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I am thoroughly surprised at Black people’s short memories when it comes to politics. Judging by Hillary Clinton’s victory in South Carolina, driven by historic Black voter turnout, you would not know that as recently as 2008 Black people were down on the Clintons. Well, if racially charged comments in 2008 are not enough to disrupt Black people’s love affair with the Clintons, maybe some history from further back can change people’s minds. Actually, while this story does start in the 90s it is still having a profound effect today. But, I digress.
This is a story about when good intentions have bad outcomes.
In the early 90s when Bill and Hillary Clinton were in the White House, Black homeownership became a major focus of the administration. Most Democratic leaders at the time believed that racist home lending practices were to blame for the Black homeownership rate lagging behind the White homeownership rate. Homeownership was strongly believed to be the driving force of the wealth gap between Whites and Blacks. Owning a home was sold as part of achieving the American Dream and Black people were far behind White people. The Clinton Administration planned to do something about this.
First, the Community Reinvestment Act was strengthened to ban “red lining” practices by banks. That was a good thing. Then, banks were pressured to lower their home lending standards. That created the market for subprime loans. Next, the Justice Department began suing banks, pressuring them to make more home loans to Black people. That drove the Housing Bubble and contributed to a massive increase in Black homeownership. And, in 1995, the Department of Housing and Urban Development authorized Fannie Mae and Freddie Mac to begin purchasing mortgage backed securities that included subprime home loans. That encouraged the big banks to enter the subprime mortgage market through mortgage backed securities. I’ll also include that the Gramm-Leach-Bliley Act in 1999 made it possible for investment banks and savings banks to merge, wedding their futures. And, the Commodity Futures Modernization Act of 2000 deregulated the trading of derivatives like credit default swaps. The last two vignettes were not part of the administration’s housing plan, but did have an ultimate impact on Black homeownership.
Black homeownership soared under the Clintons. When Bill Clinton took office in 1993, 42% of Blacks owned a home. By the Spring of 1999 46.9% of Blacks owned a home- Black homeownership growing three times as fast as White homeownership. But, what seemed like a good idea would go on to have terrible consequences. Because lending banks were being pressured to issue subprime loans a lot of Black people would end up in untenable home loans. Many people started to default on their loans and after a peak in 2004 of 52.2% of Black homeowners, the Black homeownership rate declined 6% by 2010. This is the story of the Housing Bubble.
Also, savings and investment banks merged driving together their finances. So, savings banks were encouraged to give out more subprime loans because they were profitable. And, because HUD had created the mortgage backed securities market, banks invested heavily in mortgage backed securities that included subprime loans. When the foreclosures started and the securities began to fail, the entire economy was put in peril. This is the story of the Financial Crisis of 2008.
It is obvious that the Clintons had no idea that encouraging an increase in Black homeownership would lead to 2008s financial crisis. I’m sure that was not their intention. However, it is fair to question the judgment of politicians who enact good policies that end up having negative consequences. That can be said about the Financial Crisis, mass incarceration and the War in Iraq. We must hold politicians accountable for their actions. They effect our everyday lives deeply with public policy. It is of the utmost importance that they take the right steps, exercise excellent judgment and not make massive errors. We hold politicians accountable with our votes. If we continue to support them even after an endless number of massive errors that put our well being at risk, they do not change for the better.
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