Opinion

Felix Salmon

Downward mobility datapoint of the day

Felix Salmon
Dec 10, 2010 01:02 UTC

If you’re white, and you were raised in the bottom 60% of the income distribution, you have a 22% chance of being in the bottom 20% as an adult.

If you’re black, and you were raised in the bottom 60% of the income distribution, you have a 49% chance of being in the bottom 20% as an adult.

COMMENT

@Danny. Sorry for the delay in responding. Please see http://www.answers.com/topic/single-pare nt-families for some information on single parent families. I have great respect for most mothers who raise their children alone and very little for fathers who abandon them. Education is so important in our post-industrial society. The drop out rate is much higher for children of single parent families. This can’t help but affect how well they do later in life.

Posted by bob33 | Report as abusive

How the subprime crisis hit blacks hardest

Felix Salmon
Oct 4, 2010 14:19 UTC

America’s minorities, it seems, can’t catch a break when it comes to housing. Before the subprime boom, they were much less likely than their white counterparts to be able to get a mortgage. Then, when the subprime boom started, they were much more likely to be sold a predatory mortgage.

A new study by Douglas Massey and Jacob Rugh of Princeton does a great job of quantifying this effect and nailing it down. My colleague Nick Carey has a story about it, but you should read the study yourself: I’ve uploaded it here and embedded it below.

The study is pretty clear. The authors have built a model which explains foreclosure rates, using a large number of variables, including things like overbuilding rates and house-price appreciation as well as demographics including credit scores. And it turns out, after crunching the numbers and doing the regressions, that living in a racially-segregated area is an important predictive factor in terms of how likely you are to experience foreclosure:

Whether measured in terms of residential dissimilarity or spatial isolation, segregation of African Americans is a powerful and highly significant predictor of the number and rate of foreclosures across U.S. metropolitan areas. For instance, a .1 unit increase in black dissimilarity is associated with 37 percent more foreclosure actions and a 34 percent increase in the foreclosure rate.

(“Black dissimilarity,” here, is a measure, ranging from 0 to 1, of how black a neighborhood is compared to the country as a whole.)

To put it another way, an increase of one standard deviation in a neighborhood’s black dissimilarity increases the foreclosure rate by 1.68 percentage points — which is a very large amount, given that the overall foreclosure rate is 4.14%. To put those numbers in perspective, a one-standard-deviation increase in factors like housing starts or house-price appreciation or even unemployment fails to increase the foreclosure rate by even 1 percentage point.

The authors conclude:

By concentrating foreclosures in metropolitan areas with large racial differentials in subprime lending, segregation structured the causes of the crisis, as well as the geographic and social distribution of its costs, on the basis of race. Segregation therefore racialized and intensified the consequences of the American housing bubble.

It’s hard to read this without being reminded of this chart:

det.jpg

Obviously, there’s more going on in Detroit than just racial segregation and discrimination. But it’s surely an exacerbating factor.

10ASR10_629-651_massey (2)

COMMENT

George Bush set and announced many times his determination to get 5.5 million minorities to become home owners. He told people this would be good for America.

On 9/2/04: “As part of the President’s plan to build an ownership society, he has focused on encouraging homeownership, particularly among minorities and low-income families. In 2003, the number of homeowners increased by 1.7 million as the number of renters declined in the United States by over one million families.”

Some details: “American Dream Downpayment Initiative. To help low-income families overcome the hurdle of a downpayment, the President proposed the American Dream Downpayment Initiative in June 2002 and signed the American Dream Downpayment Act into law on December 16, 2003.” …

“America’s Homeownership Challenge. In June 2002, President Bush issued America’s Homeownership Challenge to the real estate and mortgage finance industries – to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities. Due to the President’s leadership, more than 2 dozen companies have made commitments to increase minority homeownership, including pledges to finance more than $1.1 trillion in mortgage purchases for minority homebuyers this decade.”

That was great leadership President Bush. And the salesmanship? Here’s the October 15, 2002 pitch:

“Owning something is freedom, as far as I’m concerned. It’s part of a free society. And ownership of a home helps bring stability to neighborhoods. You own your home in a neighborhood, you have more interest in how your neighborhood feels, looks, whether it’s safe or not. It brings pride to people, it’s a part of an asset-based to society. It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child. It’s a part of — it’s of being a — it’s a part of — an important part of America.”

Bush used his friends, like Rev. Kirbyjon in his Faith Based programs to push this:

“People — low-income people are going to be able to more afford a home in Texas because of Kirbyjon’s vision and work. He’s answered the call of faith to help people help themselves and to help them realize dreams. The other thing Kirbyjon told me, which I really appreciate, is you don’t have to have a lousy home for first-time home buyers. If you put your mind to it, the first-time home buyer, the low-income home buyer can have just as nice a house as anybody else.”

