At 11:31 AM -0400 12/11/96, E. Allen Smith wrote:
From: IN%"mjmiski@execpc.com" "Matthew J. Miszewski" 11-DEC-1996 03:52:03.23
This is the essence of, at least, my disagreement with you Red. I dont agree that redlining doesnt harm people. You see no harm. I do.
Of course redlining causes harm to those who are redlined... they can't get credit. But the same can be said of any system of keeping track of who is likely to repay credit; it means that someone who has defaulted on past loans won't get future ones. Quite simply, while I would agree with you that racism certainly persists (it would be difficult for me to grow up in the South and not see this), I would argue that you have no evidence for that the basic motivation behind redlining is that the people in such areas are less likely to repay credit.
Whether to offer credit to some entity is, like many other such transactions, an economic transaction which involves a number of factors: interest rates charged, other uses for the money, expectation of payback, government interference (distortions of markets), etc. As with insurance in all its various forms, the decision process involves _probabalistic assessments_ based on avialable information, such as from past payback data, actuarial tables, the legal system, etc. By the nature of such probabalistic assesments, certain "lumped" categories will have to be used: age groups, sex, For example, here are just some obvious areas to consider: - age -- if under-25 persons have a 20% higher default rate on loans, "for whatever reason," this will be a factor in setting rates or even in granting a loan - sex -- if women are generally twice as likely to repay a loan, this will be a factor - ethnicity -- if persons of Norwegian heritage are 4 times less likely to default on a loan than persons of Blatislavan heritage are, a loan officer would factor this in (absent government market distortions) - education -- if college-educated persons are less likely to default than high school dropout, etc. ...and so on...one could make a list of several dozen categories, then run correlation tests of various sorts. This is clearly what banks and other lenders do in establishing loan criteria. Nothing new here. What is lost on many people who denounce "racism" and demand that banks give equal percentages of banks to various allegedly aggrieved "oppressed minorities," based on various quotas, is that the loan process is almost totally driven by _greed_, as it should be. Any bank which practices "stupid racism," e.g, by ignoring good payback prospects because of tangential or unimportant criteria, faces lost business. That the composite effect of lending criteria studies is that relatively few inner city blacks who failed to graduate from high school and who have menial jobs are offered credit is not a function of racism, but of these correlation studies. Sometimes other criteria can become domiant, such as "loss of face" in Asian cultures if a loan is defaulted upon, especially a loan made by other members of one's ethnic community. This explains the success of the private lending pools many Asian communities have. Blacks who feel "discriminated against" would do well to emulate this example, instead of demanding that Massah in the Big House fix things for them by government distortion. (Note that one way commercial banks have of avoiding the problem of quotas on loan applications is to simply not have offices in inner cities or other areas of poor credit prospects. This has been one of the main effects of government distortions of free markets in credit.) --Tim May Just say "No" to "Big Brother Inside" We got computers, we're tapping phone lines, I know that that ain't allowed. ---------:---------:---------:---------:---------:---------:---------:---- Timothy C. May | Crypto Anarchy: encryption, digital money, tcmay@got.net 408-728-0152 | anonymous networks, digital pseudonyms, zero W.A.S.T.E.: Corralitos, CA | knowledge, reputations, information markets, Higher Power: 2^1398269 | black markets, collapse of governments. "National borders aren't even speed bumps on the information superhighway."