What is the root cause of the financial crisis? “Lousy loans,” says Elizabeth Warren, the chairwoman of the Congressional Oversight Panel. We agree. And we like the phrase, especially because it provides a nice counterweight to that other double-L phrase, “liar loans,” which tends to blame the borrower. Warren’s phrase is a casual one, of course, but in some ways it is better than the language the press has tended to use to characterize the origins of the crisis. The fact is, of all the possible terms to describe these lousy loans, the press never found the right one. And as we’ll see, the lack of a single word—one easy-to-understand adjective to put in front of the word “loans” or “lending,” a word that would encapsulate the boiler-room culture that overran the mortgage industry—cost all of us plenty.
Instead of the right word, the press deployed another word—“subprime”—for reasons that are to some extent understandable, but unfortunate nonetheless. Unfortunate because “subprime” describes only the borrower, in unflattering terms, and has nothing to say about the lender.
That brings us to a secondary phrase: the less common but far more interesting “predatory lending.” Interesting because it both gets us closer to the heart of the problem, putting the focus on the lender, and yet still falls tragically short. Its rhetorical punch has given it staying power but has also hindered its broader acceptance by the press—leaving space for “subprime” to slip into ever more common usage and eventually to dominate the discourse.
Why is this crucial? Because when large segments of the business press dismissed the term “predatory lending,” they also dismissed the practice. The press had trouble understanding the crisis because it didn’t know how to talk—and thus how to think—about it.
Is this a tragedy? Well, we’ve got the numbers, we’ve read the stories behind them, and we promise to back up our claim that when “subprime” muscled aside “predatory” it had real-world consequences. But first we want to broaden this discussion a bit.
More than twenty-five years ago, scholar Benedict Anderson, in Imagined Communities, an important book about the rise of nationalism, described nations as being bound together by a perception of solidarity on the part of their citizens. Media were key to the formation of this solidarity. The press helps both
to generate a sense that we are part of a larger whole and to define the nature of that whole. That’s relevant for our purposes because it relates journalistic language—the stories we tell ourselves—to how society is ordered. As Michael Schudson wrote in the American Historical Review in 2002: “Anderson’s work potentially promotes … a recognition that news is not only the raw material for rational public discourse but also the public construction of particular images of self, community, and nation.”
With that in mind, we ask: What kind of imagined community has the press, particularly the business press, fostered?
We can start to answer that question by looking at how “subprime” came to trounce “predatory.” The fluctuating place of “predatory lending” and the rise of “subprime” in the U.S. press lexicon is an indication of underlying attitudes about the relationship between business and consumer, and thus about class, race, and so much else.
We used the news database Factiva, which has its unfortunate quirks but is still useful as an indicator of general trends, to give us a rough quantitative lay of the linguistic landscape over the past two decades. Using the graph on page 47, you can see that the phrase “predatory lending” had a slow start in the press, with collective use by a broad spectrum of “major news and business publications” remaining in the single or double digits each year through the 1990s. Usage increased in the 2000s, rising from three or four hundred in the first two years of the decade to seven hundred or so in each of the next two years (as state attorneys general, who used the term a lot, waged a campaign against unscrupulous lenders around the nation), then falling back to the four hundreds or below each year from 2004 through 2006 (when the Bush administration came down hard on those AGs at the behest of the banking industry, even as the worst kinds of predatory loans flourished). Then in 2007 usage spiked at more than a thousand instances, along with widespread recognition of the financial crisis. But it falls back down to the seven hundreds in 2008 and continues down to fewer than three hundred for the first half of this year.
It’s important to keep in mind that the dip in the press’s use of the term “predatory lending” that began in 2004 coincides almost exactly with a tremendous spike—a veritable onslaught—of actual predatory lending in the real world. This is part of the heartbreaking press failure in this economic crisis that we have documented previously (see “Power Problem,” CJR, May/June 2009).
