Racial Exclusion and the Political Economy of the Subprime Crisis

Abstract

Th is paper develops a political economic explanation of the 2007-9 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgagemarkets. Until the early 1990s, racial minorities were systematically excluded from mortgagefi nance due to bank-redlining and discrimination. But, then, racial exclusion in credit-markets was transformed: racial minorities were increasingly given access to housing-credit under terms far more adverse than were off ered to non-minority borrowers. Th is paper shows that the emergence of the subprime loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macro-economy. Th us, subprime lending emerged from a combination of the long US history of racial exclusion in credit-markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation-process, these loans increased the depth of the fi nancial expropriation of the working class by fi nancial capital. Th e crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under-collateralised basis -that is, when housing-loans became not just extortionary but speculative.

The Age of Microfinance: Destroying Latin American Economies from the Bottom Up

“…The Compartamos scandal raised above, and other similar unethical episodes in Mexico, and also in Bolivia, Nicaragua and elsewhere in Latin America, strongly suggest that the microfinance model has become a personal enrichment vehicle of the very first order. My final point would therefore be to argue that the 'age of microfinance' can now be much better described as Latin America's own sub-prime financial episode, an episode that, very much as per the original US-based version (see Dymski 2009), has materially benefitted a tiny elite working within and around the microfinance sector whilst simultaneously destroying many of the most important pillars of the local economy and society. This is probably not what the pioneers of microfinance had in mind back in the 1970s when they came to work in Latin America, but it is what appears to have transpired nonetheless.…”

Everyday Leverage, or Leveraging the Everyday

“…This was a major shift away from the classic originate-to-hold model of bank lending, in which banks held loans on their books until maturity and were thus also exposed to significant default and liquidity risks. This new, originate-to-distribute model separated loan making from risk taking and facilitated a massive expansion of the provision of credit (Dymski 2009). Under the auspices of President Johnson's Great Society programs, the mortgage-backed security was originally designed to generate much needed capital that could be used to fund housing programmes so as to 'solve' the housing crisis and in turn quell the riots and unrest in America's cities.…”

“…Until the early 1970s women and racial minorities had been systematically excluded from mortgage finance and consumer credit, not only due to general prejudice and discrimination but also through specific techniques such as bank redlining and the underwriting guidelines employed by the Federal Housing Administration (FHA) (Dymski 2009, Dymski et al 2013. Like the practices of most banking and financial institutions, the New Deal housing programmes associated with the FHA were structured by racial covenants which discriminated against minority areas and essentially defined suburban home ownership as synonymous with the white middle class.…”

A economia política do consumo e do crédito às famílias: Um contributo interdisciplinar

“…Estendeu -se assim a concessão de crédito, nomeadamente o hipotecário, a setores até então excluídos e que não ofereciam garantias de cumprimento. Constitui -se, deste modo, um segmento muito lucrativo, dado que se praticavam as mais altas taxas de juro e se obtinham ganhos extraordinários com as penalizações do incumprimento (Dymski, 2009). No momento em que os preços das casas começaram a descer e a taxa de juro a aumentar deu -se o incumprimento em larga escala, visto que o valor dos imóveis não chegava para cobrir os encargos da dívida.…”