May 12, 2011

Nobody ever learns anything

From Bloomberg Business Week:
A Renewed Crackdown on RedliningIn the wake of the subprime implosion, the Obama Administration has stepped up its scrutiny of disadvantaged neighborhoods' credit access
By Clea Benson 
Community activists in St. Louis became concerned a couple of years ago that local banks weren't offering credit to the city's poor and African American residents. So they formed a group called the St. Louis Equal Housing and Community Reinvestment Alliance and began writing complaint letters to federal regulators. 
Apparently, someone in Washington took notice. The Federal Reserve has cited one of the group's targets, Midwest BankCentre, a small bank that has been operating in St. Louis's predominantly white, middle-class suburbs for over a century, for failing to issue home mortgages or open branches in disadvantaged areas. Although executives at the bank say they don't discriminate, Midwest BankCentre's latest annual report says it is in the process of negotiating a settlement with the U.S. Justice Dept. over its lending practices. 
Lawyers and bank consultants say regulators and the Obama Administration are scrutinizing financial institutions for a practice that last drew attention before the rise of subprime lending: redlining. The term dates from the 1930s, when the Federal Housing Administration drew up maps using red ink to delineate inner-city neighborhoods considered too risky for lending. Congress later passed laws banning lending discrimination on the basis of race and other characteristics. "The agencies have refocused on redlining because, in the wake of the subprime explosion and sudden implosion, they are looking at these disadvantaged neighborhoods and not seeing any credit access," says Jo Ann Barefoot, co-chair at Treliant Risk Advisors in Washington, D.C., which consults with banks on regulatory issues. 
The 1977 Community Reinvestment Act (CRA) requires banks to make loans in all the areas they serve, not just the wealthy ones. A Bloomberg analysis found the percentage of banks earning negative ratings from regulators on CRA exams has risen from 1.45 percent in 2007 to more than 6 percent in the first quarter of this year.

Because banks' 2007's credit practices should be a model for all eternity.
At the Justice Dept., a new 20-person unit dedicated to fair lending issues received a record number of discrimination referrals from regulators in 2010 and has dozens of open cases, according to a recent agency report. Potential penalties can reach into the millions of dollars. "We are using every tool in our arsenal to combat lending discrimination," Thomas E. Perez, the assistant attorney general for the Civil Rights Div., told a conference of community development advocates in Washington in April.

How'd that work out last time anyway?


none of the above said...

It's notable what you don't see the activists doing here: offering to lend their own money in these "underserved" areas. I mean, the banks are behaving irrationally, leaving money on the table, right? So why not pick some of that money up?

Camlost said...

OT: a political scientist proves that whites don't like Obama strictly because of his race:

Please try not to make any larger assumptions based on the guy's name...

Anonymous said...

Apparently banks are so racist that they're willing to put their "greed" on hold in order to discriminate. This would amount to the bank choosing to pay money to practice their racism.

Mannerheim said...

When the first paragraph talked about how the activists formed a group to combat lending discrimination, I thought it was going to say they did it by raising capital and making loans in the underserved neighborhoods, but no, they did it by whining to the gub'mint about how poor people's constitutional right to bank credit was being violated. "Using every tool in our arsenal" indeed.

Kylie said...

So Eric Holder is still looking out for his people.

Why doesn't he just issue them billy clubs and turn them loose to intimidate bankers into giving them loans?

RS said...

It would almost be more surprising if this would fail to recurr someday. But the celerity is audacious to say the least.

Anonymous said...