By contrast, “subprime” started late but took off fast, with hits reaching more than seven hundred in 1998, according to Factiva, when the market enjoyed an early boomlet (along with some pushback from the government that we’ll get to in a minute). While “subprime” generally mirrored the track of “predatory” for the first few years of the current decade—if on a slightly larger scale—it began to diverge mid-decade and then shot up tremendously, to more than 75,000 by 2007, when it peaked with the onset of the current crisis. That year, and continuing through 2008, hits for “subprime” were on the order of seventy or eighty times more frequent than hits for “predatory lending.”
Predatory lending is a subset of the subprime market, and so one might argue that we shouldn’t expect “predatory” to be used as often as “subprime.” But not as often is one thing, and eighty times less is quite another. Also, such an argument ignores the fact that the problem here—and thus the news—is the predatory aspect of subprime. Anyone who didn’t understand that didn’t understand the story.
As the press should have known, but apparently didn’t, the subprime industry has always been in large part the domain of sleazebags and became only more so over time. The problem, as consumer advocates long argued, mostly in vain, was not that higher-risk borrowers were getting loans, but that they were getting bad loans. So not only did the shift to the word “subprime” remove all reference to aggressor and victim—professional and civilian, con man and conned—it stigmatized an entire community of borrowers. To the extent that subprime comes to be seen as bad, subprime borrowers are bad. Lenders? Just doing their job.
Thus the significance of this linguistic shift is major. Here’s the thing: the roots of the current crisis lie in the disastrous expansion of the subprime market, which ballooned in the 1990s and 2000s—thanks, in large part, to Wall Street, which was looking for more mortgage-backed securities to stoke a blazing market, and to corrosive deregulation. Though it makes little sense, a recurring press mantra has it that borrowers, as much as anyone else, are to blame. But blaming borrowers in a systemic way ignores the structure of the subprime market and the extent to which lenders had power and borrowers did not.
There is a mitigating factor here: the phrase “predatory lending” has its own problems. Such rhetorical aggression is always a gamble, because while it drives its point solidly home it also invites responses ranging from skepticism to outright attack. (Except from true believers, of course, but they aren’t
the ones who need convincing.) So while we don’t have a problem with fighting words, the fact is that such words—even, and this is key, when those words are highly defensible—only stand up with solid definitions behind them. And no one can agree on precisely what predatory lending is.
This combination of a lack of clarity and rhetorical heat meant that much of the press—and especially the business press, which tended to underplay consumer issues already—remained uncomfortable with the term, even after years of use, and so ultimately gravitated toward the far more industry-friendly “subprime.”
In order to understand this submerging of the term “predatory lending” even as the actual practice escalated, we first need to look at where the term comes from. We are aware of business dictionaries, but we think the business press should be speaking the same language as everyone else, so we rely here on the Oxford English Dictionary to give us a quick etymology of the word “predatory.” It is from the Latin
praedatorius, the adjectival form of praedator, which means plunderer. Thus the definition of predatory is “Of, relating to, of the nature of, or involving plunder, pillage, or ruthless exploitation.”
But the OED includes a sub-definition for the business context. Thus we get this 1912 use of the term, the earliest the dictionary provides, from the Trenton Evening Times: “Wrongs done by industrial corporations which are not monopolies … such as … the elimination of competition by unfair or predatory practices.”
If we then scan down to the latest example of usage, from 2002, the target of the word is not other businesses but rather consumers. From Modern Maturity: “A loan company is considered predatory … when it makes a loan that a borrower can’t repay.”
Well, kind of. Looking a little deeper, here are Allen Fishbein and Harold Bunce, in a 2001 article about subprime and predatory lending published by the Department of Housing and Urban Development:
The term “predatory lending” is a shorthand term used to encompass a wide range of abuses. Although there is broad public agreement that predatory lending should have no place in the mortgage market, there are differing views about the magnitude of the problem and even how to define practices that make a loan predatory.
Time hasn’t clarified much. Researchers writing in The Journal of Consumer Affairs last fall noted that vague and competing definitions of “predatory lending” hamper regulatory activity and efforts to track how often the practice occurs. They tell us:
In order to address predatory lending adequately, there needs to be a differentiation between what constitutes abusive lending, predatory lending, and mortgage fraud. Descriptions of predatory lending are plentiful, but a precise definition that would inform regulators and consumer advocates is non-existent.
