Karl Rove—Architect Of The Minority Mortgage Meltdown


Whose fault is it?

Last week, the mainstream conservative
punditry finally picked up an idea I had first put forward
in

August 2007
(and

developed
with more detail

last June
): that an underestimated factor in the financial
crisis set off by the mortgage meltdown is our reigning
ideology of multiculturalism and diversity.

In other words, this is a
minority mortgage meltdown—and it may trigger a
Diversity
Recession.

Unfortunately, not having studied the
question as long as I had, some of the conservative talking
heads tended to put forward naïve, self-serving, or
unpersuasive versions of this theory—such as that the

banking crash
wasn`t the fault of

greed
in the

financial industry,
it was the result of the Democrats
in Congress passing the anti-redlining
Community
Reinvestment Act
in 1977.

The reality is that blame is very widely
shared: among

Democrats and Republicans
, businesspeople and
politicians, Congress and the Executive Branch,

borrowers
and

lenders
, and whites, blacks and Hispanics.

There`s one man, however, who has so far
escaped any blame. Few have realized something that turns
out to have been staring us in the face all along: that the
mortgage mess was, in sizable measure, an outgrowth of the
primary political goal
of the Bush Administration.

That man`s name is
Karl
Rove
.

And the primary political goal of
President George W. Bush`s political strategist: to bring
Hispanics
into the Republican Party
.

As you`ll recall, Rove`s best-known tactic
to appeal to Latino voters was repeatedly pushing
"comprehensive
immigration reform"
(i.e., an
amnesty
for illegal immigrants).

Rove,
though, had other arrows in his quiver. One was a plan to
turn Hispanics into Republicans by providing them with loose
credit so they could become homeowners.

(Rove`s belief that there`s a connection
between being able to afford a home and voting Republican is
not totally irrational. As I`ve

documented
, since 2004 states with higher degrees of
"affordable
family formation
"
do vote Republican more than
states where people can less afford to buy houses. That`s
why the Republican "Red States" tend to be inland, where
land for
housing is abundant and cheap,
while Democratic
"Blue States"
tend to be expensive because oceans or
Great Lakes
restrict suburban expansion.)

As part
of this plan, George W. Bush made several speeches rallying
enthusiasm for his w:st="on">October 15, 2002

White House Conference on Increasing Minority Homeownership
.
For instance, there was his classic Bushian effort on

June 18, 2002
:

"The
goal is, everybody who wants to own a home has got a shot at
doing so. The problem is we have what we call a
homeownership gap in w:st="on">America.
Three-quarters of
Anglos
own their homes, and yet less than 50 percent of

African Americans
and

Hispanics
own homes. … So I`ve set this goal for the
country. We want 5.5 million more homeowners by 2010—million
more minority homeowners by 2010. (Applause.) … "

The five and a half million marginal
minority homeowners that Bush bunglingly called for is a
big number. At a
mortgage of, say, $127,000 each, that would add up to, let
me check my

calculator
, oh…

$700 billion—the size of the

current bailout
. Well, whaddaya know …

Bush
rattled on:

"I`m
going to do my part by setting the goal, by reminding people
of the goal, by heralding the goal, and by

calling people into action
, both the federal level,
state level, local level, and in the private sector.
(Applause.) …

“And
so what are the barriers that we can deal with here in w:st="on">Washington?"

Well,
there`s one obvious barrier to minority homeownership: many
American minorities don`t earn enough money to be able to
afford their own home.

You might think, therefore, that the way
to help minorities make higher wages would be to alleviate

competition for their jobs
by cracking down on legal and
illegal immigration. Especially because illegal immigration
is, well, illegal. And that`s what the Chief Executive gets
paid to do—enforce
laws.

Nevertheless, Bush and Rove apparently
hoped that amnestying illegal immigrants would

win over Hispanic citizens
, so they did almost nothing
about illegal immigration (other than trying to legalize it,
of course) until an outraged public forced their hands in
the last couple of years.

Bush and Rove didn`t have a plan for
helping minorities
earn
more. Instead, they had a plan for helping
minorities borrow
more.

Bush
went on in his June 18th speech:

"Well, probably the
single barrier to first-time homeownership is high down
payments. "

Uh-oh.

Traditional standards requiring
"high down payments" existed for, as we see now,

very good reasons
. Being able to pony up 20 percent, or
even just 10 percent, was cold, hard evidence of borrowers`
credit-worthiness. It showed you hadn`t spent every penny
you ever earned. And a big down payment meant you instantly
had substantial

skin in the game
. That you had paid out tens of
thousands of dollars meant you were likely to do whatever it
took to avoid losing your house by failing to pay off the
loan.

To Bush
and Rove, however, old-fashioned down payments were just
keeping minorities from their fair share of the American
Dream. Bush burbled on:

"People take a look
at the down payment, they say that`s too high, I`m not
buying. They may have the desire to buy, but they don`t have
the wherewithal to handle the down payment. We can deal with
that. And so I`ve asked Congress to fully fund an American
Dream down payment fund which will help a low-income family
to qualify to buy, to buy. (Applause.)

