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Not so easy and it is a dangerous, slippery slope. There is a large and (warranted) initiative to bank minorities and other disadvantaged communities. Until th

Not so easy and it is a dangerous, slippery slope. There is a large and (warranted) initiative to bank minorities and other disadvantaged communities. Until the government created huge incentives to do this it didn't happen. In many markets it still doesn't. If you tell someone they are criminally responsible for the loans they underwrite, on the margin, they are far less likely to bank the people who "really" need it. The rich get richer, the poor stay poor. As the saying goes, you can't have the cake and eat it too.

Zuider 10y ago
Your stated position is deeply troublesome in terms of both de-ontological and consequentialist moral reasoning. In the first case, it raises the question of how one can possibly have the right to attempt social engineering on such a scale, forcing people to act against what morality and prudence would dictate, and compelling them to take on potentially ruinous risk. People are not dirt to be shoveled about on a whim. From the consequentialist position, we have seen that people who belong to those demographics that the law was supposed to help are actually the hardest hit. They have been made much worse off.
- deleted 10y ago
  [deleted]
- caminante 10y ago
  I tried making sense of your 2nd paragraph. You lost me (and others?).
  - deleted 10y ago
    [deleted]
  - Zuider 10y ago
    Sorry. I ought to have been more specific. I was referring to making a law that made it compulsory to lend to an individual even if it was clear from assessing that particular individual that their likelihood of defaulting was unacceptably high.
    - nickles 10y ago
      That's precisely what caused the financial crisis of 2008. The Community Reinvestment Act (passed 1977, expanded in 1992 and 2002) led to severely reduced lending standards that brought about the failure of the financial system. Legislation along the lines of what you propose leads to systemic failure. The mechanisms for providing credit to risky individuals are unsavory (collateralized - pawn shops, uncollateralized - payday loans), but they adequately compensate for the risk associated with making the loans. A cursory search yielded http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6 http://www.businessinsider.com/the-cra-debate-a-users-guide-...
      - prodigal_erik 10y ago
        >At the behest of HUD Secretary Andrew Cuomo, Fannie and Freddie promised to buy $2 trillion of "affordable" mortgages. That is a complete explanation in itself and it was not caused by the CRA legislation (it merely shared the same motivation). When you let mortgage brokers offload all the risk from writing stupid loans, you have altered all their incentives.
        deleted 10y ago
        [deleted]
      - Zuider 10y ago
        I was not proposing such legislation, but condemning it on the grounds that such laws amounted to social engineering, an overreach that preempted and violated individual decision making. I am well aware of the inevitable consequences of such a law. I was criticizing the position stated in the top comment of this thread which stated: >There is a large and (warranted) initiative to bank minorities and other disadvantaged communities. Until the government created huge incentives to do this it didn't happen.
        nickles 10y ago
