Vol. 6    No. 15
JULY 28, 2011

The Capital City Hues
(608) 241-2000

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The Capital City Hues
PO Box 259712
Madison, WI 53725
($45 a year)
Contact Number:
(608) 241-2000
Advertising: Claire G. Mendoza


Jonathan Gramling
Publisher & Editor

Clarita G. Mendoza
Sales Manager

Contributing Writers
Rita Adair, Ike Anyanike, Paul
Barrows, Alfonso Zepeda
Capistran, Theola Carter, Fabu,
Andrew Gramling, Lang Kenneth
Haynes, Eileen Cecille Hocker,
Heidi Pascual, Jessica Pharm,
Laura Salinger, Jessica Strong,
& Martinez White
At least in my circles, one of the news items that was on a lot of people’s minds was the findings of
the Pew Research Center report that the gap between Euro-American and Latino and African
American households has dramatically increased during the Great Recession. While all
demographics were hit by the recession and lost wealth, it was the Latino and African American
households that lost the most.

According to the study, Latino households, on average, lost 66 percent of their wealth and African
American households lost 53 percent. On the other hand, Euro-American households lost 16
percent. While median Euro-American household wealth is now $113,149, For Latinos it is $6,325
and for African Americans, $5,677.

I am sure that there is a lot of skewing going on in each of these communities. And so, what this
leaves us with is a lot of households with little, none or negative — folks owing more than they
have — household wealth.

In the 1990s, starting with the Clinton Administration, the wealth of African American and Latino
families began to rise. Home ownership was touted as the economic vehicle for households to
achieve the American Dream. And for many, they did achieve the American Dream.

But with wealth, often times greed is soon to follow. Folks on Main Street became greedier and
greedier as they created sub-prime mortgages with high interest rates and flexible-rate mortgages
that offered low interest in the beginning and then dramatically escalated later on. Some people
were placed on interest-only payment schedules at the beginning, which they could barely fit into
their budget onlt to fall intoi fiunancial crisis once some of the principal came due.

Then there was the greed on Wall Street that cut up these sub-prime mortgages and repackaged
them as “low-risk” securities. These securities were sold and resold at ever increasing prices, far
beyond their actual value. Well what goes up must come down. The housing bubble that all of this
was based on burst. Some took the money — legally and illegally — and ran. Many were like a deer
in the headlights.

Then as the housing bubble burst, property values fell to the extent that many families owed more
than what their homes were worth. Their wealth simply vanished. Many parts of the country
experienced record foreclosure rates as people walked away from their mortgages or were tossed
out of their homes — sometimes illegally — by banks and other lenders.

It was African Americans and Latinos who disproportionately held these sub-prime and flexible-rate
mortgages. Even when they qualified for more traditional fixed rate mortgages, lenders put them on
the more expensive and riskier sub-prime mortgages. And some people were encouraged to take
out second-mortgages on their properties to pay for college tuition for their children or to buy that
second home on the beach.

People had the illusion of wealth, but once the cards began to fall, their wealth vanished and they
were left destitute once again. It was like Sisyphus of the Greek myth rolling the boulder up the hill
only to have the boulder roll back to the bottom of the hill when he reached the top. Many Latino and
African American households would have to start over trying to achieve their American Dream.
I suspect that most of the African American and Latino wealth was invested in their homes. And
yet, even now in the second year of the “economic recovery,” some homes continue to lose their
value. For some households, they continue to lose their wealth and I would hazard a guess that if
the Pew Research Center would subsequently look at the 2010 data, they would find that the
skewing of wealth is even worse.

While the average Euro-American household lost $21,000, far more than the average Latino and
African American household, I would suspect that the Euro-American wealth will increase at a
greater rate and recover more quickly because Euro-Americans own more stock. While the job and
housing markets remain in a slump, the stock market has recovered quite nicely because of its
international basis and the quicker recovery of BRIC countries like China and Brazil.

And as is true with all recessions, there are winners and losers. As many Latino and African
American households lose their wealth, there will be others with enough economic muscle who
will be able to scoop up that wealth at bargain prices. I would not be surprised if future Pew reports
show a further skewing of household incomes. It is a crying shame!
Reflections/Jonathan Gramling   
                   The Skewing of Wealth