Banks Bomb on Stress Tests for Minority Lending

Earl Ofari Hutchinson

A buoyant Treasury Secretary Timothy Geithner reassured the public that the big 19, that’s the 19 giant banks and financial houses that to hear Geithner tell it the fate of Western capitalism rests on, have passed the Treasury imposed “stress” test with if not flying colors, at least steady drip colors. That wasn’t hard to do. Taxpayers greased the skids of the 19 with more than $50 billion in handouts. And the stress tests were puff ball tests that imposed neither tough nor new government enforced financial requirements or restrictions on the banks.
The debate rages just how much taxpayer cash the banks and financial houses really need, how much more they’ll need, how long they’ll need it, and will the money really ensure permanent solvency. But forgotten in the hubbub over the Geither glossed report is the painful fact that thousands of black and Latino homeowners are still left holding the financial bag for the sub prime mess that taxpayers are forced to bail the banks out of.
Two reports by Fair Finance Watch and the Center for Public Integrity on mortgage lending practices, issued on the eve of the Geithner bank stress test report, revealed that from 2005 to 2007 the 19 bailed out banks and financial houses got into hock to taxpayers to nearly one trillion dollars. They ran up the bulk of the debt through the toxic sub prime loans to mostly minority home buyers. The banks ran up the debt through holding companies, investment houses, financial and real estate subsidiaries and through stock purchases and sales.
The reports also showed that the sub prime loans did little to help revitalize grossly underserved minority communities. In fact Bank of America which holds its cup out for another $ 34 billion taxpayer hand out had one of the lousiest records in lending to minorities. The loans that it did make were far more costly than loans to whites. But B of A was hardly the sole loan bad actor. The top bank welfare recipients raked in tens of billions in profits and taxpayer handouts while engaging in scrooge like lending. When they lent they charged rates that would make loan sharks blush.
Wells Fargo charged African-Americans more than twice as much as whites for home loans. JP Morgan charged African Americans and Latinos more than twice that of whites. Citigroup, US Bancorp and Wachovia charged minorities one and half times more. Blacks and Latinos were more than one and half times more likely than whites to be denied a loan by the top banks that received taxpayer bail out cash. Income had little to do with who the lenders pitched their sub prime loans to. Race and the neighborhoods they lived in were the prime determinants. A HUD study found that upper income blacks were one-and-a-half times as likely to have a sub prime loan as persons that lived in low-income white neighborhoods.

Sub prime lending at times took on elements of loan racketeering; a racket that hurt and still hurts tens of thousands of would be black and Latino homeowners. The lender’s bait and switch tactics, the deliberately garbled contracts, deceptive and faulty lending, questionable accounting practices, and charged hidden fees, all with the connivance of sleepy-eyed see-no-evil oversight of federal regulators, are well known and documented. Their snake oil loan peddling wreaked havoc with thousands of mostly poor, strapped homeowners.
The recent reports on the lending practices of the top banks, though, make clear, that they continued to rake in big profits from the loans, even while padding their bottom line with taxpayer dollars. The banks and holding companies can suffer huge losses from their sub prime loans but still make money, lots of it. HSBC Holding, for instance, reported losses of $10 billion from bad loans in 2007 but it still reported a 5 percent rise in its profits.
Sub prime lending albeit highly profitable for a brief time was not a crushing risk for the banks when the loans went sour. The banks offset their losses through tax write offs, increased loan and service fees and charges, lower saver interest rates, and stock sales and swaps. They have one more trump card to cleanse their toxic debt: the taxpayer’s pocketbook.
They have played that card magnificently. The great flaw in all this is that banks are still largely left to self-police themselves. They determine how much they’ll lend, and to who. They will continue to make loans to minority home buyers, they are required to do that under the terms of the much maligned Community Reinvestment Act, and many of those borrowers will continue to pay dearly for those loans. That’s a stress test that the banks won’t have to take, let alone pass.

