Are Greedy White Men to Blame for the Financial Crisis?

By Ian Jobling •  10/3/08

Last week’s article described the widespread stereotypes that collectively make up the phenomenon that I have labeled “leukophobia,” or fear and loathing of white people. Overall, leukophobia paints whites as the villains of history and non-whites as the victims. Particularly, the conventional wisdom holds that whites are distinguished by their uniquely greedy and power-hungry nature. Leukophobia also has a class component that tars wealthy white elites as the major source of social injustice.

The current financial crisis offers a perfect example of the way in which these stereotypes bias our interpretation of events. Both the mainstream media and the political elites have portrayed the crisis as a result of white greed. Banks are going under and the stock market is plummeting, in this view, because of a conspiracy between the Republican Party and the financial industry, both of which are stereotypically white, to do away with lending standards so that they could profit at the expense of the people. At best this account is simplistic and hackneyed; at worst, it is an inversion of the truth. While the sources of the crisis are complex and puzzling, the greed of minorities and the pressure groups that lobbied for “affirmative action lending” certainly played a substantial, if not a leading, role.

In an column invidiously entitled “When Madmen Reign,” Bob Herbert of the New York Times belts out a particularly crass version of the dominant narrative. The financial crisis was the work of “self-proclaimed conservative, small government, anti-regulation, free-market zealots” who “cut the cords of corporate and financial regulations and in myriad other ways gleefully hacked away at the best interests of the United States.” Similarly, Harold Meyerson of The Washington Post sees “the ideology of unregulated capitalism—of Reaganism” as the source of our current woes and gloats that “Wall Street’s investment banks plainly deserve to die” for reaping large profits while failing to invest in America.

If you think that the dominant narrative has no racial undercurrent, think again. Both Herbert and Meyerson have characterized the Republicans as a white racist party during this campaign season. Herbert, who is notorious for his bizarre rants on race, ludicrously accused a McCain ad of playing on whites’ fears of interracial sex. Meyerson called the GOP convention “shockingly—un-Americanly—white.” Both columnists are plainly appealing to stereotypes about white people.

Moreover, in a series of commercials produced over the last few years, the Washington Mutual bank made it painfully obvious that public perceptions of Wall Street were rooted in stereotypes about white greed. The commercials exposed an entirely white crowd of “out of touch,” “old-fashioned,” and “greedy” bankers to the scorn of “regular folks,” represented by a black hero and other people of color. The ads were of a piece with Washington Mutual’s diversity recruitment and marketing strategy—we’ve seen how that ended.

The Republican leadership has not breathed a word of protest against the leukophobic interpretation of the financial crisis. Indeed, John McCain and Sarah Palin have taken the same line, blaming the debacle exclusively on “self-interest, greed, irresponsibility and corruption” on Wall Street.

However, some commentators, including University of Texas economics professor Stan Liebowitz, John Lott, and Ann Coulter, have had the integrity to protest this routine scapegoating of wealthy white men. They identify government affirmative action lending policies designed to increase home ownership among minorities as one of the sources of the lowered lending standards that precipitated the financial crisis.

Steven Malanga of the Manhattan Institute describes the logic of disintegration particularly well in “The Long Road to Slack Lending Standards.” As part of their eternal quest to expose the hateful bigotry lurking beneath the surface of American society, journalists in the early 1990s became obsessed with racial discrimination by home lenders. The Federal Reserve threw gas on the fire in 1993 by publishing a report that supposedly confirmed the problem existed. The subsequent finding that the report was bogus stopped nobody—when did the media ever let the truth get in the way of a good story about racism?

The Federal Reserve subsequently published a manual that advised—“warned” might be a better word—banks to loosen traditional lending standards if they had disparate impact on minority loan applicants. Credit history, established measures of debt and income, and ability to make a down payment were called “outdated criteria” that discriminated against minorities and might result in lawsuits.

These guidelines were accompanied by an array of other affirmative action lending initiatives. The one most frequently cited is the Community Reinvestment Act, which requires banks to make loans to minority and low-income borrowers and gives community organizations, like the leftist ACORN, the authority to interfere in bank business.

Banks had to adapt to the new rules by ramping up their usage of the risky, subprime loans that are now resulting in foreclosures. Of course, the banks couldn’t just lower the standards for minorities—there had to be a loosening across the board. Defenders of affirmative action lending argue that these policies did not precipitate the crisis because many banks that were not subject to them also made many risky loans. However, as Malanga says,

this defense misses the point. In order to push banks to lend more to minority borrowers, advocates like the Boston Fed put forward an entire new set of lending standards and explained to the industry just why loans based on these slacker standards were somehow safer than the industry previously thought. These justifications became the basis for a whole new set of values (or lack of values), as no-down payment loans and loans to people with poor credit history or to those who were already loaded up with debt became more common throughout the entire industry.

At the same time, Congress mandated that Fannie Mae and Freddie Mac, which purchase mortgages and package them as securities for investors, buy minority mortgages in the interest of promoting home ownership despite their risks. Thus affirmative action not only made subprime loans available in the first place, but also brought them into the investment marketplace. These toxic assets have now placed the whole world financial system in jeopardy.

Interpretations like Malanga’s are marginalized by the powers that be because they do not fit our stereotypes about race. Whereas leukophobia influences people to lay blame on whites, Malanga views minorities and their lobbyists as one of the major causes of the financial crisis. Moreover, he recognizes that it is not merely whites who are greedy: minorities who sought loans they could not afford, and the lobbyists and politicians who catered to them, are greedy too.

This case also holds another lesson. Leukophobia is rarely explicit: blatant invective against any race, even whites, is frowned upon. Therefore, pundits like Herbert and Meyerson never used the word “white” in their criticisms of the financial establishment. Rather, they attacked groups that are stereotypically white, like Republicans, conservatives, and bankers. By looking at broader context—Washington Mutual commercials and the columnists’ other work, in this case—we can tease out leukophobic bias.

Finally, the financial crisis illustrates another major theme of this site: the decay of standards that results from affirmative action. What happened to civil service exams and university grades also happened to home loans. When a society begins granting privileges like public employment, a college education, and home ownership to people who do not qualify for them, it is difficult to justify denying them to everyone else. In the case of home loans, the general lowering of standards caused by affirmative action policies opened the financial system to abuse by irresponsible whites as well as minorities. This is why it is crucial that you lobby your politicians to demand the repeal of affirmative action lending.

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