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Racial Exclusion and the Political Economy of the Subprime Crisis

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  • Gary A Dymski

Abstract

This paper develops a political economic explanation of the 2007-09 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgage markets. Until the early 1990s, racial minorities were systematically excluded from mortgage finance due to bank redlining and discrimination. But then racial exclusion in credit markets was transformed: racial minorities were increasingly given access to housing credit under terms far more adverse than were offered to non-minority borrowers. This paper shows that the emergence of the subprime loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macroeconomy. Thus, subprime lending emerged from a combination of the long US history of racial exclusion in credit markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation process, these loans increased the depth of the financial expropriation of the working class by financial capital. The crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under-collateralized basis-that is, when housing loans became not just extortionary but speculative.

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  • Gary A Dymski, 2009. "Racial Exclusion and the Political Economy of the Subprime Crisis," Discussion Papers 02, Research on Money and Finance.
  • Handle: RePEc:rmf:dpaper:02
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    Cited by:

    1. Jon D. Wisman, 2013. "Wage stagnation, rising inequality and the financial crisis of 2008," Cambridge Journal of Economics, Oxford University Press, vol. 37(4), pages 921-945.
    2. Gary Dymski, 2011. "The International Debt Crisis," Chapters,in: The Handbook of Globalisation, Second Edition, chapter 6 Edward Elgar Publishing.
    3. Gary Dymski, 2009. "Financing Community Development in the US: A Comparison of “War on Poverty” and 1990s-Era Policy Approaches," The Review of Black Political Economy, Springer;National Economic Association, vol. 36(3), pages 245-273, December.
    4. Erica Pani & Nancy Holman, 2014. "A Fetish and Fiction of Finance: Unraveling the Subprime Crisis," Economic Geography, Clark University, vol. 90(2), pages 213-235, April.
    5. Bateman, Milford, 2013. "The age of microfinance: Destroying Latin American economies from the bottom up," Working Papers 39, Österreichische Forschungsstiftung für Internationale Entwicklung (ÖFSE) / Austrian Foundation for Development Research.
    6. Hanna K. Szymborska, 2016. "Financial Sector T Nsformation And Income Inequality– An Empirical Analysis," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 12(2), pages 36-48, October.
    7. Bateman, Milford, 2014. "South Africa's post-apartheid microcredit-driven calamity: Comparing 'developmental' to 'anti-developmental' local financial models," Working Papers 47, Österreichische Forschungsstiftung für Internationale Entwicklung (ÖFSE) / Austrian Foundation for Development Research.
    8. Bateman, Milford & Sinković, Dean & Škare, Marinko, 2012. "The contribution of the microfinance model to Bosnia's post-war reconstruction and development: How to destroy an economy and society without really trying," Working Papers 36, Österreichische Forschungsstiftung für Internationale Entwicklung (ÖFSE) / Austrian Foundation for Development Research.
    9. Paulo L. dos Santos, 2009. "At the heart of the matter: household debt in contemporary banking and the international crisis," EKONOMIAZ. Revista vasca de Economía, Gobierno Vasco / Eusko Jaurlaritza / Basque Government, vol. 72(03), pages 54-79.

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