Bad timing: mass-participatory asset bubbles as a mechanism of predatory inclusion

Abstract This paper considers the relationship between market composition and temporal dynamics of ethno-racial stratification in mass-participatory asset bubbles. Beginning from the insight that bubbles possess the social structure of a Ponzi scheme, we first ask to what extent timing of entry is structured by racial status and associated resource disparities among participants. We then consider to what extent homophilous social cues and segregation amplify disparate rates of late-stage entry. We focus on the 2000–2008 US residential housing market, using neighborhood-level data from the Home Mortgage Disclosure Act and the Federal Housing Finance Authority. Conditional on mortgage lending terms, credit availability, and other tract-level characteristics, trends in housing purchase rates for Blacks and Hispanics diverged from those of Whites as prices neared their peaks. Residential segregation and processes of homophilous diffusion amplify price-bidding and exacerbate racial disparities in rates of late-stage entry by rendering actors less attuned to the emergent risks of buying at elevated prices, and more vulnerable to the overtures of predatory agents. The analysis links the sociology of financial markets to studies of racialized predatory inclusion by considering heterogenous market timing, a mechanism which has become increasingly salient as financialization draws more diverse actors into volatile asset markets.