Subprime Loans: A Reversal of Capital and a New Means of Inequality

Abstract

This article provides a socio-historical analysis of particular financial instruments in the housing market. I argue that the production and consumption of subprime loans continue to evince a pattern of racial discrimination. Whereas racialized loans in the mid-1900s were based on providing credit to whites and precluding blacks from accessing credit (Wave I), a new means of financial production was predicated by the opposite (Wave II). Although the first wave of home ownership led to real increases in wealth, the second wave led to a housing bubble that resulted in less or negative wealth. Under the subprime era, banking institutions could reap profits when homeowners paid their loans on time or defaulted. White homeowners continued to fare better than black homeowners.

ACKNOWLEDGMENTS

The author would like to thank the reviewers and editors of Sociological Focus in general and one reviewer in particular for their helpful comments in writing this paper.

Notes

¹ Marx ([1894] 2010), in Capital Part IV, Chapter XIX, paragraph 17 stated: “While, therefore, the commercial capital has its own form of circulation, M—C—M, in which the commodity changes hands twice and thereby recovers the money, in distinction from C—M—C, in which the money changes hands twice and thereby promotes the exchange of commodities, there is no such special form of circulation, which can be demonstrated in the case of financial capital.” Of course any discussion of Marx and financial “means of production” in the twenty-first century is posed with anachronistic challenges, yet scholars such as David Harvey (1985:37–38; 79; 87–90; 111; 122) employ specifically a Marxist framework regarding capital flows and homes. I employ the concept of “financial means of production” because physical capital is so far removed from ABSs whereby “capital” flows not from physical or tangible goods, rather, from the ability to produce and control speculations (of speculations) in the form of “derivatives.” Thus, subprime loans and related instruments have been termed as “gambling” rather than “investing.” Neither money nor capital is “connected” (anymore) as Marx envisioned regarding (value)-(exchange-value)-(use-value), but the speculation of M or C predicates D-D-D … (derivatives ad infinitum) via “surplus value” extraction by banking and financial institutions.

² The author is aware that increases in FDIC limits (created in 1933, raised from $2,500 to $5,000, $10,000, $15,000, $20,000, $40,000, $100,000, and $250,000 in years 1934, 1950, 1966, 1969, 1974, 1980, and 2008 as part of The Emergency Economic Stabilization Act, respectively) helped fuel the access to credit and therefore the rise of CDOs and securitized financial instruments. Due to space limitations a more in-depth analysis was not provided.

³ There was corruption too.

Additional information

Notes on contributors

Henry Hyunsuk Kim

Henry Hyunsuk Kim is Associate Professor of Sociology at Wheaton College, IL, where he continues to follow his lifelong passion of connecting counterintuitive patterns with respect to structure, agency, and contingency.