In an interview with CJR, Lucy Delgadillo, the lead author of the article and an associate professor at Utah State, identified the four traits common to all the definitions of “predatory lending” that she and her colleagues found: 1) It targets vulnerable populations, like the elderly and minorities, who are often poorer and less sophisticated financially; 2) It lends more than than the borrower can be expected to repay; 3) It involves conspiratorial activity between, say, appraisers and loan officers; and 4) It involves the intention to steal, through, say, equity stripping.
This makes sense, but we are still left with the fact that the term is broad and slippery enough to have defied a common definition after more than a decade of use in the national media. The fact is that “subprime lending,” better defined and more broadly accepted, was poised for the press to adopt in a way that “predatory lending” was not.
The importance of the term “predatory lending” is its injection of a much-needed moral dimension into the public argument. The press, especially the business press, is often uncomfortable with such an approach. That’s too bad. But there is also the fact that the very complexity of “predatory lending” threatens to render it imprecise to a fault. Which is to say that, frequently, any reader looking to move beyond the definition of “predatory lending” as bad lending—and into the realm of unscrupulous lending—will run into confusion. For example, the kind of lending we are discussing systematically targeted whole communities, but the words themselves give us very little insight into that aspect of the practice. To round out the term “predatory lending” then, we need to consider two important and related terms: “redlining” and “reverse redlining.”
Redlining is the denial of credit in certain, typically urban neighborhoods based on their racial makeup. The term comes out of the Chicago activist community in the late 1960s, according to scholar Amy Hillier, and refers to a practice dating to the 1930s when the Depression-era Home Owners’ Loan Corporation drew up maps that designated these neighborhoods as high-risk investments—and outlined them in red. Following from redlining, a practice by no means dead, is the more recent “reverse redlining,” which indicates an area of enthusiastic bad lending—expensive, deceptive, and heavily marketed—rather than a refusal to lend.
These terms get at the nature of lending “choices” in poor urban areas. The subprime industry, which came of age in the lending vacuum redlining created, is able to target these communities because prime lenders are (still) reluctant to serve them. And so predatory lending has thrived here (as have foreclosures). You can’t understand the practice of predatory lending if you don’t understand all of this.
That brings us to the term “subprime,” which overwhelmed “predatory” in the middle of the decade as the market exploded and subprime assumed an aura of legitimacy (subprime leader Ameriquest, you’ll recall, was the sponsor of the 2005 Super Bowl halftime show and owned not one but
Despite the best efforts of consumer advocates to distinguish between predatory practices and good loans to high-risk customers, that distinction was, in reality, collapsing as the subprime industry hit a new low in the mid-2000s. With the rise of such particularly abusive products as 2-28s and 3-27s (a 2-28 loan had a two-year teaser rate that then adjusted every six months for the next twenty-eight years; a 3-27 loan was basically the same thing but with a three-year teaser rate), the subprime industry was now essentially
rotten through and through. Both of these loans—and other products that will effectively be banned under new Federal Reserve lending rules and that are also the target of proposed federal legislation—hit their strides in 2005 and 2006, the “boom years for bad subprime,” according to Kathleen Day of the Center for Responsible Lending. In other words, “subprime” became the dominant term just as predatory lending was becoming the dominant practice.