We believe when this
fund is fully funded and properly administered, which it
will be under the Bush administration, that over 40,000
families a year—40,000 families a year—will be able to
realize the dream we want them to be able to realize, and
that`s owning their own home. (Applause.)"

If you do the

arithmetic
, you`ll see that Bush`s silly little American
Dream slush fund for subsidizing 40,000 families per year
would take, not the eight years Bush promised to add
5,500,000 minority households to the ranks of homeowners,
but 137.5 years. But, obviously, subsidizing all 5.5 million
new minority homeowners out of the taxpayers` money would be
so insanely expensive that

white voters
would rebel.

No, it had to be done on the sly, through
the magic of

fractional reserve banking
, which, as the Federal
Reserve notes, "permits the banking system to `create` money." By taking more
risks, by handing out more mortgages to likely

deadbeats
, the financial system could simply
"create" the cost
of 5.5 million homes for minorities.

CNN
reported after Bush`s June 17 speech at the

St. Paul African Methodist Episcopal Church in Atlanta
:

"Fannie Mae, Freddie
Mac and the federal Home Loan Banks—the government-sponsored
corporations that handle home mortgages—will increase their
commitment to minority markets by more than $440 billion,
Bush said."

(Thomas
Allen

wrote a must-read

article
on Fannie Mae`s push for more—and more dubious—lending
to immigrants
way back in 2004.)

In
December 2003, when signing the American Dream Downpayment
Act, Bush

bragged
:


"Last year I set a goal to add 5.5 million new minority
homeowners in America by the end of the decade. That is an
attainable goal; that is an essential goal. And we`re making
progress toward that goal. In the past 18 months, more than
1 million

minority families
have become homeowners. (Applause.)
And there`s more that we can do to achieve the goal. The law
I sign today will help us build on this progress in a very
practical way."

What was
truly significant about Bush`s 2002 speeches (including the

doozy
he delivered on October 15, 2002 at his White
House conference, which you should read for the


schadenfreude

alone) was not the legislation he endorsed—but the
unsubtle message he was sending to lenders and, most
importantly, to his own employees, the

federal regulators
.

Bush made clear at his

October 15, 2002 conference
that he opposed not merely
discriminating against borrowers who
might turn out to
be bad credit risks—he wanted more money to go to


documented

bad credit risks. He brayed:


"Freddie Mac recently began 25 initiatives around the
country to dismantle barriers and create greater
opportunities for homeownership. One of the programs is
designed to help deserving families who have bad credit
histories to qualify for homeownership loans."

Let`s
put Bush`s influence in perspective. I`m not saying that
financial institutions would intentionally make hundreds of
billions of dollars worth of bad loans just on the
President`s say-so. But what I am saying is that federal
employees, such as financial regulators, do listen closely
to what the Chief Executive says about what he wants done
regarding those iffy loans.

Let`s
review: As long as the federal government ends up bailing
out lenders, financial regulation is a necessity.

Lenders
like to lend. That`s what they do. That, typically, is for
what they get paid bonuses.

Overly exuberant lending, unfortunately,
leads to financial crises. And taxpayers and savers always
seem to wind up paying to resolve them, either through
formal programs like the

Federal Deposit Insurance Corporation,
or through ad hoc
bailouts (of which we`ve seen so many in 2008).

Thus,
since the government is on the hook for excessive lending,
the government regulates lending.

The job of these federal regulators is to
"take away the
punchbowl just as the party gets going,"
as former Fed
Chairman

William McChesney Martin
said long ago.

In his many speeches on

minority housing,
however, President Bush was telling
his underlings to keep their hands off the punchbowl. Heck,
maybe the regulators should add another bottle of

Everclear
just to be hospitable.

And if
private lenders started worrying that giving mortgages to
dubious credit risks could backfire on them, Bush`s speeches
could be read as hinting that his Administration would try
to help them out, to the tune of, say, $700 billion.

Bush
summed up:

"And
part of the cornerstone of America is the ability for
somebody, regardless
of where they`re from, regardless of where they were born
,
to say, this is my home; I own this home, it is my piece of
property, it is my part of the American experience. "

My
emphases. In other words, under the Bush Administration, the
American Dream isn`t just for Americans. For instance, at
his White House Conference on Increasing Minority
Homeownership, Bush

orated
:

"I
appreciate so very much the home owners who are with us
today, the Arias family, newly arrived from
Peru
. They live in
Baltimore
. Thanks to the

Association of Real Estate Brokers
, the help of some
good folks in w:st="on">Baltimore, they figured out how to purchase
their own home. Imagine to be coming to our country without
a home, with a simple dream. And now they`re on stage here
at this conference being one of the new home owners in the
greatest land on the face of the Earth. I appreciate the
Arias family coming. (Applause.) "

This

orchestrated push for more minority homeownership
wasn`t
some random caprice of the President. It was part of the
master plan of his political Svengali, Karl Rove. As Rove

told every reporter who would listen
in 2000 and 2001,
Bush was supposed to be the new William McKinley, whose 1896
campaign manager
Mark Hanna
had figured out how to build a Republican coalition
combining the business interests with (some)
new immigrants to make the Republicans dominant until the
Great Depression.

