Posted on December 1, 2011

O Tempora, O Mores! (December, 2011)

American Renaissance, December 2011

Starting the Recession

Banker greed is the commonly-cited source of the 2008 housing crisis and subsequent recession. Unscrupulous bankers relaxed lending standards and hawked predatory mortgages, only to be bailed out by the taxpayer when it all went south. The Occupy Wall Street movement trumpets this explanation, as does Barack Obama, who recently said, “You’re seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place.” But the worst “abusive practices” were promoted by the government, and Mr. Obama’s administration continues to push them.

Trouble started in 1992 when a report commissioned by President Clinton and published by the Federal Reserve Bank of Boston showed mortgage lenders were more likely to turn down blacks and Hispanics than whites. The Boston Fed said racial discrimination was to blame, but private analysts found that the study was junk. It was full of glaring data errors, and failed to consider applicant net worth, debt burden, or employment history. It did not take into account loan amounts, down payments, or values of properties being sought. When these relevant factors were considered, the racial differences vanished.

Some analysts noted the most obvious objection to the study: If banks were holding non-whites to unfairly high credit standards, their default rates should have been lower than those of whites. In fact, they were slightly higher, meaning that, if anything, banks were already bending the rules to lend money to minorities.

This did not stop the Clinton Administration from using the study to justify creating the Interagency Task Force on Fair Lending to crack down on alleged “redlining” of non-white neighborhoods. In 1994, the ten federal agencies in the task force issued a 20-page “Policy Statement on Discrimination in Lending” that threatened banks with harsh penalties if they were guilty of discrimination.

The document outlines three kinds of discrimination: overt discrimination, disparate treatment, and disparate impact. The first two are easy to understand — not lending to non-whites or requiring them to jump through extra hoops for loans — but “disparate impact” is murky. Banks can be found guilty of discrimination if their policies — which they apply equally to all borrowers — have a “disproportionate adverse impact” on “protected groups.” There may be no intent to discriminate; the effect is all that matters. As a practical matter, the authorities almost never find deliberate discrimination; no sane banker would refuse to do a secure, profitable deal with a borrower just because he wasn’t white.

Disparate impact is not proof of discrimination, however. If a policy is found to be a clear “business necessity” it is acceptable, so long as there are no less discriminatory alternatives. The report acknowledges the importance of evaluating credit-related criteria, but warns that “requirements that are more stringent then customary” could invite disparate-impact litigation.

The form and severity of punishment depends on the federal bureaucracy pursuing the case. If it is a banking agency, it can make a bank “establish community outreach programs” or change its marketing strategies or loan products to cater to minorities. Banking authorities can also order the institution to take “affirmative action” of a kind they determine.

If the Department of Justice prosecutes, it can force an offender to open branches in minority neighborhoods, make targeted sales calls to minority-oriented realtors, advertise in “minority-oriented media,” or change commission structures to encourage minority lending.

The Department of Housing and Urban Development has many of the same enforcement powers, but can also regulate access to the secondary mortgage market. It can “direct Fannie Mae and Freddie Mac to undertake various remedial actions, including suspension, probation, reprimand, or settlement,” against banks HUD decides were discriminating.

The Policy Statement also notes that Fannie Mae and Freddie Mac “not infrequently” buy loans that exceed suggested housing-expense-to-income and total-obligations-to-income ratios, and that lenders who turn down members of a “protected class” with high ratios should “be prepared” to prove they weren’t discriminating. It adds that Fannie Mae and Freddie Mac have “various alternative and flexible means” to let shaky applicants prove their credit-worthiness, and that bankers better learn the same tricks.

The document ominously points out that “applying different lending standards or offering different levels of assistance to . . . members of a protected class is permissible in some circumstances,” though it doesn’t list the circumstances. Also, “providing different treatment to applicants to address past discrimination would be permissible,” if done in accord with legal precedent or in response to a court order.

Clinton’s fair-lending task force only gained strength under President Bush, who publicly called for a sharp increase in minority home ownership. Under the Republicans, the task force even produced “fair-lending” brochures in Spanish for immigrant applicants. All this added up to tremendous pressure on banks to throw out traditional credit standards when non-whites asked for loans, and lax lending soon became the rule for everyone. Some borrowers didn’t even have to prove their incomes, and many got mortgages with no or tiny down payments. Plenty of people — white and non-white alike — bought houses on which they couldn’t even make the first payment. Any sensible banker could see catastrophe coming.

Not surprisingly, the “fair-lending” task force thrives under Mr. Obama; Eric Holder’s Justice Department is investigating as many as 60 banks for allegedly discriminating against non-whites (see “Here We Go Again,” AR September 2011). This means that even after all the country has been through, the pressure is still on to relax credit standards to make sure non-whites can buy houses. [Paul Sperry, Smoking-Gun Document Ties Policy to Housing Crisis, Investor’s Business Daily, October 31, 2011. Policy Statement on Discrimination in Lending, Office of the Comptroller of the Currency, March 17, 1994.]