It’s also important to remember the degree to which “subprime”—both the word and the industry—received powerful rhetorical support from right-wing political and intellectual elites who pilloried the very concept of predatory lending. Take, for example, former Senator Phil Gramm. We can see his rhetorical strategy in quotes like this one, which appeared in a March 20, 2008, Wall Street Journal article: “ ‘Don’t apologize when you make a loan above the prime rate to someone that has a marginal credit rating,’ Texas Republican Phil Gramm … told a group of bankers in 2000. ‘In the name of predatory lending, we could end up denying people with moderate income and limited credit ratings the opportunity to borrow money.’ ”
In mid-2000, around the time that HUD and the Treasury Department published a major joint report on the problem of predatory lending, Gramm, then head of the Senate Committee on Banking, Housing and Urban Affairs, ordered his own report on “what the regulators refer to as ‘predatory lending.’” The slim report’s conclusion? It’s all about language:
It is difficult to understand how the regulators or Congress can formulate proposals to combat predatory lending when there is no clear understanding as to what it is. A definition of the practice is sina qua non [sic] for any progress toward a remedy.
In the absence of a definition, not only might we miss the target, but we may hit the wrong target.
Acknowledging the problem of definitions is one thing. But using it as an excuse for doing nothing is ridiculous. This illustrates the danger of turning the discussion into a linguistic argument—of working from the words back to the practices, rather than the other way around.
Gramm, of course, wasn’t the only big shot running interference for mortgage lenders and their Wall Street backers. John D. Hawke Jr., then the comptroller of currency charged with overseeing nationally chartered banks, said in a February 2003 news release: “The OCC has no reason to believe that any national bank is engaging in predatory lending.” This is the agency that challenged the states, both in and out of court, for trying to protect consumers, and in a 2007 Supreme Court case won the right to supervise national banks without state interference. Except that the industry-funded OCC brought only thirteen consumer-related enforcement actions (out of 495 total) between 2000 and 2006, according to an excellent piece in BusinessWeek last fall by Robert Berner and Brian Grow.
But the press did have other “official” voices it could have listened to more carefully. There were even serious warnings from inside the federal government. Some prominent examples: with the subprime market heating up in the late 1990s, the Federal Trade Commission went after predatory lenders, although it had limited power to do so; in an effort to address predatory lending, Congress passed the Home Ownership and Equity Protection Act in 1994, and then the Fed made revisions to the act that took effect in 2002, although both versions lacked real muscle; hearings before a variety of House and Senate committees in the late 1990s and early 2000s demonstrated a growing awareness of problems in the lending industry, as did a handful of attempts by some enlightened lawmakers to pass additional regulations. These efforts fell far short, but for anyone paying attention they shed quite a bit of light on the problems that would soon lead to disaster.
There also was that important 2000 study from HUD and the Treasury, called “Curbing Predatory Home Mortgage Lending,” which warned of “widespread predatory practices in the subprime market,” and went on to describe both the problems and possible remedies for more than a hundred pages. Not to mention a lengthy 2004 GAO study, titled “Consumer Protection: Federal and State Agencies Face Challenges in Combating Predatory Lending,” which urged greater regulation and enforcement of “consumer protection laws applicable to predatory lending.”
Notice how little problem these reports have using the term “predatory lending.” And if you read them, you will see how strong their authors’ concern was. It seems that, problems in terminology aside, those who took the words seriously took the practice seriously as well.
This crisis without a name was always going to be difficult to cover—particularly given the rhetorical counteroffensive from the financial services industry and its backers among the political and intellectual elite. The story needed time and space, and, it must be said, journalistic vision and courage, all of which were lacking during the most critical years.
For proof, we circle back to the past two decades of news coverage. With the exception of a stray piece from The Financial Times in January 1983, the first Factiva hits for the phrase “predatory lending” come in the early 1990s from The Boston Globe and the Atlanta Journal-Constitution, as well as from a handful of other local papers. The Globe was covering Rhode Island-based Fleet, which was then the target of predatory lending accusations in Massachusetts. The Journal-Constitution got involved when a series of lawsuits filed by Georgia borrowers charged that Atlanta-based Fleet Finance, which was also the target of an investigation by the Georgia attorney general’s office, had victimized residents of low-income black neighborhoods.
Both the Globe and the Journal-Constitution—like other local and regional papers—produced some excellent work once the story landed in their backyards. One example is the AJC’s superb October 1992 piece by Jill Vejnoska, which carried the headline lenders prey on unwary; or an editorial that same month that told us how “deregulation has spawned a lending undercurrent resembling a cesspool.”
