Another interesting aspect -- there's been huge growth in the "making loans to folks with non-traditional or bad credit histories" market recently, as the market for folks with good credit histories has become saturated. This has been done largely by various NBFIs operating outside of the normal "bank" structure, and specializing in certain kinds of consumer loans. It is vitally important to realize that to a bank, a loan is a "product," that they "sell" to customers. It is how the bank makes money. If the market is operating properly, irrational refusals to loan on the part of some institutions will create a market opportunity for other institutions. The problem with banking & financial services is that they are already so heavily regulated, and the barrier to entry is so high, that the market seldom operates properly. Thus we see _more_ regulation piled on (such as the CCRI) to address the problems that come about from the previous piling-on of regulations. When there is little competition between banks, this creates a situation which, viewed in isolation, seems "unfair" to those at the fringes of the loan market. The superficial answer to this problem is to force banks to lend in areas that are less profitable for them than their traditional areas -- at this point banks almost begin to resemble monopoly public utilities, which, when you look at the regulations they operate under, is almost the case. The more enlightened answer is to back off enough on the regulation so that marginal loan markets become attractive business opportunities, and any truly irrational lending practices (e.g. based on race) lead directly to losing business to a competitor. Doug At 11:31 AM 12/11/96 EDT, you 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. -Allen
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Douglas Barnes