A New “Rooney Rule”

Black Entertainment Television (BET) founder Robert L. Johnson has a solution to the 16.7 percent black unemployment rate: Fortune 1000 companies should adopt the “RLJ Rule,” his version of the National Football League’s “Rooney Rule.”

The Rooney Rule, established in 2003, requires professional football teams to interview at least one non-white candidate for every head coach or other top job, or pay a $200,000 fine. Since 2003, teams have hired eight non-white head coaches and five non-white general managers. Only one team has been fined.

Mr. Johnson wants companies to adopt the “RLJ” rule voluntarily — and apply it only to blacks. Companies would have to interview at least two blacks for every job of vice president or above, and consider at least two black-owned firms for every new supplier. Mr. Johnson says he will promote his plan to business leaders and to the US Chamber of Commerce. [Cord Jefferson, Robert L. Johnson Advocates a Business “Rooney Rule,” BET, Oct. 3, 2011.]

More Apologies

Companies are expected to care for the welfare of their employees, but when Air Canada cited safety reasons for switching hotels for layover flight crews in Winnipeg, it angered the mayor and offended an ethnic group. Air Canada said the downtown Radisson hotel was no longer safe, so crews would stay at an airport hotel. The airline explained that the city center was “susceptible to crimes of violence and opportunity” because of the presence of “approximately 1,000 displaced people from rural Manitoba” in downtown hotels. The “Manitobans” are Eskimos from the Lake St. Martin First Nation and other areas whose homes were flooded, and who have been put up in hotels in Winnipeg. Some were getting drunk in public, and flight crews reported thefts.

The mayor of Winnipeg asked the airline to reverse its decision, as did something called the Winnipeg Business Improvement Zone. The grand chief of the Assembly of Manitoba Chiefs, Derek Nepinak, held a press conference to denounce the decision as “racist.” He admitted that some Eskimos were causing problems, but insisted they were no longer in the hotels. He said the chiefs would give Air Canada a chance to change its mind before deciding whether to call for a boycott.

Two hours after the press conference, Air Canada apologized, but according to latest reports, it had not changed its mind about the Radisson, and the Eskimos had declared a boycott. [Bartley Kives, Air Canada Apologizes for ‘Racist’ Memo, Montreal Gazette, Oct. 4, 2011. Manitoba Chiefs Boycotting Air Canada, CBC News, Oct. 17, 2011.]

Racist Toddlers

In 2002, the Labour government started making British schools report all “racist” incidents to their local authority. Teachers must name the alleged perpetrator and victim, and describe the incident and resulting punishment. Local authorities are expected to look for patterns and devise ways to cut down on offenses.

A civil liberties group called the Manifesto Club filed a Freedom of Information Act request and learned that during the 2009-2010 school year alone, over 34,000 British schoolchildren were officially registered as “racist” or “homophobic” for using playground insults. This represents a worrying rise from the 29,659 cases reported in 2008-2009. More than 20,000 of the most recent offenders were under age 11, and some were as young as three. Toddlers in nursery school have been registered for using such words as “gay” and “lesbian.” A child who called another “broccoli head” was reported to authorities, as was one who used the word “gaylord.” Another was noted for having said to a teacher, “This work is gay.”

Offense records follow students when they change schools or move from primary to secondary school. Potential employers who ask for school references may also see these records.

Heads of schools who send in no reports of “racist” or “homophobic” insults may be criticized for “under-reporting.” [Kate Loveys, ‘Racists’ Aged Three: Toddlers Among Thousands of Children Accused of Bigotry After Name-Calling, Daily Mail (London), Sept. 14, 2011.]

A Fresher Sound

Black Republican presidential candidate and former Godfather’s pizza CEO Herman Cain says the presidential march “Hail to the Chief” needs a “fresher sound.” He says the march should change to keep up with the times, just as companies sometimes freshen up their messages. When asked whether this meant a hip-hop flavor, Mr. Cain replied, “It won’t be hip-hop. I might put some gospel beats in ‘Hail to the Chief’.” [Herman Cain: ‘Hail to the Chief’ Needs ‘Fresher Sound,’ Huffington Post, Oct. 2, 2011.]

Mr. Cain’s opinion could conceivably matter a great deal. He has enjoyed a recent surge in popularity, and a Zogby poll conducted from October 3-5 put him 20 points ahead of his nearest competitor. Thirty-eight percent of Republicans said they would vote for Mr. Cain if the Republican primary were held today, compared to 18 percent for Mitt Romney and 12 percent each for Rick Perry and Ron Paul. [Maggie Astor, Herman Cain Leads Mitt Romney by 20 Points: Will the Tortoise or Hare Win? International Business Times, Oct. 7, 2011.]