By 1993, the Georgia story had gained national attention, and it is interesting to see how the national press began to define predatory lending. Here is Reuters, on December 16, 1993: “Predatory lending takes place when a bank deliberately lends funds to people who would not normally qualify for such loans to foreclose on their properties and sell them at a profit.” That definition echoed one in the November 19 Wall Street Journal: “Under predatory lending, a bank knowingly lends money to people who it knows don’t qualify for loans, in order to foreclose on them later and sell the property at a profit.”
These are damning definitions. Their strength is that they clearly describe intent, and they call to mind the conspiratorial aspects of corruption in lending—an important component that was absent from most later uses of the term. By contrast, the vast majority of stories in the 1990s that mention “subprime” were market- or investor-oriented. The more a news outlet focused on the worsening position of borrowers—which turns out to be the angle closest to the truth—the more likely it was to use “predatory lending.”
The start of the new millennium brought rising concern over predatory lending practices, and the press reflected this concern. As the numbers in our graph indicate, The Washington Post, The New York Times, the Journal, and other outlets turned in strong performances from 2000 through 2003—years that featured aggressive regulatory action against Citigroup, First Alliance, Household International, and other rogue lenders. Not only state attorneys general but also state legislatures were important actors during these years, with North Carolina adopting the first state predatory lending law in 1999 and a wave of other states following its lead.
But 2004 marked the beginning of a lapse in attention to the issue by the national press that came at exactly the wrong time. The ascendancy of a pro-industry, deregulatory ideology crushed the anti-predatory-lending efforts, and also cleared the way for “subprime” to win the rhetorical day. Crucially, this is the year that the OCC implemented rules exempting national banks from state consumer protection laws. When it mattered most, the press took its cues from
those in power.
What did the run-up to the domination of “subprime” look like in the press? Here is a sample of some typical stories from The Wall Street Journal during those crucial years, 2004 through 2006. Keep in mind that this is when the worst predatory loans were flourishing.
In August 2005: “Whither Subprime Mortgage Lenders? Answer Holds Housing Market Clues.” Can you imagine a headline that read, “Whither Predatory Mortgage Lenders?” But here, and more generally, subprime is treated as a business like any other. Sure, we get warnings. But the question is not, “Are these companies regularly deceiving and exploiting consumers?” It is, “Are these stocks good buys?”
In August 2006: “Subprime-Lending Field Opens Up—As Ameriquest Restructures, New Century, Others Jump for Larger Share of Market.” Again, substitute “predatory” for “subprime” and you get an entirely different tone.
In December 2006: “Mortgage Sector Withstands Subprime’s Fallout—Derivative Index Absorbs Most of the Blow So Far from Two Lenders’ Failures.” Like its subject, this piece raises warnings about subprime and then largely assuages them. “The sky,” one trader tells us, “is not falling.”
The problem, of course, is that the sky was falling. The financial press had a hard time recognizing that fact because it didn’t understand what was happening to borrowers. The fact is, the Journal and others in the business press lost sight of the plight of borrowers on an institutional scale. And when the press dropped borrowers, it not only left them even more vulnerable, but it also lost the ability to see what was about to land before it was too late to do anything about it. This is not just a matter of using the relatively neutral, industry-oriented “subprime lending” instead of “predatory lending.” It is a matter of worldview. The press didn’t understand the danger predatory lending posed to whole communities, or the danger it posed to the financial system. In other words, the “imagined community” that the business press created in the years leading up to the crisis was imaginary in more ways than Benedict Anderson meant when he coined the phrase. When the business press lost track of the plight of borrowers, it lost track of reality.
Anderson is instructive in another way. He suggests that people read newspapers very much the way they read novels, following the narrative of particular stories. In this framework, the problem is that, having relegated the main plot to subtext, the press wrote a bad novel about the financial crisis. In the mid-2000s, the press sufficiently buried both the term and the idea of predatory lending so that the reader might in fact have wondered whether it was still part of the story. And yes, that is a tragedy.