The Widdershins

Archive for January 29th, 2015

Hope your Thursday is a good one. While perhaps not Seinfeld sponge worthy, this factoid might be bookmark worthy. If your life is like mine, it is punctuated with well-meaning conservatives who suffer from the intellectual malnourishment of Fox — a cable news induced scurvy of the mind. Granted, this fact won’t save them from knowing what they don’t know or even caring about not knowing it, but from here on you can take comfort in knowing they have been exposed to the contagion of truth on the subject.Myth versus Reality

From day one of the financial crisis, the media, particularly the conservative media, has singled out poor people as the culprits behind the 2008 collapse of the financial sector. The “poors” were called lots of things during these scapegoating reports — deadbeats, scofflaws, takers not makers, slugabeds, moochers, and the effervescently Reaganesque “strapping young bucks and welfare queens“. All dog whistles. All insulting. All hateful. And all categorically and unequivocally wrong.

The poors did not cause the financial crisis. The vast majority of mortgages in default were directly attributable to borrowers in the middle and top of the income scale.

I’ve harped on this fact previously in this space. In the book, All the Devils Are Here, by Bethany McLean and Joe Nocera, the takeaway fact was this: Eighty percent of the mortgage defaults were refinanced mortgages and of the remaining 20%, 80% of those were defaults on second home (not first homes, second home) mortgages. While a bit convoluted, what this means is the defaulting homeowners had previously secured long-term financing as good credit risks before the boiler rooms of predatory lenders ever came a’cold-calling. These people were educated, experienced borrowers and most certainly, they were not the poors.

Courtesy of a new study, we now have a simple one graph picture depicting the absolution of the poors. Here it is:

Chart on Mortgage Default


This chart is broken down into 20% quartiles. What it demonstrates is simple: From 2002 through 2006, the percentage of defaults were increasingly among the top three income quartiles while correspondingly, the percentage of defaults among the poorest dramatically declined.

In 2006, 76% of all defaults were among the top three quartiles — meaning three-quarters of all defaults were among the middle to highest income groups with a full 58% of those coming from the top income distribution.

Of course, rich people tend to take out larger mortgages especially if they are financing both a primary and secondary home. What is significant and has remained woefully explained and inadequately reported is this: The amount of money poor borrowers failed to pay back was never that significant, but they were resoundingly blamed for the crisis. That is a lie.

When you break away from the motivated reasoning represented in this prejudicial thinking it makes perfectly logical Myth Debunkedsense. It is just like the reason bank robbers rob banks — that is where the money is. The depths of the financial crisis were not predicated on loans for small row houses or one-bedroom condominiums, but on overvalued McMansions in gated communities where the residents had the keys to a second vacation home.

As the issue heats up around the modest federal efforts to make housing more affordable for low-income borrowers by loosening credit standards, this information will come in handy. Political opportunists will again undoubtedly sharpen their knives for the poors. They will be lying. For anyone who mistakenly falls prey to their lies, you now have the ammunition to prove otherwise.

Feel free to take the discussion in any direction you desire.

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