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Race, Power, and the Subprime/Foreclosure Crisis: A Mesoanalysis

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  • Gary A. Dymski
  • Jesus Hernandez
  • Lisa Mohanty

Abstract

Economists' principal explanations of the subprime crisis differ from those developed by noneconomists in that the latter see it as rooted in the US legacy of racial/ethnic inequality, and especially in racial residential segregation, whereas the former ignore race. This paper traces this disjuncture to two sources. What is missing in the social science view is any attention to the market mechanisms involved in subprime lending; and economists, on their side, have drawn too tight a boundary for "the economic," focusing on market mechanisms per se, to the exclusion of the households and community whose resources and outcomes these mechanisms affect. Economists' extensive empirical studies of racial redlining and discrimination in credit markets have, ironically, had the effect of making race analytically invisible. Because of these explanatory lacunae, two defining aspects of the subprime crisis have not been well explained. First, why were borrowers that had previously been excluded from equal access to mortgage credit instead super included in subprime lending? Second, why didn't the flood of mortgage brokers that accompanied the 2000s housing boom reduce the proportion of minority borrowers who were burdened with costly and ultimately unpayable mortgages? This paper develops a mesoanalysis to answer the first of these questions. This analysis traces the coevolution of banking strategies and client communities, shaped by and reinforcing patterns of racial/ethnic inequality. The second question is answered by showing how unequal power relations impacted patterns of subprime lending. Consequences for gender inequality in credit markets are also briefly discussed.

Suggested Citation

  • Gary A. Dymski & Jesus Hernandez & Lisa Mohanty, 2011. "Race, Power, and the Subprime/Foreclosure Crisis: A Mesoanalysis," Economics Working Paper Archive wp_669, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_669
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    References listed on IDEAS

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    Cited by:

    1. Fligstein, Neil & Goldstein, Adam, 2012. "The Emergence of a Finance Culture in American Households, 1989-2007," Institute for Research on Labor and Employment, Working Paper Series qt6vp6p588, Institute of Industrial Relations, UC Berkeley.

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    More about this item

    Keywords

    Race; Ethnicity; Subprime Mortgages; Discrimination; Redlining; Foreclosures; Power; Mesoanalysis;
    All these keywords.

    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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