Earl Ofari Hutchinson is an author and political analyst. His weekly radio show, “The Hutchinson Report” can be heard on weekly in Los Angeles on KTYM Radio 1460 AM and nationally on blogtalkradio.com

Presidential Debates Are Good Theater, But Not Much More

Earl Ofari Hutchinson

To some, Republican presidential contender John McCain is a noble citizen for citing the urgency of the financial implosion as the reason for trying to delay the first debate with Democratic rival Barack Obama. To others, it’s simply a naked, crass, and desperate effort by McCain
to seize back a tiny patch of the high ground from Obama on his strong point issue of the economy.
It doesn’t much matter what the true motive for the stall is it won’t change the fact that presidential debates make good theater but not much more. In a late life reflection in 1987 on what went right and wrong in his long and checkered political career, former President Richard Nixon had this to say about presidential debates, "In the television age, a candidate's appearance and style count far more than his ideas and record."
Nixon more than any other presidential candidate in modern times should know about that. The widely held belief is that Nixon's fidgety, wooden style, and unkempt appearance in his first 1960 televised debate with a relaxed, tanned, youthful looking John F. Kennedy did him in.
In their two follow-up debates, though, a much better composed and relaxed Nixon came off as having as good, if not better, command of the issues than Kennedy. His perceived debate loss to Kennedy didn't finish him. The probable vote machinations by Democrats in Illinois, a lukewarm, belated endorsement by the wildly popular President Dwight Eisenhower, and Nixon's refusal to phone Martin Luther King Sr. to offer support when Martin Luther King Jr. was jailed for civil rights protests in Georgia badly damaged him. Kennedy made the call. As a result, Nixon's vote among blacks dropped nearly 10 percent from Eisenhower's in 1956.
Nixon's alleged debate wash out sealed the belief that an afternoon shadow, mussed hair, a malapropism, and a gaffe during a debate will make or break presidents and their challengers. That's a myth. In 1976, President Ford's bid for a full elected term supposedly went down the tubes when he blurted out that Poland wasn't under Soviet domination during his debate with Democratic challenger Jimmy Carter. Presumably, that gaffe shot to pieces Ford's credibility on vital foreign policy issues. But Ford could not shake Republican blame for the Watergate scandal, and his pardon of Nixon. This more than his debate miscue did him in.
In 1980, it was thought that Republican challenger Ronald Reagan's carefully scripted and rehearsed "There you go again" retort to Carter when he accused him of wanting to slash Medicare so befuddled Carter that his re-election bid came unglued. But by the time of their debate, Carter's presidency was badly tattered. Voters blamed him for high inflation, unemployment, waves of business failures, and the bungled Iran hostage rescue mission.
In 1988, Democratic presidential contender Michael Dukakis' automaton-like answer in his debate with Vice President Bush Sr. to the loaded question about the death penalty supposedly blew his presidential bid. But Bush Sr. carried Reagan's imprimatur. The Reagan administration gave the appearance of fostering an economic boom, had stunning foreign policy successes marked by the collapse of the Soviet Union, and stratospheric public approval ratings.
In his debate with Democratic challenger Bill Clinton in 1992, President Bush Sr. repeatedly glanced at his watch and seemed impatient to get the debate over. That allegedly soured voters on him. That did not torpedo his re-election bid. Bush's inability to resuscitate the economy and urban racial turmoil badly hurt him. What really nailed him was the insurgent campaign of Reform Party presidential candidate Ross Perot. He siphoned off thousands of potential Republican votes. That cost Bush more than a hundred electoral votes in thirteen key Southern and swing states that Republicans had either won during Reagan's presidential triumphs, or had run strongly in.
In 2000, Bush came off as personable, witty, and conversational in his debate with Democrat Al Gore. By contrast Gore was perceived as stiff, arrogant, and condescending. Yet, many experts believed that despite Gore's personality glitches, he still beat Bush on the issues. Gore went on to win the popular vote. It took the Florida vote debacle and a Supreme Court ruling to settle the matter for Bush.
Do presidential debates then really influence voters to back a candidate and educate them on the issues? Some studies find that a majority of voters feel they don’t learn much from the debates, and are disappointed at that. Even the minority of respondents who say they learn something from the debates insist that they don’t influence their decision on who to vote for. Party affiliation, long-standing political preferences, personal beliefs and values largely determine that.
Obama will win the White House if voters really feel that he can best handle the country’s economic mess. McCain will win if voters really feel that the national security and foreign policy concerns trump the economy and that he’s the best to handle them. As for the presidential debates, they’re still good shows though.

Earl Ofari Hutchinson is an author and political analyst. His new book is The Ethnic Presidency: How Race Decides the Race to the White House (Middle Passage Press, February 2008).