In the chaos that followed, far too many people forgot about the sub-prime loans which were a major driving force behind the recent global economic collapse. Financial markets are one of the many areas of life which are cloaked in a complex set of terms and buzzwords that keep most of us from understanding what the hell’s going on. Foucault would call it a “discourse”, and wasn’t shy about arguing that keeping “ordinary” people out was a primary motivation of them.
What does it mean in real-world terms when sub-prime mortgages collapse? Sub-prime mortgages were targeted at the poorest sectors of society – in America, this meant mainly black people. They allowed many people who couldn’t qualify for regular mortgages to buy homes. The catch was that after a few years, the rates went way up. And thus, a few years after this trend exploded, so did numbers of people who couldn’t make payments.
How did racism play into this? Redlining is a process which has been known for decades in which banks refuse to lend to people in predominantly poor (especially black) neighbourhoods. Even if they can afford to pay the mortgage back. So while the parents and grandparents of white folk like me were buying homes and building equity, others were stuck paying rent.
Flash forward to this last decade. “Predatory lending” is so common and so sleazy that spam from companies seeking to “consolidate our credit” often outnumbers spam advertizing penis enlargements or “herbal viagra”. As many banks still refuse to offer mortgages on normal terms to ghettos, the predatory lenders sweep in with these “sub-prime” loans. And while Wall Street bankers don’t like to admit it, they know how this all works. They knew many financially stable black families would be forced into these loans, and they hoped that they would be enough to keep the whole thing stable. On this they bet a few trillion dollars. Sadly, while these families could have afforded conventional mortgages, many could not afford the high rates that kicked in later with the loan sharks, and a wave of forclosures followed which concentrated, of course, in black communities. And those who bet our entire world’s economy (and lost their shirts) on this racist pyramid scheme were rewarded with trillions in “bailout” money. Black communities are still largely stuck with Army Recruiters and prisons.
Hereis a talk from MIT (~1 hour) on this very subject, and their frankness is telling. Professional economists and academics talk in very real terms every day about subjects which would be labelled “socialist conspiracy theories” in the media. See for yourself.