I remember back in the Bush boom years, my family bought a house for 45K in Lancaster. Stripped it to the frame, rebuilt, fixed the pool, and sold it for 105K. It sold in a week.
The purchaser was a 20 year old black girl, who was a college student.
I recall mentioning to the realtor that I'd never heard of a 20 year old college student able to afford a house, even at 105k. The realtor said she got a "minority loan," which required very little downpayment I said the question wasn't why she could, the question was if she SHOULD. I said i thought supporting herself thru college while handling a home loan, home insurance, and all the other expenses of a house seemed a little crazy for a 20 year old college student who was supporting herself. The realtor said, "well, let's hope it works out for her."
I don't know if she succeeded, but going by the history of foreclosures in Lancaster, I have my doubts.
What the Obama crowd isn't getting is there's more to owning a house than making payments. Money management, and all the other decisions involved in KEEPING a house, requires a skill set that comes from life experience that a lot of poor people don't have.
Another issue now is the houses in poor areas, like Compton, have been inflated due to the final wave of house flippers and minority loans, so that poor folks will wind up overpaying AGAIN, and defaulting on overinflated houses AGAIN, while the middle-class will be edged out of getting a house legitimately due to the overinflation AGAIN.

Brent Lane said...

The concluding paragraph of the linked article:
Meanwhile, in Missouri, things are starting to change. Midwest BankCentre Chairman Ronald T. Barnes recently announced the bank would open a branch in Pagedale, a town near St. Louis that is predominantly African American."

A quick check of Google maps for Pagedale, MO shows four financial institutions already operating branches in the immediate area: Bremen Bank & Trust (rated 3-star by Bauer Financial), Heartland Bank and St Johns Bank & Trust (both rated 2-star), and FirstBanks Inc (with only 1 star). Midwest BankCentre was rated 5 stars, the highest rating Bauer gives out.

The clear implication is that Bauer's rating system is discriminatory.

Kylie said...

From the article Camlost linked:
"The main question for us here is whether whites’ opinions about Obama, including opinions about his place of birth, have been shaped by feelings of racial resentment."

Well, Obama has demonstrated a lot of racial resentment toward whites so yes, that probably has had something to do with whites' opinions about him.

Anonymous said...

I once came in sixth in the California Wine Tasting Championships, thus proving that I have discriminating taste. I could - at least over those two days - discriminate between a Cabernet and a Merlot.

Discrimination was recognized as an admirable trait, even a healthy trait. If you couldn't discriminate between red and brown you were blind - in this case color blind.

But somehow connotation overtook denotation. Nowadays everyone takes discrimination to mean racial discrimination.

One of the ironies is that IQ tests are tests of discrimination. Those who don't do well on such tests can't discriminate between, for example, two matrices. Or two similar sounding paragraphs. So one meaning of racial discrimination must be that the races are not equally adept at discriminating among multiple choice test answers.

Of course no one means that.

What they mean is that (a.) since all races are fundamentally the same (b.) then distinguishing among them on any basis is wrong. Alas (a.) isn't even approximately true. Races differ greatly on such matters as diabetes, marginal propensity to rape, and credit worthiness. None of these assertions is even remotely controversial. There is a mountain of evidence. Modern science has spoken.

Unfortunately Mr. Perez and Mr. Holder are not scientists but lawyers. They are immune to facts. They have arguments instead. They don't care that credit worthiness correlates with race. Indeed they probably feel that such an idea is ignoble and vaguely dirty.

Much the same sort of illogic obtained about incarceration. Blacks were showing up in prisons disproportionately. All of them had been tried and convicted individually but the liberal lawyers focused on the overall statistics and concluded that Whites must be discriminating against Blacks. That was a preposterous conclusion but one for which no lawyer was embarrassed. Being a lawyer means never having to say you're sorry.

After a long struggle we finally have put most of the discrimination in incarceration issue behind us.

So there is some reason to be optimistic. Slowly politically correct notions are exposed, understood and rejected. One problem is that so far the public hasn't figured out that the government had a huge role in promoting bad loans. Economic know-nothings like Bill O'Reilly routinely blame Wall Street, bankers, speculators and the greedy for our economic woes.

Thank God for this blog.


Private Citizen said...

Can one of the many lawyers who read this blog please explain in simple terms why a business can't discriminate. I'm assuming that it has something to do with the interstate commerce clause since that always seems to be the way that the federal government gets involved in our personal lives.

