The Detroit Free Press has an editorial today opposing the Michigan Civil Rights Initiative that is a classic of pious, vacuous, misrepresentation.
According to the Freep editors, not only will the sky fall if MCRI passes but there will be no women dentists or mathematicians.
MCRI would strengthen the ban against discrimination. Racial and gender preferences, favored by the Freep all those who oppose treating people without regard to race or gender, embody it.
And how does the state having separate and unequal admission programs based upon race have anything to do with loans from banks.
Does the Detriot Press really want my bank to ask me what race/ethnic group/gender etc so that it can decide what interest rate I should pay?
Superdestroyer makes a good point. Although MCRI covers more than college admissions, it applies only to state action. Last time I looked, the state of Michigan had no banks. Both the state and the federal governmnent, however, do have laws that make discrimination on the basis of sex illegal, and those laws would be unaffected by the passage of MCRI. Perhaps the Freep editorial was written by a tooth fairy, unaware that future lady dentists would continue to have redress for any bank discrimination even if MCRI passes.
Aside from the bizarre nonsequitur inherent in the example, as noted by superdestroyer, if the well-financed opponents of MCRI really believe that banks are discriminating against many deserving, credit-worthy women and minorities, why don’t they open up their own bank to serve this vast pool of clients? This isn’t Alabama in 1960; nobody is going to firebomb a bank that loans money to women or blacks. So if these people really exist, they comprise a ready-made clientele. Why don’t these anti-MCRI folk put their money where their mouths are? Could it be that they don’t truly believe the stuff they say? Could it be that they don’t actually think that Rhonda Hennessey was unjustly turned down for a loan?
David Nieporent writes:
>>>”Aside from the bizarre nonsequitur inherent in the example, as noted by superdestroyer, if the well-financed opponents of MCRI really believe that banks are discriminating against many deserving, credit-worthy women and minorities, why don’t they open up their own bank to serve this vast pool of clients?”
Why stop there? If opponents of the MCRI are thirsty, they could build their own separate water fountains.
Superdestroyer writes:
>>>”Does the Detriot Press really want my bank to ask me what race/ethnic group/gender etc so that it can decide what interest rate I should pay?”
Do you want to go on record claiming that lending institutions NEVER take race, ethnicity or gender into account? You know John hates it when I fill his screen with data on discrimination.
John writes:
>>>”Both the state and the federal governmnent, however, do have laws that make discrimination on the basis of sex illegal, and those laws would be unaffected by the passage of MCRI.”
Perhaps the “tooth-fairy” you refer to later in your post is going to “vigorously enforce” those anti-discrimination laws in addition to writing Free Press editorials.
–Cobra
“Why stop there? If opponents of the MCRI are thirsty, they could build their own separate water fountains.”
Completely misses the point. If they believe that banks are not extending loans because of racism/sexism, and not because of legitimate considerations about credit worthiness, they should readily put their money where their mouths are and extend the loans themselves.
In short, they should put up or shut up.
Cobra,
First of all the MCRI would have nothing to do with banks so why mention them in the story.
Second, the current system in Michigan discriminates against suburban white females. The State of Michigan would rather admit a lower qualified black male than a higher qualified white female or pay above market prices to a black owned business instead of a white female owned business. Somehow the editorial writer seems to have missed that point.
Third, the research on discrimination on banking is seriously flawed. The studies are based upon walk-in, personal banking. Why doesn’t someone where a black family and a white family both apply on line for a mortage and see if the black family really pays a higher price.
Cobra writes:
Perhaps the “tooth-fairy” you refer to later in your post is going to “vigorously enforce” those anti-discrimination laws in addition to writing Free Press editorials.
In other words, as I’ve said before, you favor discrimination now as a remedy for discrimination that you predict will occur, but hasn’t happened yet, and that the authorities won’t prosecute if it did occur and that would be rejected by a judge if the alleged victims brought suit.