        I read your comment in isolation and misinterpeted it, but thanks for providing the context. The government absolutely overstepped its mandate with such laws. I think it's important to distinguish between all banking services and credit facilities. I feel as though improving access to banking services in otherwise under-banked groups is an important initiative. ~30% of Americans do not have access to a savings account. Ensuring that all communities have access to these basic services would likely be beneficial to individuals and the economy. However, access to credit should be decoupled from such considerations.
- alasdair_ 10y ago
  The problem lies in the fact that the fed gives essentially free money to banks in order to have them loan it out in the first place. If the government didn't supply this money, there would be less of a moral case for them to dictate how it should be used.
  - bogomipz 10y ago
    Outside of the 2008 the bailouts, the Fed doesn't give money to banks. That is not how the Fed works. I am not even sure what you are referring to. Fed overnight rate? The discount window? The Fed has a few tools at its disposal but none of them includes giving money to banks.
    - zaroth 10y ago
      I think they're talking about Fannie Mae / Freddie Mac.
    - jazzyk 10y ago
      Artificially setting the fed funds rate at 0.25- 0.50% is essentially giving money for almost free. That rate was even lower before last fall.
      - bogomipz 10y ago
        The Fed funds rates is not money from the Fed. The Fed funds rate is the amount that banks charge to borrow from each other, bank to bank. And this money banks lend each other is NOT and can NOT be used for loans, it is used to cover their Federal Reserve obligations. Also the Fed does not actually set this rate, it can only try to influence it via Open Market Operations, so no it not the same thing at all, most certainly not "essentially."
        jazzyk 10y ago
        Whether obtained as Discount or Fed Funds, the money allows the bank to loan out more money, because it increases the bank's reserve, no?
alasdair_ 10y ago
One solution to this is to do away with the whole idea of having the fed give money to banks and then assume the banks will give money to the people. If the government really wanted to give home loans to specific people, it could do that directly. The same thing applies to giving tax incentives to employers for health insurance plans or guaranteeing student loans made by private companies.
- StanislavPetrov 10y ago
  >One solution to this is to do away with the whole idea of having the fed give money to banks and then assume the banks will give money to the people. Except that's not a solution if the whole point is to give the banks money, which is the motivation of Washington DC, the FED, and the SEC. Don't take my word for it, listen to Senator Dick Durbin. http://www.realclearpolitics.com/video/2009/04/29/sen_durbin_banks_own_the_place.html http://www.realclearpolitics.com/video/2009/04/29/sen_durbin...
  - dredmorbius 10y ago
    Institution can be changed and/or replaced. The aren't givens.
bogomipz 10y ago
What do you mean by: "There is a large and (warranted) initiative to bank minorities and other disadvantaged communities" What does it mean to "bank" a group of people? I am not familiar with this usage.
- wolf550e 10y ago
  "To provide retail banking services to", to not redline[0]. 0 - https://en.wikipedia.org/wiki/Redlining https://en.wikipedia.org/wiki/Redlining
pjmorris 10y ago
Most of the bad loans made and securitized during the crisis were made to others than those you describe [0]. Loans from that time period to minorities and other disadvantaged performed about as well/poorly as they always had. [0] http://ritholtz.com/2016/06/no-cra-not-cause-financial-crisis/ http://ritholtz.com/2016/06/no-cra-not-cause-financial-crisi...