But I'm just confused as to why a private citizen with a private company that isn't doing work for the government (granted banks are heavily regulated by the government and give charters but I'm talking about any small business) can't work with whomever they choose. Why is it different than my choosing to live in a very white neighborhood or my choosing not to let some people into my house? These are private decisions.

Why is a private business so different. If I choose not to serve black people in my privately-owed restaurant, how is that different from my choosing not to allow black people into my home?

Also, why would it be any different if I demanded some other criteria (high prices, clothing standards, etc.) to enter my establishment that impacted NAMs disproportionately?

Truth is that I own a small business where my clients are people and not other businesses. I choose not to work with people all the time. I don't like working with engineers (sorry, but you guys got to learn that everything in life isn't a math problem), doctors (yea, I get it, you're smarter than everyone else), non-American born Asians (do I really need to explain) and, almost always, NAMs.

I have one black client, who, not surprisingly, wasn't born in the US. I would guess that I'm breaking the law, though no one would bother to care.

How does the gov't justify getting involved in private decisions among private citizens?

Anonymous said...

How does the gov't justify getting involved in private decisions among private citizens?


Chicago said...

No one ever learns anything, nobody ever remembers anything, and what's more nobody even cares.
There's no past, no future, only the present exists.
The wheel must be re-invented every thirty days.
Perhaps we've all become an evolutionary dead-end without realizing it, eventually to go the way of the dodo bird.

Jeff said...

I am reminded of the poem:

Big fleas have little fleas,
Upon their backs to bite 'em,
And little fleas have lesser fleas,
and so, ad infinitum.

Bankers are vicious vermin, trying to turn everyone into debt slaves.

Everyone involved in the Federal bank shakedown racket is a thief.

Government employees involved in the shakedown racket will themselves be shaken down for political contributions if they want to keep their wretched jobs.

Ad infinitum.

Formerly.JP98 said...

"Nobody ever learns anything"

Quite the contrary. We've learned that:

- When it comes to public policy, having the "correct" motives is more important than results (see Frank, Barney, reelection of).

- The revolving door betwen the central bank, the Treasury Dept., and Wall Street means that major losses by big banks and funds will always be covered by the taxpayer.

- The central government can sell business f-ups (if they're large enough) to the public as "national crises" for which the public will pay -- with some grumbling, perhaps, but no real resistance or consequences.

- Such "crises" offer openings for the growth of government and of the dependent classes, who will in turn welcome more of the policies that started this cycle.

AllanF said...

The implication of this is to further enshrine the "Too Big Too Fail" banks whose business model is head's I win, tails the tax payer loses.

At the rate things are going we are going to have as many banks as car makers and cell phone companies.

Anonymous said...

In an attempt to interfere with and block free and fair voter participation, Texas passed a couple new laws yesterday. They'll probably wind up at the supreme court.

The first is the regular ID, which imo, isn't that big a deal or that bad an idea. The second is the bad one, they've made it illegal for a person to register people to vote in texas unless you're a texas resident.

Someone registered to vote in a different state would no longer be able to work as a volunteer registrar, damaging Democrats far more than Republicans as the left is more reliant on the resources of national organizations to parachute organizers in from out of state.

It is possible that this will have a backlash effect because it will incentivize the national democratic party to really grow, develop and strengthen the democratic party within Texas. But still, it's a nasty law, but hey, with 38% latinos (and growing) Texas HAS to do something to keep those scary brown people from participating at the polls, they don't vote white...err right... and that's just wrong.

Deckin said...

There was once an episode in the original Star Trek where Kirk and Spock came upon a man and Spock, upon playing some of the man's own handwritten music, concluded that the music was original Brahms. Further investigation revealed that the man couldn't die and indeed was Brahms, Rembrandt, and many many other famous persons.

What's this got to do with the price of eggs? Easy. Enter Albertosaurus.

Taught Computer Science: Check
Accomplished Wine Taster: Check
Scholar at George Mason University: Check
Scholar at Georgetown University: Check
Accomplished Opera Singer: Check
Accomplished Government Employee: Check

I'm sure I'm leaving lots out that longer term readers could supply, but perhaps we have found the eternal man!