I’m sure you would agree that there are lots of people, or at least some people, who would be happy to use your “logic” (I use the term loosely) to arrest young black men before they commit any crime (why wait ’till the last minute? they would say) and who would probably just be turned back out on the streets if they were arrested. And, given what you argue here and elsewhere, what, exactly, would be your principled argument against such an obnoxious position?
Cobra,
David Nieporent has a point, and one I think I’ve raised before. The flaw in studies of lending discrimination is that, while several studies have found facial discrimination (Black applicants denied while white applicants with similar proposals and financial info are accepted), no one seems to have been able to find the obvious corollary, which is a difference in default rates.
If a bank is holding Black clients to a higher standard of creditworthiness than white clients out of sheer prejudice, the Black default rate should obviously be lower than the white default rate. Certainly that’s what you would expect if you divided prospective borrowers into two categories by any other random criterion and treated the two cohorts according to different standards. If a banker flipped a coin any time someone approached him for a loan, and imposed a laxer standard on the “heads” than on the “tails,” you’d expect the “tails” who actually got loans to have a lower default rate than the “heads” who did, wouldn’t you?
Anyway, it seems that lenders accused of discriminating don’t actually show any default differential. Why, I don’t know. I know I read a criticism of one such study somewhere that claimed the Black and white applicants followed weren’t really similarly situated — that, say, incomes were matched but net worth was very different, &c.
The point is that if real discrimination is happening, and people are being denied loans for reasons having nothing to do with any risk to the lender, only bigotry, there ought to be a default differential. And that would obviously be a magnificent opportunity for any entrepreneur. Really, if banks are passing on obviously sound customers because they don’t like their skin color or their accent or their propensity to wear skirts, don’t you think someone would have the wit to pounce on the opportunity thus afforded?
Michelle writes:
>>>”Really, if banks are passing on obviously sound customers because they don’t like their skin color or their accent or their propensity to wear skirts, don’t you think someone would have the wit to POUNCE on the opportunity thus afforded?”
That’s called “predatory lending” (as you aptly depict in your scenario) and it’s a multi-billion dollar industry.
John writes:
>>>”In other words, as I’ve said before, you favor discrimination now as a remedy for discrimination that you predict will occur, but hasn’t happened yet, and that the authorities won’t prosecute if it did occur and that would be rejected by a judge if the alleged victims brought suit.”
You’re getting closer, John. I guess my posts are finally starting to sink in with you. If we’re all in Dodge City, why do anti-affirmative action types think I should meekly hand over my little derringer, while everyone else walks the streets with holstered Colts and lever-action Winchester 94’s?
Especially, when I know the Sherriff doesn’t often have my best interests in mind?
Federal Dog writes:
>>>”Completely misses the point. If they believe that banks are not extending loans because of racism/sexism, and not because of legitimate considerations about credit worthiness, they should readily put their money where their mouths are and extend the loans themselves.
In short, they should put up or shut up.”
So if people get discriminated against based on race by an institution, they should form a SEPARATE but EQUAL institution to serve the needs of the discriminated minority?
Where have I heard this one before?
–Cobra
Cobra,
You’re not quite getting my point. The premise is that there are lots of people who are good credit risks, but are being turned down because the lenders are bigots. The reasonable assumption is that there are lots of people who are good credit risks, but can’t get credit because all the existing lenders are bigots. These people are obviously an opportunity for any non-bigoted entrepreneur.
I know that there is “predatory lending.” Why is there?
Ah, Cobra. Because you didn’t respond, I take it you’re willing to accept the implicit deal I offered: you get to keep your preferential hiring/admissions/etc., i.e., remedy before the (predicted) uncompensated (also predicted) injury, and the cops get to put suspicious young black men in preventive detention before they get a chance to commit the (predicted) crimes they would otherwise no doubt commit?
Cobra’s idea has always been bizarre to me: that even though the entire business, professional, and educational (and even military!) communities lined up to support affirmative action when it was before the Supreme Court, the same people who made the decision to support discrimination in favor of blacks are going to turn around and discriminate against blacks the next day.
