Sunday, September 9, 2012

Further collapsing of the black middle class

There are a variety of groups that are particularly taking it on the chin in this long extended downturn.  Men in particular have taken a beating, as industries that they tend to focus on (construction, manufacturing) have been squeezed particularly hard.  Another group that has been hammered hard is blacks.  What is unusual with blacks, is that there middle class, a mostly new, and still relatively fragile group are getting clobbered along with the blue collar and low income folks within the group.  Since we have noted this a couple of times (here in 2011 and in early 2012), I thought it might be timely for an update when I saw the following piece.

Can the black middle class survive
Steven Gray,, 3 September 2012 (hat tip: The Browser)
Between 2005 and 2009, the year the Great Recession officially ended, the average black household’s wealth fell by more than half, to $5,677, even as their white peers held about $113,000 in assets. Nearly one-quarter of African-Americans have no assets besides a car, and roughly the same share have lost their homes, or they’re close. The African-American unemployment rate hovers around 14 percent, and according to a Pew report released in July, nearly 70 percent of blacks raised in families at the middle of the wealth ladder fall to the bottom two rungs as adults. The exodus of blacks from cities like Washington, Atlanta, New Orleans and even Detroit is driving a sense of eroding political power. Perhaps most depressingly, one in three black boys can expect to be incarcerated at some point in his life.
It’s tricky, explaining what it means to be black in America at this peculiar moment, mainly because the narrative’s dominant theme is decline. “You’re airing our dirty laundry,” a black lawyer told me...
It was delusional. Detroit is the country’s most populous majority-black city. Historically, it’s had one of America’s highest black home ownership rates. But more than one-third of the city’s black borrowers — including some of the martini-sipping doctors, lawyers, politicos and auto execs in the room that October night — have lost their homes, or they’re on the brink. The truth is, many of us are on a cliff, watching this widening gulf of black poverty and dysfunction, fearful that we’re just a heartbeat or two away.
A lot of the black middle class is losing to the same causes, that the white middle class is losing to.  But the author I think is correct that issues of race and class exacerbated the problems both going up, and coming down.  If both groups have been borrowing to spend beyond their means, the blacks timing on the borrowing and spending pretty much guaranteed that they would get trapped at the time that values on assets (homes mostly) would be the most inflated.  Although all groups took out loans that were foolish, the financial industries record of pushing risky financial products at blacks (and the elderly) pretty much guaranteed that combined with the status and wealth issues,  just about every black would be given the opportunity to put themselves at risk. 
It is the difference between seeing or hearing the message of the Devil, and getting a personal phone call from him at home.  I knew some people in the 1990s who were into the predatory lending business before it even really got rolling. Their point was that, if they could get the person on the phone to talk with them, they could always get them to bite on any deal that had a lower payment structure. The Devil, one-on-one, is a pretty persuasive guy.   So while I don't my general inclination is not to be too sympathetic to with people who spend their way into oblivion, it would be foolish to assume that life is a level playing field or that everyone gets to play the same game.



Degringolade said...

The early years of the housing boom were a blessing to the established white middle class, lower rates meant lower payments on houses that hadn't significantly risen in price yet.

But the black middle class got into the deal later, with higher prices for the houses and stranger terms in the loan documents.

The black middle class has always had a tough time of it since the sixties. Someone got the odd idea that the civil rights movement had "won".

There has been progress, but there is a way to go. The black middle class was the last onto the boat, it looks they will be first off.

But the entire concept of the "middle class is slippery" Maybe they are just the early adopters of the new normal

PioneerPreppy said...

I think you hit the most important point in the article at the beginning when it mentioned the household wealth. Membership criteria to the middle class is significantly less for blacks therefore they are more vulnerable. The predatory lending hit them hardest because the government forced these institutions to lend to them and the institutions had to turn predatory to survive.

I guess what I am trying to say is that what are being called the black middle class really isn't a middle class at all. Perhaps they make middle class money due to government jobs and affirmative action but they have never used that money or resources in a middle class way.

russell1200 said...

Deringolade: Lower rates made it easier to repackage the loans, but the early predatory lending industry was geared at swapping out loans, stripping the equity, and dropping at least the initial payments. With a little bit of equity and a balloon payment, all sorts of wonders can be achieved.

Pioneer: That seems to be a popular Fox-news view, but I was looking at ground zero and the history says otherwise. The predators started on changes to lending laws going back to the Carter years, and first showed up in refinance. Serious problems started in the 1980s, and long precedes the push into the low income market.

I also don't recall the banks crying too much about the programs at the time. A few of them saw the troubles coming, and bailed most buying up the low end providers right at the bitter end. It is also a mistake to focus solely on the low end of the market. Golden West, that collapsed Wachovia, was not a low end provider.

You can't believe what the media tells you on this story. I know it because I was looking into at the time it was happening. I was buying puts against some of these actors, and thus was reading the SEC filings, I also no some people that were on the policing end of the issue, and somewhat by accident, some of the "perps". It was a sort obvious ponzi scheme from the get go.

kymber said...

Russell - i would have to agree with you on the ponzi scheme angle...

however, you nailed my feelings exactly with this line:

"my general inclination is not to be too sympathetic to with people who spend their way into oblivion, it would be foolish to assume that life is a level playing field or that everyone gets to play the same game."

i think that you really nailed it there.

your friend,

russell1200 said...

kymber: Yes, I tend to lack sympathy for fools who put themselves in harms way. But I also tend to be suspicious of those who think that the world is exactly as it should be and everyone gets exactly what they deserve. The results of that type of thinking can be just as devastating.

Fortune is a fickle mistress - be wary.

Get yourself a blue-eyed cat, I here they are lucky!