Zuider 10y ago

Your stated position is deeply troublesome in terms of both de-ontological and consequentialist moral reasoning. In the first case, it raises the question of how one can possibly have the right to attempt social engineering on such a scale, forcing people to act against what morality and prudence would dictate, and compelling them to take on potentially ruinous risk. People are not dirt to be shoveled about on a whim. From the consequentialist position, we have seen that people who belong to those demographics that the law was supposed to help are actually the hardest hit. They have been made much worse off.

deleted 10y ago
[deleted]
caminante 10y ago
I tried making sense of your 2nd paragraph. You lost me (and others?).
- deleted 10y ago
  [deleted]
- Zuider 10y ago
  Sorry. I ought to have been more specific. I was referring to making a law that made it compulsory to lend to an individual even if it was clear from assessing that particular individual that their likelihood of defaulting was unacceptably high.
  - nickles 10y ago
    That's precisely what caused the financial crisis of 2008. The Community Reinvestment Act (passed 1977, expanded in 1992 and 2002) led to severely reduced lending standards that brought about the failure of the financial system. Legislation along the lines of what you propose leads to systemic failure. The mechanisms for providing credit to risky individuals are unsavory (collateralized - pawn shops, uncollateralized - payday loans), but they adequately compensate for the risk associated with making the loans. A cursory search yielded http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6 http://www.businessinsider.com/the-cra-debate-a-users-guide-...
    - prodigal_erik 10y ago
      >At the behest of HUD Secretary Andrew Cuomo, Fannie and Freddie promised to buy $2 trillion of "affordable" mortgages. That is a complete explanation in itself and it was not caused by the CRA legislation (it merely shared the same motivation). When you let mortgage brokers offload all the risk from writing stupid loans, you have altered all their incentives.
      - deleted 10y ago
        [deleted]
    - Zuider 10y ago
      I was not proposing such legislation, but condemning it on the grounds that such laws amounted to social engineering, an overreach that preempted and violated individual decision making. I am well aware of the inevitable consequences of such a law. I was criticizing the position stated in the top comment of this thread which stated: >There is a large and (warranted) initiative to bank minorities and other disadvantaged communities. Until the government created huge incentives to do this it didn't happen.
      - nickles 10y ago
        I read your comment in isolation and misinterpeted it, but thanks for providing the context. The government absolutely overstepped its mandate with such laws. I think it's important to distinguish between all banking services and credit facilities. I feel as though improving access to banking services in otherwise under-banked groups is an important initiative. ~30% of Americans do not have access to a savings account. Ensuring that all communities have access to these basic services would likely be beneficial to individuals and the economy. However, access to credit should be decoupled from such considerations.
alasdair_ 10y ago
The problem lies in the fact that the fed gives essentially free money to banks in order to have them loan it out in the first place. If the government didn't supply this money, there would be less of a moral case for them to dictate how it should be used.
- bogomipz 10y ago
  Outside of the 2008 the bailouts, the Fed doesn't give money to banks. That is not how the Fed works. I am not even sure what you are referring to. Fed overnight rate? The discount window? The Fed has a few tools at its disposal but none of them includes giving money to banks.
  - zaroth 10y ago
    I think they're talking about Fannie Mae / Freddie Mac.
  - jazzyk 10y ago
    Artificially setting the fed funds rate at 0.25- 0.50% is essentially giving money for almost free. That rate was even lower before last fall.
    - bogomipz 10y ago
      The Fed funds rates is not money from the Fed. The Fed funds rate is the amount that banks charge to borrow from each other, bank to bank. And this money banks lend each other is NOT and can NOT be used for loans, it is used to cover their Federal Reserve obligations. Also the Fed does not actually set this rate, it can only try to influence it via Open Market Operations, so no it not the same thing at all, most certainly not "essentially."
      - jazzyk 10y ago
        Whether obtained as Discount or Fed Funds, the money allows the bank to loan out more money, because it increases the bank's reserve, no?

alasdair_ 10y ago

One solution to this is to do away with the whole idea of having the fed give money to banks and then assume the banks will give money to the people. If the government really wanted to give home loans to specific people, it could do that directly. The same thing applies to giving tax incentives to employers for health insurance plans or guaranteeing student loans made by private companies.

StanislavPetrov 10y ago
>One solution to this is to do away with the whole idea of having the fed give money to banks and then assume the banks will give money to the people. Except that's not a solution if the whole point is to give the banks money, which is the motivation of Washington DC, the FED, and the SEC. Don't take my word for it, listen to Senator Dick Durbin. http://www.realclearpolitics.com/video/2009/04/29/sen_durbin_banks_own_the_place.html http://www.realclearpolitics.com/video/2009/04/29/sen_durbin...
- dredmorbius 10y ago
  Institution can be changed and/or replaced. The aren't givens.

bogomipz 10y ago

What do you mean by: "There is a large and (warranted) initiative to bank minorities and other disadvantaged communities" What does it mean to "bank" a group of people? I am not familiar with this usage.

wolf550e 10y ago
"To provide retail banking services to", to not redline[0]. 0 - https://en.wikipedia.org/wiki/Redlining https://en.wikipedia.org/wiki/Redlining

pjmorris 10y ago

Most of the bad loans made and securitized during the crisis were made to others than those you describe [0]. Loans from that time period to minorities and other disadvantaged performed about as well/poorly as they always had. [0] http://ritholtz.com/2016/06/no-cra-not-cause-financial-crisis/ http://ritholtz.com/2016/06/no-cra-not-cause-financial-crisi...