Formerly.JP98 said...

"I'm sure I'm leaving lots out that longer term readers could supply, but perhaps we have found the eternal man!"

Yes, but is his android "daughter" in love with Steve? That's what I want to know.

headache said...

Midwest BankCentre's latest annual report says it is in the process of negotiating a settlement with the U.S. Justice Dept. over its lending practices.

That's why Eric Place Holder does not have time to investigate the really big crooks on WS.

Anonymous said...

I think it's a compromise between Wall Street Jews and Street-side blacks. Wall Street Jews got their 'bailouts', and so Street-side blacks will get their 'loans'.

In fact, both sides are robbing everyone in the middle blind.

Luke Lea said...

Perhaps they should test the constitutionality of this law?

Fannie May Not said...

Maybe someone who knows this stuff can answer this:

I bought a house the normal way last year, through a mid-sized bank. A couple months of payments into the 30 year mortgage I get a letter saying my loan's been sold to Fannie/Freddie (I forget which). What's to stop these banks now being forced to loan to the poor from flipping the loans over to F&F a couple months later? Isn't this just another way to get the middle/upper class to pay for loans to the poor that'll likely never be repaid?

Has to be said...

Banks not offering credit to the poor? Why can this be? Obviously this is a racist plot.

By the way, is "community activist" the same thing as "community organizer"? Or do you need an Ivy League degree to become the latter?

Has to be said...

The summary of the article on the bottom:

The bottom line: Lenders have been caught off guard by stepped-up enforcement of laws to prevent discrimination against minorities and the poor.

Had anyone who's got more than two brain cells been caught off guard?

rjp said...

The 1977 Community Reinvestment Act (CRA) requires banks to make loans in all the areas they serve, not just the wealthy ones.

What CRA says and how it is applied are two entirely different things.

It is applied as a circle arround a point -- a distance you are willing to go to do business, write a mortgage.

Let's say your daughter is a bank teller, been at her job 10 years. She wants to buy her aunt's house, which is down the street from her parents with the mortgage payment being made via a payroll deduction. The house is 25 miles from where the bank where she works. 45 miles directly north of where she lives, passing over the bank, is a neighborhood no sane bank would lend money in (hence Frannie & Freddie). If the bank she works at writes a mortgage for her, they have obligated themselves to writing mortgages in all locations within a 25 mile radius of their location, including the qustionable neighborhood mentioned because writing her mortgage establishes that 25 miles is the distance they are willing to go to do business.

As for Frannie and Freddie writing $500k+ mortgages, should have never been allowed to have happened in the beginning. Max should have been capped at some figure like 3.5 times average household income for city/county/something .....

Anonymous said...

Good to see that racism and hate is being stamped out in all its insidious forms.

Anonymous said...

Once it was "Don't Tread on Me."

Our signature motto as a country now is "Let's Play Pretend." It's the Euro motto as well. Sad.

Anonymous said...

Banks not offering credit to the poor? Why can this be? Obviously this is a racist plot.
normally i would agree but since we are essentially financing/subsidizing the super wealthy via the FED and extending them cheap easy money at .0025%, the obamatards might have a point here.

Crawfurdmuir said...

I think I may have posted this anecdote as a comment in another one of your comment sections, but it is so good that I will risk repeating myself.

I'm a director and principal stockholder of a community bank. We're in a Midwestern state with perhaps 5-6% black population, and this concentrated almost entirely in its two largest cities. The bank is in a relatively affluent suburban area outside one of those cities, and the population here is lily-white. There is, however, a state penitentiary that falls within the limits of one of the villages in the area.

In addition to traditional bank examinations for financial safety & soundness, the FDIC conducts "compliance" exams under the Community Reinvestment Act (CRA) and the Home Mortgage Disclosure Act (HMDA) to determine if red-lining or lending discrimination is going on. Under these acts, a bank must file detailed reports about the racial demographics of its borrowing customers.

