The only possible value of Christopher Caldwell’s self-immolating attempt to define Obama’s legacy is the compendium of particularly witless winger talking points it offers to future historians. One of these silly arguments was an assertion that the basis of the depression was “a multitrillion-dollar real-estate debauch that Clinton’s and Bush’s [no Barney Frank? — ed.] affordable-housing mandates had set in motion.” Does this assertion have any empirical basis? The answer will continue not to surprise you:
This theory has never had much empirical support behind it (just the opposite, really). But a new paper by Duke’s Manuel Adelino, MIT’s Antoinette Schoar, and Dartmouth’s Felipe Severino shreds it.
The study looks at who was actually taking out mortgages in the run-up to the crisis, and who defaulted once it hit. Their conclusion? The poor didn’t, in fact, start taking out more and bigger mortgages than everybody else. Borrowing rose, sure, but it rose for everybody. We all bought into the idea that housing prices would keep going up, and that faith doomed us — not loans made to the poor.
As the first chart indicated, there wasn’t a lot of change in which income groups were getting mortgages from 2002 to 2006. But this chart shows that the dollar value of delinquencies for 2005-2006 mortgages was concentrated more heavily than ever among the richest borrowers. “Of course,” the authors write, “the total dollar value of mortgages that are delinquent went up dramatically for mortgages originated in 2006 relative to those originated in 2002, but clearly this is not driven primarily by low income borrowers.”
Scapegoating the poor for the financial crisis was always a stretch. But especially given the data here, it’s long past time we put that dubious theory to bed.
But, in fairness, I’m pretty sure it was poor homeowners that ordered financial institutions to sell worthless mortgage securities while representing them as low-risk investments.