The New York Times suggests that the problem is the mortgage brokers; immigrants
and African Americans don't trust banks for a variety of reasons. And they did
trust mortgage brokers who were members of their communities, and steered them
to expensive loans that earned fat commissions.
I don't say that this
isn't the problem--I'm sure it's a least some part of it. But there's a problem
with this sort of analysis. There are a number of different metrics that go into
loan quality, and therefore what a buyer should pay for their loan:
Income
Expenses, especially outstanding debt
Credit
score
Assets
Loan-to-value ratio
Most of the studies I've seen
indicating that minorities are steered into pricier loans look at just one, or
at most two, of these factors. But they all matter, particularly the size of the
loan.
This isn't the first time McArdle has brought up this subject; it's at least the third. "It is not plausible to argue that the banks knew the loans would go bad . . . and nonetheless jammed billions of them into their portfolios, McArdle sniffed in December 2007, in response to "Nobel-prize-winning economist Gary Becker"'s assertion. "So far I've seen little evidence that, taking these things into account, banks are discriminating against minority borrowers," she insisted after a New York Times article about loan discrimination in January 2008. And in July 2008 she still didn't see a problem after another blogger discussed a similar credit bias situation.
If the companies were statistically discriminating against African Americans,
giving them worse loan terms than they really qualify for, they should be paying
off those loans at higher rates than whites.
They're not. Most of the aggregate research I've seen fails to reject the null
hypothesis that there is no discrimination in loan markets, which means that if
there is discrimination, it is not catching huge numbers of people who are more
likely than their loan terms would suggest to pay their bills on time. Just to
be clear, we're not talking about research that says that blacks who get a
higher interest rate don't pay off at the same rate as whites who get a lower
one--you can't blame the default rate on the higher interest rate. We're talking
about the fact that minorities do not outperform their own loan class. If loan
companies really were discriminating, issuing sub-prime mortgages and car loans
to credit-worthy minorities should be a license to print money.
What a mess. "Most of the aggregate research." "Reject the null hypothesis." "Sub-prime mortgages to minorities should be a license to print money." "There's a problem with this sort of analysis." "Most of the studies I've seen indicating that minorities are steered into pricier loans look at just one, or at most two, of these factors. But they all matter, particularly the size of the loan." Weasel words, free of fact and analysis. McArdle doesn't refute facts, she hen-pecks at the methods used to gather information. That way she doesn't actually have to prove anything, she just casts enough aspersions on the data to confuse the issue. When source after source after source after source brings up a problem, dismissing it out of hand begins to look like bigotry and callous indifference instead of honest disagreement.
She was corrected then and she might be corrected again, but facts don't matter. In the Free Market Fantasyland in McArdle's head, a company will never do anything short-sighted or underhanded because the Free Market Fairy will punish it. Reality is unimportant--the fantasy must live on.
11 comments:
She gets bonus points at sucking today for stealing that headline from the Onion. Megan, it stopped being funny years ago.
What irks me most isn't the ignorance, ideology or immorality. It's that she gets away with being such a bad writer.
I absolutely agree. There are plenty of writers out there that I disagree with, but at least they are actually competent. Megan's writing is sloppy, pretentious, self-absorbed and just plain awkward. Her jokes aren't funny, she keeps recycling the same crap headlines and turns of phrases and she constantly misuses fifty-cent words in the wrong way. That's not even touching on the awful grammar and spelling.
she constantly misuses fifty-cent words in the wrong way.As opposed to misusing them in the right way?
Malaclypse - good catch. Megan must be rubbing off on me.
The difference is that your error was actually kinda funny...
How perfect! It isn't the Free Market Fairy that she believes in, it's the Greenspanian "morality of markets." She just *believes* that individual actors will never do something that is in their short term interest that in the end produces a diseconomic result in the aggregate.
Put simply, she believe people will never line their own pockets and screw everybody else.
Even Greenspan has admitted he was wrong. Megan is still the spoiled, naive school girl with a Daddy that told her that free markets are the way to go.
She just *believes* that individual actors will never do something that is in their short term interest that in the end produces a diseconomic result in the aggregate.And that belief is the stupidest thing possible.
If a mattress flies off a truck on a freeway, it will cause a traffic jam, which is clearly a bad result. Everybody would be better off if somebody moves the mattress, but there is no individual who has incentive to move it. The only way the mattress gets moves is if a cop does it - which is government intervention.
It's very difficult to understand how people can just ignore anthing that might contradict their pure ideals.
At least she's learned to ease up on her attacks on the poor.
McArdle must be right. We know for a fact that mortgage brokers were doing detailed multi-variant anaylses before providing loans to ensure that there would be a good fit between borrower and lender.
She left out some of the variables though:
Pulse (optional)
Existence of borrower (preferred, not required)
Existence of housing unit (preferred, not required)
Mortgage securitization (absolutely required)
Kickbacks (preferred, from all parties best)
Yes, I can't understand why people would lie and manipulate to grab as much money as possible, maybe enough to set them up for life, if it would hurt their (soon to be former) company.
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