Bad idea of the day
In the face of what everyone but me seems to think is a catastrophic lack of credit availability, the New York Times weighs in on minority lending. Their proposal: carefully track lending data to ensure that minorities aren’t offered less attractive or more expensive loan packages, and hold the lending institutions legally liable if they’re deemed to be unfair in their practices.
If you were a lender, facing this government standard in the wake of a catastrophic series of loan defaults, how would you react? Would you go out of your way to improve the terms of the loans you offer to minority recipients? Or would you tighten the terms on absolutely everybody in order to cover your ass legally and financially?
Seems to me that most lenders have reacted to the unfair situation they’re in with a Galt’s Gulch approach. “You find our behavior predatory? Very well; we will prey upon you no longer. No more loans.” Who can blame them?
What they could do is offer loan products that require through and proper credit assessments of the loan applicant. Then they can structure the loan based on an assessment of risk (which determines the interest rate) and the applicant’s ability to pay (if loan payments exceed a third of applicant’s monthly income, the loan cannot be issued) They can apply these standards to every applicant without regard to race.
This was how banking was done before the idiots took charge.
And some people are still doing it:
http://www.cjr.org/the_audit/subprime_didnt_have_to_be_a_di.php
http://www.newsweek.com/id/169160
http://www.washingtonmonthly.com/features/2008/0811.longman.html
But they work at small banks. The problem isn’t government mandates, it’s that big banks were
playing with other people’s moneyselling securities made up of debt that was acquired by the suckers of con-man brokers. The problem was the environment was lawless and the lawlessness was hidden by the banks’ size. Big banks got away with what little banks couldn’t. Minority lending is a minor issue. The major issue is that these institutions were left to self regulate and while many of the little ones did, many of the big ones didn’t. Now we are literally paying for the mistakes of the big ones.Comment by thimbles — 12/12/2008 @ 12:00 pm