Saturday, March 15, 2008
We've blogged many times about the damaging emphasis on race and gender targets across the public sector (see the annual report of any public body- eg the London Drivel Agency). While the intentions may be noble, the consequences are usually dire- underperformance, incompetence, and much, much worse.
But that may be nothing compared to something Mr Dale has just posted from the US: a gripping piece from the New York Post argues that the entire US sub-prime loans crisis is largely down to a half-baked anti-discrimination measure.
In this case, US banking regulators convinced themselves that non-whites were being disciminated against in obtaining mortgage loans. They therefore put pressure on commercial lenders to meet race targets in making home loans. Iain links the NYP article, and here's how the Fed set out its approach in an Interagency Policy Statement on Fair Mortgage Lending Practices on October 9, 1992:
"Increasing evidence indicates that differences in loan-approval rates between white and minority home mortgage applicants, apparently unwarranted by economic factors, characterize some lending...
...If statistical analysis--or follow-up review of applications and loan files--yields reliable evidence indicating loan decisions by particular lenders were based on race or ethnicity, that information will be forwarded to the Department of Justice...
The agencies are continuing to emphasize the need for examiners to... identify institutions that should be subjected to follow-up procedures to ensure fair lending practices. Where appropriate, examiners are conducting detailed reviews and comparisons of loan and application files as part of fair lending examinations.
New computer programs and analytical tools are being developed to... help identify geographic and other discrepancies in mortgage lending that may suggest further inquiry."
Message to lenders: make sure you bend over backwards to fill your minority loan quota or you can expect a visit from the Feds.
Was that responsible for the sub-prime defaults and today's credit crunch?
On it's own, maybe not. But once it got coupled up to the slice and dice structured finance industry, greed was always ready to do the rest.
PS BOM wishes to grovellingly thank Mr D for his blush-making bigging up of us. There's only one way to go from here.