Several years ago, the bank underwent such an exam. The examiners came equipped with plat maps and census reports of the community. After some time, a young FDIC bureaucrat strode into the office of the bank's chief operating officer with a portentous look on his face, and announced that it appeared to him the bank was engaging in redlining and racial discrimination. He pointed out that the census data showed a high black population in this particular village within our area of operations, yet the bank's HMDA reports did not show a single black borrower.

The FDIC man shoved some papers in front of the COO, who looked at them carefully, and replied "Well, we don't make many loans to prison inmates." I didn't witness it, but heard that the crestfallen look on the bureaucrat's face was almost worth all the grief of undergoing the exam.

Has to be said...

we are essentially financing/subsidizing the super wealthy via the FED and extending them cheap easy money at .0025%

Huh? What cheap easy money? Do you mean Fed Discount Window operations?

agnostic said...

It won't change anytime soon.

The only periods when there's a general feeling of "let's not send the government in, they'll only screw things up more" is during the second half of a rising-crime period.

During the last crime wave, this was the mid-1970s through the early '90s. There was a nasty recession in the mid-'70s and an even worse double-dip one in the early '80s, not to mention the briefer one in '90-'91.

Not that the government didn't stay out altogether -- there was the half-hearted price control of gas, the bailout of Chrysler, and here-and-there aid to failing banks -- but it was nothing like the New Deal or today's new New Deal, widespread bailouts, Cash for Clunkers (didn't see that in the early '80s failure of Detroit), and so on.

During the earlier crime wave, this period was roughly 1915 to 1933. There was a bitter recession in the early '20s and of course the Great Depression starting in 1929.

Still, the Progressive movement was as dead as the Great Society partisans were during the '70s-'80s recessions, so there was no sweeping intervention in the early '20s, and although Hoover was not a "do-nothing" president, his interventions were still pretty invisible next to the New Deal era transformations.

I won't explain the mechanism that makes these periods the ones where the "butt out" zeitgeist rules, for lack of space, but on a descriptive level, that's where they are. We're very far away from that phase of the cycle, so expect a lot more of the New Deal style policies.

agnostic said...

Michael Milken was prosecuted in 1989, later pleading guilty and going to fucking jail.

So much for all that lazy thinking we keep hearing that makes it sound like Gordon Gekko's philosophy ruled the day in the go-go '80s. In real life, Milken did time. Meanwhile, Lloyd Blankfein et al. are still on the loose.

eh said...

Vermont has fewer foreclosures than any other state

No sand I guess.

Goldman $achs said...

How'd that work out last time anyway?

Mr Sailer, you seem to forget that for much smarter people than you, it worked just fein.

Anonymous said...

Haven't these people heard that the big problem now is actually reverse redlining?

Anonymous said...

Some of these banks are chomping at the bit to engage in "predatory lending"

Anonymous said...

The headline should really say NOBODY NEVER LEARNS NUTTIN.

Anonymous said...

This is absolutely maddening. The "predatory lending" chimera is still fresh in memory, and we're hearing again about redlining? How dumb do they think we are? All right , no need to ask.

Anonymous said...

Obama and Mugabe think alike, and this isn't hyperbole. After American turns into Zimbabwe, Asians will take over.

Anonymous said...

I say we just scrap CRA and lend these whiners $500 billion interest-free to loan out according to the rules they'd impose on everyone else. In fact, bar them from lending to white people at all. Then come back in 10 years and see how they're doing.

Truth said...

"No sand I guess."

Uh, no one moving there either, Sport.

eh said...

Uh, no one moving there either, Sport.

There's no doubt something to that.

But I think the situtation is a lot more complicated.

According to this page, Ohio actually ranks (or ranked, the data is a couple of years old) slightly below Vermont in population growth. However, per this page foreclosure rates in Ohio far outpace those in Vermont. I imagine unemployment in Ohio is much higher than in Vermont, but I'm too lazy to look that up right now.