Nowhere. You don’t understand what we’re suggesting. Separate but equal was a government requirement that an institution only be allowed to serve one or the other. Nobody is suggesting that your new institution serve only blacks or women. Just that you focus on these supposedly underserved markets. If they’re really underserved.
If Rhonda Hennessey was just as creditworthy as her brother, then a bank which failed to loan money to her because of prejudice was missing out on a good customer. According to the logic of the MCRI-opponents, there are lots of such good customers out there. So prove it. Demonstrate that you guys really believe this. Sign up all these good customers, and make lots of money. If the anti-MCRI folk are not doing it, either you guys are deliberately passing up on a profitable enterprise or you guys don’t really believe that there are many people being discriminated against.
No, it isn’t. “Predatory lending” is a term of political rhetoric, not an actual clearly-defined phenomenon, and so it’s used to encompass a variety of disparate behaviors, some reasonable, some not. It’s primarily used for one of these, though:
1) Lending money to bad credit risks at rates deemed too high by some.
2) Lending money to unsophisticated people at terms extremely favorable to the lender because the borrower doesn’t know better.
But we’re talking about lending money to allegedly good credit risks. Like Rhonda Hennessey.
John writes:
>>>”Ah, Cobra. Because you didn’t respond, I take it you’re willing to accept the implicit deal I offered: you get to keep your preferential hiring/admissions/etc., i.e., remedy before the (predicted) uncompensated (also predicted) injury, and the cops get to put suspicious young black men in preventive detention before they get a chance to commit the (predicted) crimes they would otherwise no doubt commit?”
I didn’t respond, because your scenario isn’t truly hypothetical. In fact, you’re offering to sell me a car I already own the title for.
You see, I was that “suspicious young black man” who was profiled, followed, approached, harrassed, pulled over and at one point detained by white law enforcement over the years without the benefit of having committed a crime. And despite my numerous encounters, I got off fairly light compared to many of my friends and acquaintances.
I would venture to say that in Bushamerica today, brown has become the “new black”, and I cannot fathom the amount of “detention on suspicion” I would receive if I wore a kufi, or spoke out loud in Arabic or Farsi. (Note to surveilance team: Cobra is a Christian, Baptist to be precise, with absolutely no ties to any middle eastern country, organization or sect.)
So given this state of affairs, why would I have to come up with a reasonable argument to justify “positive” preferences, when the “negative” preferences against me are clearly endorsed by the strident conservative movement in America?
David writes:
>>>”If Rhonda Hennessey was just as creditworthy as her brother, then a bank which failed to loan money to her because of prejudice was missing out on a good customer.”
Now you’re missing my point. This is a nation of 300 million people. Businesses of all stripes can thrive on niche marketing, and targeted demographics. If a bank chooses to cherry pick who it lends to based upon race or gender, the pool of white male applicants is not diminished in the least. In other words, to that bank, there are plenty of other “good customers” to choose from in THEIR mindset. The market will not fix this discrimination.
We are also in the midst of the info-explosion, where distance is not an obstacle to sales volume.
David writes:
>>>”Nobody is suggesting that your new institution serve only blacks or women. Just that you focus on these supposedly underserved markets. If they’re really underserved.”
Of course you’re doing that. Look at the logic you folks are displaying:
“Banks are discriminating against women and minorities, so why don’t you make a separate bank that doesn’t discriminate.”
You folks don’t address the issue of lending discrimination, (save Superdestroyer, who denies its existance.)
That’s akin to what John alludes to in his “offer” to me. If law enforcement is discriminating against minorities, would you suggest I form a militia (hypothetically, surveilance team!) with other minorities to provide services that THIS institution is not providing?
You see the slippery slope, David?
–Cobra
Cobra – At least you have the consistency to find nothing wrong, in principle, with preventive detention.
Cobra, I always thought that we had different mindsets. Now I see that you’re actually from another planet. On the planet I’m from, corporations will do anything short of assassinating the president of the United States in order to beat Wall Street analysts’ quarterly projections. On the planet you’re from, the executives of these corporations have conversations like this:
* “Sir, I’ve got an idea to increase market share by 2 points, without any additional risk.”
