Congressional Support for Subprime Lending: Why are we not surprised?

AT the peak of the recent housing boom, subprime mortgage companies were loaning $600 billion per year to homebuyers with poor credit histories. In The Political Economy of the Subprime Mortgage Credit Expansion (NBER Working Paper No.16107), co-authors Atif Mian, Amir Sufi, and Francesco Trebbi explore the links between the rapid growth of the subprime industry and Congressional politics and policy. Focusing on the period between 2002 and 2007, they document a sharp increase in campaign contributions and lobbying activity by the mortgage industry. Using data from the Center for Responsive Politics, the researchers find that the industry’s campaign contributions increased somewhat between 1998 and 2002. But they began to accelerate rapidly in 2002, and rose by 80 percent between 2002 and 2006. Moreover, the study finds that these contributions were t argeted to members of Congress whose districts included a large fraction of subprime borrowers.

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13 years ago

I only have this anecdotally and cannot find corroborating evidence.
I believe after Canada cut political donations from individuals to $1100 per person and cut Corporate and Union donations all together, political parties apparently experienced a growth in party membership as parties turned their attention to generating reliable sources of funds and assistance.
If true, helps cut the nexus of corporate interests feeding policy as noted by Nicholas, and also engages people in the democratic process in an ongoing basis.

Jacques Chester
Jacques Chester
13 years ago

I think Andrew’s position is more nuanced than thinking it’s crazy.

13 years ago

I suspect what I am about to say next will bring a rain of vitriol and calumny on my head given the composition of this forum, but what the heck.

The Centre for Independent Studies, like the rest of us accepts the broad definition of politics as the representation of interests. Humans have interests. Trouble is CIS and fellow travellers go a step further.
I have long thought that corporations pass the Turing test. We don’t need a prospective test for artificial intelligence, we already have a good example of it. Corporations walk like humans, talk like humans and have interests and rights like humans. In fact the more they look like legal and political people the easier it is to argue that they should be treated like people. So step one – extend the people metaphor.

The next assumption of neoliberals however, is that there are “deserving” and “undeserving” humans. It is right and proper in their view to go on narrowing the definition of who is legitimate in their arguments for support and who is not. This gets a bit more awkward for neoliberals to argue as they would like corporations to be legitimate, and unions not.
Step two. Rule out some kinds of “people” on the grounds that their claims to political patronage are illegitimate because they are mendicant.

The result, because the “left” tends to buy into the same premise at the moment is the classical “right” argument that corporates contribute and so deserve special attention on the one hand, and the counter “left” argument that eg the disabled (the deserving poor) cannot raise the funds to get their interests represented, and therefore the system is unfair.

In the case above of political funding, parties are no better. It is in their interests to cultivate as wide a funding base as possible so you will rarely hear a party fundraiser argue for donation limitations.

The struggle over interests, who has them and why they are more, or less deserving, is at the heart of the skewing of the political process so that mortgage lenders get access to sub prime borrowers as in Nicholas’s example.

I think there is a bigger problem however. I’m not at all sure that the definition of politics as the representation of interests is going to get us very far in the long run, in addition to causing problems in the short run. (Please don’t quote Keynes back to me, I know we’ll all be dead, but I’d like to think we’ll leave things fit for a few descendents.)

If we understand that an economy would not function without a society and that neither would function without an environment, this is clearly an inadequate formulation with which to incorporate the environment into political calculation. Most attempts to do so using “Interests” as the basis turn environmental interests into human interests and then trade them off. This is a similar process of metaphorical transformation as that for turning groups into individuals as above.

Trouble is, environmentally it is the non human and the inanimate which needs representation. But it has no way to demonstrate its own interest. I have no idea how this could be done, and I very much look forward to any comments which develop an argument for a means which does not turn them into resources for human consumption literally (eg, you can eat it) or figuratively (eg, its aesthetic). What is clear is that it requires the sort of metaphor shift that would also profoundly alter how we understand “interests” and “representation” in the human v/s human sense that leads to sub-prime mortgage disasters, in order to broaden the idea of the political to include the environment.

13 years ago

Just a little OT Nicholas, but is not most mathematics a metaphorical way of looking at the world?

There are many mathematical ‘transforms’ such as the Laplace, which take a very difficult problem to solve ‘conventially’ (whatever that means), transform it to something else, and then using much easier methods previously learned can be solved.

Metaphors are just tools like mathematics. Oh, damn, I think I just did one.

13 years ago

I think what I was trying to say was that “interests” is indeed the wrong way to try to incorporate ecology into decision-making. Nicholas you are right, we are the ones making the decisions, but as long as we keep making them on the basis that what we are dealing with are “resources” we are going down the same path that got us into this mess.
“Interests” as a decision-making premise work if the ones that are competing compete amongst each other on the same basis. So corporate interests and those other organisations who earn their money from the thing they are trying to defend are on reasonably common ground when they are tussling amongst themselves for political attention. Sub-prime mortgage companies earn megabucks from sub prime loans and spend it on persuading congressmen (and women I presume)that this is a good idea.
Those groups – and the disabled, the aged, or children are good examples – who cannot represent their own interests easily, and therefore rely on the altruism and good will of others to act for them are on shakier ground, not least because these “interests” are not money earning, so there is less or no money to spend on getting political attention. This to my mind is why levelling political donations down to a figure like $1100 per person works. It brings down the cost of gaining political attention to a level that those who are not earning from their interest (or those they represent) can afford.
If you are not even part of any political process, by virtue of not being human, the idea of interests are farcical. They just don’t apply. So how do you incorporate these essential parts of the environment into the political decision-making process without simply judging their worth on the basis of human utility, and coming full circle back to denoting the environment as the stuff we earn money from? That’s one I would love to know the answer to.

And Marks, I’m with you on the metaphors. We can’t not use them. Its just a question of recognising which ones are in operation in any given argument. As in Wittgenstein’s “language games” they set the rules for what fits and what doesn’t.

13 years ago

How is the housing disaster, and free fall in home prices, going to be remedied if folks can’t locate a new job? There are a large number of people that have lost their houses and millions more will until America starts producing something more then debt. It’s time to change the free trade agreements with the Chinese. For crying out loud, our largest trade partner is a communist nation!