Economics, Politics, and Religion: Social Justice

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Amongst my colleagues, friends, and professors, I have been known to be very left[ist], especially in economic matters.  I am a firm believer that mainstream theories—if they ever do—don’t apply to the poorest of the world, interest-rate (not usury) is inherently exploitative and biased towards the rich from a social justice perspective, and that economic justice can never be addressed through any means without addressing social and political asymmetries.

However, today, I read an article today that was produced by Center for Affordable Housing Finance in Africa, called “Subprime: is it stability vs. access?” The statistics in this article (quoted from the Fed’s publication) put forward a statement that shows how biased our perspective towards the poor tend to be, and how quickly do we assign the weight of wrong-doing on the shoulders of the “incompetent-poor;” just to believe that the educated and rich don’t tend to make bad/unjust/idiotic decisions.   After reading the article, it dawned upon me that, unfortunately, I am not leftist at all.  I am part of the mainstream, partially blaming the financial collapse on the financially uncanny “poor folk.”

For example, the conventional wisdom about the sub-prime mortgage crash is that too many loans were given to people, who had no business getting a loan in the first place.  While this terminology is true, there is an implicit assumption in making a qualifying judgment of who “these people” are.  Generally, the reference is to the poor people.  In other words, too many loans were being given to over-ambitious, greedy poor people by folks with the same moral attributes on the upper-side of socio-economic strata.

For example, an article by the Economist quoted that American sub-prime mortgage was “a financial instrument designed to spread home ownership among the poor.”  If the latter case were true than the data from Mortgage Bankers’ Association noting a 22% default rate amongst the sub-prime lendees would suggest that the poor are partly responsible for our economic debacle (while the rich, white wall-street guys being the other part of the story).

On the contrary, a report by University of North Carolina at Chapel Hill notes that delinquency rate amongst Community Advantage Program (CPA), a government program that helps poor people buy housing, is only ¼ of the sub-prime borrower default rate.  This is the same economic strata as those who would qualify for sub-prime loans.  Then, the question remains, if it’s not the poor, then, who done it?

The U.S. Federal Reserve Board found that 60% of sub-prime loans went to middle and higher income groups who didn’t qualify for prime loans due to bad credit.  So, it’s the irresponsible middle and high income group, who couldn’t control their spending in the first place, that took advantage of sub-prime lending and are partially responsible for the current financial crisis.  When you put the whole picture together, the answer is, the rich and the middle-class done it!