* “No thanks; I’m not interested in hearing your idea. We’ve got enough customers.”
I do address it. I’m saying that you’re implicitly denying its existence. Talk is cheap. It’s easy to throw around accusations. If you really believed in the truth of these accusations, you would open up another bank that doesn’t discriminate. The fact that nobody has done so means that nobody actually thinks there are good customers out there who aren’t being served.
“So if people get discriminated against based on race by an institution, they should form a SEPARATE but EQUAL institution to serve the needs of the discriminated minority? Where have I heard this one before?”
I can’t decide if you are being disingenuous, or if you are just a really, really bad reader. The (obvious) point is that they are not being discriminated against because of their race. Rather, they are not being given loans because thay are bad credit risks. There is nothing race-specific (at least not for me — what about you?) about people defaulting on bank loans.
If you have evidence that good credit risks are being discriminated against because of race, post it.
Cobra,
Um, what David Nieporent said.
Dude, how can I not have “address[ed] the issue of lending discrimination” when I spent two comments on it in this thread?
Let me just say that lenders tend to be pretty savvy in assessing risk; it’s their job. Auto insurance works somewhat the same way, as I understand it, with broad statistical assumptions thrown into the formula that produces the rate. (Full disclosure: I don’t drive, so what I know is second-hand.) I gather that men pay more than women; young people of both sexes more than older people; people in some ZIP codes more than those in others; owners of some model vehicles more than others. Cobra, would you keep any of this, or ought it all to be scrapped, and auto insurance sold only at one fixed rate, on the model of single-payer health care?
David writes:
>>>”I do address it. I’m saying that you’re implicitly denying its existence. Talk is cheap. It’s easy to throw around accusations. If you really believed in the truth of these accusations, you would open up another bank that doesn’t discriminate. The fact that nobody has done so means that nobody actually thinks there are good customers out there who aren’t being served.”
Then Federal Dog writes:
>>>”If you have evidence that good credit risks are being discriminated against because of race, post it.”
Then Michelle writes:
>>>”Let me just say that lenders tend to be pretty savvy in assessing risk; it’s their job.”
John, I’m sorry. I’m going to have to post some data and research here. I will try my best to be brief, but this is yet ANOTHER example of where people just seem to be in denial of the facts on discrimination.
>>>”Federal law is absolutely clear on the subject: Race and ethnicity should have no bearing on the cost of your mortgage or the quality of service rendered to you as you shop for a loan.
But a new, two-year investigation documented what its sponsors call “pervasive discriminatory and predatory practices by mortgage brokers” in all six markets.”
National Community Reinvestment Coalition Study
OK…what were the parameters?
>>>”The six markets investigated were Baltimore, Washington, D.C., Chicago, Los Angeles, St. Louis and Atlanta. In each area, African-American and Hispanic couples or individuals visited the same mortgage brokerage firms as white shoppers, all purporting to apply for home loans of similar amounts. All the applicants were assigned specific income, credit and employment profiles to present to loan officers. African-American and Hispanic applicants had slightly higher incomes, credit scores and longer employment backgrounds than their paired white colleagues making separate applications at the same brokerage firms.”
And what were the findings?
>>>”In this setting, the minority applicants should have received the same — if not better — mortgage quotes as the white testers. But instead, they often received less favorable treatment. For example:
· Brokers discussed loan fees with 74% of the white shoppers, but only 31% of the minority shoppers. Yet loan fees — points and a wide variety of other charges — can add significantly to the out-of-pocket costs of one mortgage compared with another, even if the interest rates are the same.
· White applicants were presented twice the number of loan options — different rates, fees and structures — than were African-American and Hispanic shoppers.
· Brokers discussed fixed-rate first mortgages with 90% of the white applicants but just 56% of the minority applicants.
· Seven percent of white applicants were “referred up” — told that they could get a better mortgage deal elsewhere — but not one African-American or Hispanic shopper with a superior credit profile was told the same.
