There’s a story going around that the economy imploded because the government wanted to encourage minority home ownership. This story is the purest of high-grade manure. Minorities are not somehow inherently unable to afford stable thirty-year mortgages. Google “redlining” and “sundown towns” if you want to know why they might have trouble getting them. There are people who want very much for you to believe that forced loans to minorities caused this collapse. These are the people who want to bring redlining back.

No, the crazy mortgages went to everybody–people of all races, classes, and economic strata. A lot of them went to smart, responsible people who just didn’t understand every little thing about loans and trusted their bankers to tell the truth. (And that’s normally okay! Most of us don’t understand every little detail about medicine, so we trust our doctors. We don’t understand everything about our cars, so we trust our mechanics. We can’t personally inspect every poultry plant, so we trust our FDA inspectors. This kind of trust is the thing that makes modern civilization possible.) A lot of these mortgages went to people who could have coped with a stable 30 year mortgage. A lot of them went to buy McMansions that now sit abandoned in suburban cul-de-sacs turned to slums.

The mortgage mess is more complicated than that, and, as with everything else in life, if you really want to understand it you’re going to have to (gulp) *think*. Mark Chu-Carroll’s Good Math, Bad Math has the best explanation I’ve seen.

First, read “Economic Disasters and Stupid Evil People”:

The situation is both very complicated and very simple.

The simple version? People made lots and lots of stupid loans that couldn’t be repaid.

Of course, it’s not really that simple.

(Like I said: complicated.)

Then you might want to read his explanation of a normally sensible practice called “tranching” and how the Wall Street dingbats perverted it to squeeze out a little more fast cash.

You can follow up by reading “Bad Probability and Economic Disaster; or How Ignoring Bayes Theorem Caused the Mess”:

One of the big questions that comes up again and again is: how did they get away with this? How could they find any way of taking things that were worthless, and turn them into something that could be represented as safe?

The answer is that they cheated in the math.

And “How Mortgages Turned into a Trillion Dollar Disaster”:

What really created the disaster is a combination of leverage – that is, borrowing money to amplify an investment, and derivatives – fancy investments that are really nothing more than bets.

Truly understanding this mess takes more time and thought than blaming minorities. But it’s worth putting in the work.