October 10, 2008

How a Young Chicago Litigator Helped Create the Subprime Housing Crisis(bumped)

Barack H. Obama is running around telling everyone that the housing mortgage market collapsed primarily because of some vaguely described "deregulation" that took place sometime under George Bush--or maybe under Clinton; I'm not clear on that. I'm not sure he is.

Whatever his claim is, it's a lie.

The reality is that the housing market collapsed in large part because a coalition of race-baiting bullies brought very heavy pressure to bear on the banks to make more subprime loans on properties in low-income communities. Those who didn't approve the risky subprime loans were accused of "redlining"--i.e., refusing to make loans on properties in those neighborhoods.

Who were these bullies?

Some of the bullies were out in Washington pounding the tables and screaming at bank executives about "redlining".

At the same time, other bullies were stalking big city courthouses, filing frivolous and extortinate lawsuits against banks based on novel "disparate impact" theories of what might be held to constitute "redlining." In other words, even banks which were making lots of loans in low-income communities were being sued if they weren't approving just as many loans in low-income communities as they were in high-income communities.

Who were these mortgage extortionists?

These guys, to name a few:


Yes, that "Barack H. Obama."


Here's what they were suing about:


OK, fair enough. Poor folks shouldn't be automatically denied loans, right?


But here's the thing: according to Obama's legal team, FIFTY-EIGHT PERCENT of a certain class of loan applicants living in 80%+ minority neighborhoods were approved for a loan. Far from being automatically denied, most of these applicants were approved. Also according to Obama's team, EIGHTY-ONE PERCENT of similar loan applicants living in 90%+ "white" (defined as European and Asian) neighborhoods were approved--and this is the source of the theory of harm put forth by the legal team.


Under the theory put forward, it wasn't enough, apparently, that most of the identified mortgage applicants in the minority neighborhoods were approved. The theory demanded parity in the statistics, despite the fact that properties in very different neighborhoods necessarily present very different risk situations. In other words, the lawyers sued Citibank because Citibank was, on balance, somewhat more likely to approve a loan for a property in a predominantly white neighborhood than on one in a predominantly black neighborhood. Given that predominantly black neighborhoods tend to be low-income neighborhoods characterized by low property values, was this phenomenon evidence of evil racism or just reasonable risk avoidance? I'll leave that to your judgment.

Ultimately, Citibank settled with Obama's firm rather than incur the expense of a protracted litigation. I haven't been able to locate a copy of the settlement agreement (it's likely sealed), but we can surmise as to what hoops it required Citibank to jump through going forward. The net result of this sort of litigation was, of course, that banks like Citibank started approving more subprime loans in the 1990s in order to avoid frivolous litigation brought by activists like Barack H. Obama.

The ultimate result of Obama's litigation and the banks' "litigation-avoidance" behavior is now reflected in your declining stock portfolio.

And no, you probably won't hear much about this in the mainstream media.

By Ragnar Danneskjold, Typical Bitter Gun-Clinger at 11:37 AM | Comments |