· Only 9% of whites were pressed for details on possible credit problems, late payments, outstanding debts or prior foreclosures, compared with nearly 40% of all minority applicants.
· Brokers spent more time discussing loan options with white applicants — an average 39 minutes — than they did with African-American or Hispanic applicants, who got an average 27 minutes.
In an interview, David Berenbaum, executive vice president of the NCRC, called the investigation results “deeply disturbing.” When minority applicants simply walked into a brokerage office, he said, sometimes “there appeared to be a working assumption” that they were not as good credit risks as whites, no matter what their actual profile.”
I know…I know…that’s just ONE study. OK. What about the next one?
>>>”Brief Synopsis
This study extends previous analyses of home loan pricing disparities by
supplementing HMDA data with additional loan-level information from a large,
proprietary subprime database. By merging the datasets, we were able to evaluate
whether race and ethnicity affect subprime loan pricing after controlling for key
risk factors, including credit scores and loan-to-value ratios. The results show that
African-American and Latino borrowers are more likely to receive higher-rate
subprime home loans than white borrowers, even when we control for legitimate
risk factors.
Center for Responsible Lending Study
Two Strikes…still alive…here’s the wind-up—the pitch about that mythical, yet always useful in debate, “vigorous enforcement of discrimination laws already on the books”:
>>>”The Atlanta Journal-Constitution story sparked increased interest in mortgage discrimination, raised new doubts about the adequacy of Fair Lending enforcement by the federal banking agencies and aided passage of the Kennedy disclosure amendment later in 1989.
Until recently, administrative and judicial actions to enforce the Fair Lending laws have been minimal to non-existent. Both the banking industry and banking regulators have argued that disparities in lending rates between minority and white neighborhoods and even disparities in application approval rates between minority applicants and white applicants do not provide probative evidence of discriminatory conduct by mortgage lenders. From this perspective, loan rate and approval rate data have only limited significance because they do not take into consideration possible differences in mortgage loan demand between minority and white neighborhoods or possible differences in the ability of people of color versus whites to meet credit underwriting criteria.
Over the last 15 years, federal regulatory agencies have repeatedly employed this line of reasoning as grounds for refusing to initiate serious efforts to investigate individual mortgage lenders for Fair Lending violations. In particular, banking regulators have been unwilling to systematically review the loan files of individual banks to determine if race has been an underlying factor in their mortgage lending decisions. Bank regulators have also refused to implement testing programs under which testers would be employed to determine if minority and white applicants with comparable credit credentials receive different treatment when they apply for mortgage loans.
The sustained efforts by federal regulators and the banking industry to downplay the significance of race-based disparities in the HMDA and other lending data has also worked to discourage attempts to enforce the Fair Lending laws through private litigation. As a consequence, unlike other major civil rights areas such as discrimination in regard to housing sales and rentals, employment, education and voting rights, where there has been extensive litigation, there have been virtually no major judicial decisions defining the nature of discriminatory practices in regard to discrimination in mortgage credit markets.
A central tenet of U.S. civil rights law is that practices which do not intentionally or directly discriminate against people of color may nonetheless be unlawful under certain circumstances if they have discriminatory effects. Because of the dearth of judicial decisions on the issue of mortgage credit discrimination, no progress has been made in carving out an “effects test” doctrine for this important branch of civil rights law.”
Don Knottsian Enforcement of Fair Lending Laws
More Strikes:
Racial Redlining
This is enough to whet the appetite of those who claim I’m making this stuff up. I’ve barely scratched the service, but this IS John’s CGI bin, you know.
–Cobra
“surface”…”barely scratched the surface.”
It’s hot here in Jersey, forgive me.
–Cobra
Cobra,
These studies are seriously flawed, in ways that have been pointed out for at least a decade now. You cannot compare subgroups unless you control for relevant factors.