He lays out how He leaned on Fannie and Freddie to make more money available to meet his goal. Then — this next blows my mind:

And, of course, one of the larger obstacles to minority homeownership is financing, is the ability to have their dream financed. Right now, we have a program that all of you are familiar with, maybe our fellow Americans are, and that’s what they call a Section 8 housing program, that provides billions of dollars in vouchers to help low-income Americans with their rent. It encourages leasing. We think it’s important that we use those vouchers, that federal money to help low-income Americans go from being somebody who leases to somebody who owns; that we use the Section 8 program to not only help with down payment, but to help with continuing monthly mortgage payments after they’re into their new home. It is a — it is a way to help us meet this dream of 5.5 million additional families owning their home.

I’m also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own. These are some of the barriers that home owners face, potential home owners face, and this is what we intend to do about it.

This is insane. Section 8 help is for people who can’t even pay low market rent and Bush is shoving them into being home buyers.

These lengthy excerpts are from Bush White House press releases from Oct 15 2002 and 2003 and September 2004. They are in White House Archives. I downloaded them prior to January 2009. I quoted at length because otherwise this would be unbelievable. But there was more, tax credits to builders, money shoveled out for education on how to buy without any standards or oversight, pushing Fannie and Freddie to do more, deregulation, of course, keeping interest rates and tax rates too low. His theme song was “I’m Forever Blowing Bubbles …” He almost got out of office before the bubble burst.

Posted by Sam_Dobermann | Report as abusive

Are foreclosures racist?

Felix Salmon
Jun 18, 2010 15:34 UTC

If you’re a high-income Latino with a mortgage, you’re almost twice as likely to be facing foreclosure than a high-income non-Hispanic white person. And in general, the foreclosure crisis is hitting blacks and Latinos much harder than it is whites, according to a startling new report from the Center for Responsible Lending.

Overall, there have been 790 foreclosures per 10,000 loans to blacks, and 769 for Hispanics — compared to just 452 to non-Hispanic whites. And within every income group, the disparities are startling: here’s the chart.

disparity.tiff

The “Disparity Ratio” here is essentially the likelihood of being foreclosed upon, compared to the likelihood of a similar-income non-Hispanic white being foreclosed on. It’s interesting that the disparity ratio is pretty stable for blacks, but rises sharply with income for Latinos. I’ll hazard a guess and say that this probably has something to do with a lot of middle- and high-income Latinos in California and Arizona being sold subprime mortgages, even when they qualified for a prime loan.

Why would Latinos be more susceptible to being taken advantage of in that way than non-Hispanic whites? Now I’m really speculating, but it stands to reason that financial sophistication is a function not only of your income today but also of your family’s income when you were growing up. If rich Latinos are more likely to come from poor families than rich whites, then that might explain some of the disparity here.

Even so, it’s very depressing to see the results here. Already the median non-Hispanic white family reported $171,200 in net worth versus only $28,300 for non-white and Hispanic families, and this crisis is only making matters worse. The CRL reports:

The indirect losses in wealth that result from foreclosures as a result of depreciation to nearby properties will disproportionately impact communities of color. We estimate that, between 2009 and 2012, $193 billion and $180 billion, respectively, will have been drained from African-American and Latino communities in these indirect “spillover” losses alone.

Those are really big numbers. One might have hoped that blacks and Hispanics might have been less badly hit by the foreclosure crisis simply by dint of their much lower levels of homeownership. But it seems that isn’t the case.

Update: Barry Ritholtz reckons we might be seeing the effects of unemployment here, since unemployment, too, has hit blacks and Hispanics worse than whites. It’s a good point.

COMMENT

The problem is that you can turn down those with poor credit and be called racist or you can offer them credit with a higher interest rate to cover the anticipated losses and be called a racist and then when you have to foreclose on the defaulters you will be called a racist. Those looking for racists will always be able to find them according to their criteria.

Posted by streetsmart | Report as abusive

On Felix

Felix Salmon
Aug 18, 2009 13:44 UTC

As someone who knows a fair amount about Felix the Cat, I can concur with Skip Gates that he is not and was not a caricature of African-Americans. I can also concur with Paul Krugman and James Fallows that it is by no means necessary that Felix be African-American for Niall Ferguson’s FT lede (“President Barack Obama reminds me of Felix the Cat. One of the best-loved cartoon characters of the 1920s, Felix was not only black. He was also very, very lucky”) to be utterly inappropriate and offensive.

Which leaves only one question: What did Ferguson elide, with an ellipsis, in the email from Gates? I can’t imagine that Gates let Ferguson off quite as easily as Ferguson suggests.

COMMENT

the comparison is “about race” whether or not the historical Felix is African-American, because the color term “black” ONLY REFERS TO OBAMA WHEN THAT TERM IS BEING USED IN THE METAPHORICAL LANGUAGE OF RACE.

Casper the Friendly Ghost is literally “white”; Niall Ferguson is not.

Now, if I say that a couple of the earlier commenters remind me of Casper the Disingenuous Ghost…..

Posted by nick | Report as abusive
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