Why do some make the argument that affirmative action caused the housing bubble?

Answer 1

Affirmative Action Groups have sued Banks for having too high credit standards which directly effect minorities ability to obtain loans. Obama sued banks for this back in the 90's before he ran for public office.

Banks have a tendency to settle these suits because they believe they can never win a Jury case in a predominately minority community. They believe they are viewed as the big bad evil rich corporation taking advantage of the little guy. So the banks have settled most cases and lowed their credit criteria in order accommodating the the less credit worthy without compensating with higher rates for the higher risk.

The idea here is that the banks lowered their credit standards in order to accommodate Affirmative Action . Keep in mind that no intentional discrimination has to occur. Only the stats have to show that there is an inequality in loans given in order for fines to be imposed.

Banks then packaged these loans together and sold them to other banks or Freddy and Fannie. So through regulations and and enforcement by the government the business sector gave loans to people who wouldn't have previously qualified for a loan.

Eventually, there were so many sold that everyone wanted a house and everyone got a house. Because of the high demand house values soared along with construction to build more houses because of increased profit in a new home. It then all of a sudden came to a stand still. Credit dried up so construction stopped causing even more foreclosures. When the construction stopped so did everything that supported it. Towns that relying heavily on construction were devastated.

It is not over yet. I have watched many small businesses that have survived the house collapse are at risk of going out of business. Property that they bought a t the peak, has tanked in value. So their mortgages, are upside down as compared to the current property values. Most business mortgage's are 5-10 year mortgages amortized over 20 to 30 years. Many of these business mortgages are up for renewal and banks don't want to renewal an upside down loan because it looks bad on their statements. Most small business don't have the cash to pay down that mortgage and are filing bankruptcy and closing shop.

I am told Bush warned Congress of these issues with Fannie and Freddy before it happen. I have checked this information.

I am uncertain how much the affirmative action contributed to the credit and housing bubble. I am certain it can not be let off the hook as a contributing factor.