There are two things you can do when confronted with racial slurs. You can get offended, and try to silence the person using them. Or, you can appropriate them, and turn them into terms of endearment, thereby taking the sting out of the words in question.
Here's a little story about what happened when some people did the latter, but found themselves in a confrontation with someone who did the former.
Who came out looking like the bigger person?