In the great search for somebody to blame for the nation&#8217;s economic meltdown, an easy scapegoat is emerging.</p><p>Or rather, make that a few million easy scapegoats. By golly, it&#8217;s those low-income minorities! Those people who never should have qualified for home loans in the first place. The uncreditworthy defaulters of all those nasty subprime loans that caused our lending system to crumble and is catapulting world markets into the tank.</p><p>It&#8217;s a conspiracy that involves all the usual boogeymen. The snooty liberal do-gooders who championed the Community Reinvestment Act; the 1977 law that mitigated lending standards for minorities under certain conditions; Wall Street sharks greedy to turn a profit, and everyone&#8217;s favorite miscreants, the members of Congress who failed to adequately regulate when the spigots of credit were opened.</p><p>&#8220;In fact, much of the crisis we&#8217;re in today is because the government set out to fiddle with the market,&#8221; George Will fumed on ABC&#8217;s &#8220;This Week.&#8221; He was referring to the CRA, which in his view &#8220;would criminalize as racism ... if you didn&#8217;t lend to unproductive borrowers.&#8221;</p><p>It makes a nice conspiracy theory, but unfortunately it&#8217;s a lie. A big lie.</p><p>Let&#8217;s start with some facts. The world financial system is now in a panic because banks, brokerages, pension funds, governments, and all manner of other institutions hold mortgage-backed securities whose structure is arcane and whose value is dubious.</p><p>Those values have plummeted because borrowers are defaulting on their mortgages at much higher rates &#8212; a trend that will likely worsen as the real estate bubble deflates.</p><p>At the center of the controversy are subprime mortgages, which are issued to borrowers deemed more risky than usual. Minorities did receive disproportionate percentages of subprime loans. Blacks make up 10 percent of home borrowers but account for 19 percent of subprime loans, according to a report cited in <em>The New York Times</em>. Hispanics make up 14 percent of borrowers but account for 20 percent of subprime loans.</p><p>But note that about 56 percent of subprime mortgages went to non-Hispanic white people, according to the study that was made in 2006 at the peak of their usage.</p><p>And about 40 percent went to borrowers considered affluent &#8212; that is, who have annual incomes at least 120 percent of their local median income.</p><p>Data are not readily available, but it&#8217;s likely that as few as one in four subprime loans was made by a lending institution that falls under the purview of the CRA. So, are default rates in CRA-related pools of mortgages higher than those in unrelated pools? Nobody has come forward with data showing that they are.</p><p>In other words, there is no basis for the libel against minority borrowers.</p><p>So let&#8217;s go back to the facts. As bad as the losses may be on the defaulted mortgages themselves, the losses on the securities made up of these mortgages are frighteningly catastrophic. That&#8217;s because the securities were structured with irrationally high levels of leverage. Leverage is what financial geniuses call borrowing to buy securities or other assets. It magnifies the upside of an investment as long as the asset is appreciating in price. When the price of the asset is falling &#8212; well, right now we&#8217;re learning how that feels.</p><p>We are suffering now not simply because people are defaulting on their mortgages. That is one cause, sure, but not a sufficient cause for a mess of this magnitude.</p><p>We are suffering because the mortgage companies, the investment banks, the credit-rating agencies, and a host of other worthy members of the financial elite were carrying on without adult supervision.</p><p>Two final points about minorities and mortgages: Government studies and independent analyses have shown that a shockingly high number of prime-qualified minority borrowers are steered toward higher-cost loans. That&#8217;s racism, folks.</p><p>Take two equally qualified potential borrowers &#8212; one white, one black &#8212; and the black person is more likely to end up with the more costly loan.</p><p>And as for undocumented immigrant mortgage holders, studies tracking their loan-payment histories show that they have some of the lowest default rates, lower than U.S. citizens, in fact.</p><p>In other words, be careful where you point that finger.