For some reason, the people doing these studies refuse to account for all of them. The original studies cited only factored in credit score. The more recent one you cite adds in income, and appears to have added in down payment. But none of them factor in wealth. (Lucky none of these people conducting studies are actual lenders, or they’d drive their banks into bankruptcy. Do they actually think that someone with $50,000 in the bank should get the same loan as someone with $5,000 in the bank?)
Ultimately, there’s only one important measure, which factors in all relevant variables: default rate. None of these studies look at the default rate by racial group. That would tell you whether the banks are discriminating, or merley factoring in variables that the studies do not. For some reason, these studiers refuse to do that.
And yes, it is hot here in New Jersey.
Cobra,
Have you come across in your survey of the studies on this matter one showing that minority default rates are lower than white default rates? My understanding is that such studies that have attempted to check this have found no difference, and yet if two cohorts of equal risk are being held to different standards, obviously the one treated more stringently ought to have fewer defaults. Have you any explanation for why it isn’t there?
For the record, Cobra, David’s comment wasn’t up here when I wrote mine. But I really do think that if there’s no default gap, there can’t be any systemic unfairness. There is always unfairness to individuals when anything is decided via statistics, because statistical profiles almost by definition involve outliers. But the goal of lenders is to fix a default rate as closely as possible to what they think they can afford to lose, as a percentage of total revenues; and if their policies result in no greater default rate for white borrowers than for Black borrowers, they are obviously not favoring the former in the manner of a bigot (that is to say, taking an inevitable loss — refusing good clients while accepting poorer risks as long as they’re white — deliberately in order to stick it to Black applicants), but judging risk accurately.
David and Michelle,
George C. Galster of the Urban Institute has a different opinion about default rates in his article aptly entitled:
The Facts About Lending Discrimination Cannot Be Argued Away Examining Default Rates
Galster’s abstract–
>>>”This article argues that interracial differentials in mortgage default rates are an unreliable indicator of racial discrimination in mortgage markets.
First, minority applicants may be approved at nondiscriminatory institutions and thereby end up in the pool of mortgagors, even though they were first discriminated against at other institutions. Second, even with no mortgage discriminations, the expected default risk of minority mortgagors overall is probably higher than that of white mortgagors overall. Thus, even if discrimination eliminated some of the riskier minority applicants, it is not necessarily true that the default rate of minority mortgagors will be lower than that of whites.”
John Yinger of Syracuse University similiarly argues in his article entitled:
Why Default Rates Cannot Shed Light on Mortgage Discrimination
Yinger’s abstract–
>>>”Some scholars argue that racial discrimination in mortgage lending can be observed
in default rates. Since lenders who discriminate require higher standards for minority
applicants than whites, successful minority applicants are more creditworthy and
should default less often. But this conclusion requires three strong assumptions:
(1) that credit characteristics not observed by the lender are uncorrelated with minority
status, (2) that whites do not receive more favorable treatment than minorities
in foreclosure proceedings, and (3) that the losses on minority defaults are at least
equal to those for whites. If any of these assumptions is violated, higher default rates
for minorities could be observed even if lenders discriminate. At best, then, default
studies yield weak tests for discrimination that are inferior to traditional tests based
on mortgage denial.”
So the claim that “default rates” are the ultimate arbitor of whether race discrimination is occuring in lending is challenged by more than one informed source.
What is interesting to ME in this scenario, however, is the quick dismissal you both have given to demonstrable examples of “people being treated with regard to race”, especially in the NCRC study I posted here.
Though you both may not have intended to do so, your arguments such as…
>>>”Ultimately, there’s only one important measure, which factors in all relevant variables: default rate. None of these studies look at the default rate by racial group.”
And…
>>>” But I really do think that if there’s no default gap, there can’t be any systemic unfairness. There is always unfairness to individuals when anything is decided via statistics, because statistical profiles almost by definition involve outliers.”
…would lend the reader to believe that banks and lending institutions can treat minorities just about any way they please (charge higher interest rates, offer fewer programs, deny more minority mortgagors, etc.) as long as they can point to a relatively static default rate.
On this, I respectfully disagree.
–Cobra