing cable talk host. It is part of a systematic campaign on the part of the right and the financial services industry to get out from under one of the few laws on the books that addresses discrimination in lending.

Look, there is no question at all — none whatsoever — that the current crisis was caused by subprime lending. What is “subprime lending”? Loans to people rated as higher credit risks. (People with good credit are rated “prime,” thus “subprime” to denote loans to riskier clients.)

The 1977 Community Reinvestment Act, whose purpose was to abolish “redlining” and thereby to make credit more available to minorities, was hijacked by the Clinton administration, which pressured banks to increase their share of loans to minorities without regard to credit risk. That is to say, the feds didn’t care what the default rates were, so long as the banks were making more loans to minorities. Economist Jim Haughey wrote in February:

To generate more mortgage paper and hence more commissions, mortgage brokers and banks progressively lowered underwriting standards with the tacit approval of CRA auditors and community groups. This spawned no downpayment and no income documentation loans. It was sufficient that an applicant with a poor credit record and income too low or too insecure was taking a credit counseling course.

Stephen Schwarzman explained last week how the policy that began under Clinton actually expanded under the Bush administration:

It started with Congress encouraging lending to lower-income people. You went from subprime loans being 2% of total loans in 2002 to 30% of total loans in 2006. That kind of enormous increase swept into the net people who shouldn’t have been borrowing.

This is not some recent, radical, racist accusation. This has been explained by Investors Business Daily. As early as 2000, Howard Husock warned about the potential problems in City Journal.

Contrary to Isaiah Poole’s assertion that this was entirely about “financial institutions catering to black people,” in fact many areas with the highest mortage default rates are in areas with large Hispanic populations.

Why does this matter? Why even discuss it? Because the Left wants to blame the crisis on greedy capitalists and evil Republicans, and to ensure the continuation of the same policies that caused the this crisis. But the lending market can’t recover if lenders aren’t required to judge credit-worthiness by neutral, objective financial standards. It was the abandonment of those standards due to CRA that is at the root of this problem, and accusing Neil Cavuto of racism won’t solve the problem.

UPDATE: Guess the Left can go ahead and add House Minority Leader John Boehner to their list of racists:

[T]he American people are taking note of a left-wing giveaway Democrats are pushing to force taxpayers to bankroll a slush fund for a discredited ally of the Democratic Party. . . . Democrats want to first reward their radical allies at ACORN for their help – often illegal help – in getting Democrats elected to office.

If you oppose giving money to ACORN so they can commit more vote fraud for Democrats, you’re a racist.

UPDATE II: Let me address an argument by our friendly liberal commenter Young 4-Eyes, who says that Cavuto has branded all minorities high credit risks. Cavuto is a TV host, trying to address in abbreviated form what is admittedly a complex problem.

People with good credit ratings didn’t need any special programs or policies to qualify for home loans, and these people — whether white, black, Hispanic, Asian or whatever — were not subprime borrowers targeted by the CRA-on-steroids policies aimed at increasing minority homeownership.

Homeowners who continue to make their mortgage payments are not the problem, whatever their ethnicity. But in an eagerness increase minority homeownership, federal policies encouraged or allowed lending institutions to overlook bad credit ratings of minority mortgage applicants, creating a distinct class of minority homeowners whose subprime mortgages went into default. Since they were supposedly backed by the quasi-government agencies Freddie Mac and Fannie Mae, these bad mortgages were re-sold to financial institutions as AAA-rated securities.

For Cavuto to shorthand this is natural to the TV medium, which is not suited for complex essays. But no one is asserting, or could assert, that all minority borrowers are bad credit risks. What is asserted is that federal policy promoted lending to minorities (and whites, for that matter) with bad credit histories, and that the predictable default of these loans is at the root of the current crisis.

PREVIOUSLY:
9/26: Arnold Kling on the bailout
9/26: Ace going soft on Paulson plan?
9/26: ACORN bailout?
9/26: What caused the crisis?
9/26: No bailout, no debate?
9/25: Porking up the bailout bill
9/18: How Clinton caused the current crisis
9/17: Feeling the pain he helped cause
9/16: Jamie Gorelick & Fannie Mae

---

Possibly related posts: (automatically generated)

• 1. The Tree of Liberty is in need of Nourishment
• 4. Massive civil unrest and a NEW American Revolution
• New movement for American secessionist is Growing!!!
• The Freshman Experience: Undeclared and Unsure