In 1999,
the Washington Post
reported on the

McKinley Mania
launched by Rove in


Republicans Admire Bill … McKinley, That Is
:

"Marshall Wittmann
of the conservative Heritage Foundation explains: `1896 was
the year that McKinley and Hanna tried to redefine the
Republican Party. Instead of rehashing Reconstruction and
the Civil War, McKinley offered an appealing image to new
immigrants, rising entrepreneurs and working folks.

“`The theory of the
Bush campaign,` Wittmann continues, `with the slogan of
`compassionate conservatism,` is to similarly expand the
base of the Republican Party, specifically by appealing to
minorities and more centrist voters.`"

In 2001,
for example, Rove told reporter

Ralph Z. Hallow
of the
Washington

Times:

"If
you`re a Mexican-American … if Mel Martinez comes to town
and talks about his life story and this administration`s
policies to encourage homeownership, and you hear Bush
talking a tax cut, education and leaving no child behind,
and he`s seen with
Fox, and
the first place he goes when in Europe is
Spain—you
say, `Hey, Bush gets it. Our

community
is important to this guy.`"

Before
the 2004 election,
Rove
boasted
:

"[T]here
are more people owning homes—particularly in the Hispanic
and African-American communities—than ever before. This is a
result of wise policies instituted at just the right time."

At the height of the housing bubble, on
Mayday 2007, the day of planned pro-amnesty marches, Rove`s
protégé,

Ken Mehlman
, the
campaign
manager
(under Rove`s guidance) of Bush-Cheney 2004,

wrote
of how the GOP was wooing Hispanics:


"There are several steps we can take to ensure that w:st="on">America`s fastest-growing and most
conservative voter bloc joins the GOP. …Home ownership has
always been an important element of the American Dream, and
Hispanic-Americans have made enormous progress thanks to the
hard work of many families and the innovative policies of
the president. Hispanic home ownership is at an all-time
high with 50 percent of Hispanics owning their homes."

And
these increases in minority homeownership due to government
initiatives going back decades were true … temporarily.


But now minority homeownership rates appear to be falling as
foreclosures hit Hispanics and blacks

harder
than


whites and Asians. [Foreclosure
Activity Increases 12 Percent In August
,
RealtyTrac.comSept. 12, 2008]

Foreclosures
appear to be one of the few things in w:st="on">America not
tracked directly by race. But the circumstantial evidence
that blacks and Hispanics account for a disproportionate
share

is agreed upon by all
who have looked into the question
closely.

This map from

RealtyTrac
shows that the foreclosure disaster is
largely regional. There are high
rates
of foreclosure
in states such as Georgia and New Jersey,
but the two main default dumps are the Midwestern Rustbelt
and the heavily Hispanic Sunbelt.

The first regional meltdown is centered in

Detroit
, where the auto industry is perpetually
dwindling. It`s hitting black neighborhoods particularly
hard.

There`s a certain sense of tragic
inevitability to this. In 2006, the


New York Times
did a sad story on the foreclosure on
a single mother of four who had bought a house in the slums
of Cleveland
paying only three percent down:

"Over the years, Ms.
Roberts`s monthly expenses rose because of repairs to a
dilapidated porch and the birth of two grandchildren, but
the $880 a month she takes home after taxes from her job as
a home health aide did not. Ms. Roberts, 35, also receives
$1,100 in Social Security benefits because two of her
younger children have learning disabilities. " [
For
Minorities, Signs of Trouble in Foreclosures
,
By Vikas Bajaj And
Ron Nixon, year="2006" day="22" month="2" w:st="on">February 22, 2006.]

I guess that w:st="on">America losing money on 35-year-old
grandmothers who earn $880 per month is what you might call
the
Slavery Tax
, and we`re just going to have to keep paying
it.

Yet the Rust Belt default catastrophe is
dwarfed by what`s happened in
California
, along with its neighbors
Arizona

and Nevada,
and in Florida.
And this is much more of a self-inflicted wound, occurring
in seemingly prosperous places where immigrants have flooded
in.

The highest foreclosure rate is in w:st="on">Nevada. (“Talk about `moral
hazard!
`"
I can imagine
Nevada

residents scoffing,
“You want your money? Then come get it from me
Las Vegas

Style. If you`re not man enough, Mr. Banker, to dangle me by
my ankles off a hotel balcony, then tough luck."
)