Obama 'bank overhaul' fast tracks another sub-prime meltdown, says persons of certain skin color must get more money

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Race, race, race.

• 8/12, "Financial reform law has racial quota for business loans," NY Post, P. Sperry

"Buried deep inside the new "financial reform" law is a scheme to force affirmative action on small-business lending -- a "reform" with ominous implications for the US economy.

• Aimed at curtailing supposed discrimination,
  
• the race-based lending mandate is guaranteed to have perverse effects -- just like the drive for "racial fairness"
  
• in mortgage lending paved the way for the subprime crisis
• and the 2008 financial meltdown.

The new Dodd-Frank banking law sets up a data-collection system to monitor small-business loans for racial bias. Lenders must report if a business that applied for a loan is minority-owned, and whether the application was rejected.

• Bank examiners will use that data to enforce provisions of the Community Reinvestment Act -- the federal law that (after a Clinton-era rewrite) encouraged "flexible underwriting" and unsafe loans that
  
• fed the subprime bubble and bust. If a bank doesn't meet CRA standards, regulators make it impossible for the institution to expand or merge -- and in a competitive industry, that's a slow death sentence.

And the Obama administration plans not only to toughen CRA testing of lending to minorities and communities of color, but also to impose those tests on nonbank institutions -- independent mortgage companies, credit unions,

• insurers, securities firms and investment banks.

In short, the administration will use the small-business-loan data as a cudgel to beat everyone into lending more to minority businesses.

Problem is, all this will redirect private investment to minorities -- whether or not it's a wise investment.

• The president thinks he's just overcoming prejudice. "Less than 1 percent of the 250 billion in venture-capital dollars invested annually nationwide has been directed to the country's 4.4 million minority business owners,"
  
• Obama has complained. "We are going to change that."

Yet the evidence for discrimination boils down to the fact that black-owned firms are twice as likely to have a loan application rejected as white-owned firms.

• But that overlooks the fact that black owners are more likely to have bad credit and default on loans than white owners, as Federal Reserve data show.
  
• In fact, black owners are three times as likely to have bankruptcies and judgments against them as white owners.

In other words, black owners are less likely to repay loans, and therefore pose a greater risk to commercial lenders. The "credit gap" is

• a function of rational business decisions, not racism.

But Obama and his fair-lending crusaders don't care; they're already moving ahead with their witch hunt against banks.

• CRA regulators already have referred more than three dozen cases of alleged small-business-lending discrimination to Attorney General Eric Holder for prosecution.

Last year, the Obama Justice Department forced a consent decree on First United Security Bank, which has branches around Birmingham, Ala. Though it still denies the charges of racial redlining, the tiny bank felt compelled to agree, among other things, to set up a special $500,000 fund for black borrowers and businesses.

It must also take several other steps, including making

• small-business loans to African-Americans on terms "more advantageous to the applicant than it would normally provide" --
  

• even if the applicant "would ordinarily not qualify for such [a lower] rate for reasons

• including lack of required credit quality, income or down payment."

In other words, don't worry if black borrowers aren't qualified. Just give them the money -- at a discount.

• Other banks are scrambling to comply with the new anti-redlining offensive --
  

• creating de facto affirmative-action programs in small-business lending.

All of this means more bad news for the US economy.

• Small businesses are vital to economic growth. The more trouble they have expanding, the worse off we all are.

Yet business loans to small firms are risky; half of small borrowers fail in the first five years. Default rates, now 7 percent, are higher than junk bonds.

• Now the administration has pushed steps that will lead to increased defaults -- obliging banks to charge more to their good borrowers to make up the difference. It's one more burden on a private sector struggling to recover. ...
  

And don't rule out dangers we can't yet predict: After all, nobody thought the drive for "fair"

• mortgage lending would wind up bringing the global economy to a halt.

Black, white or purple, anybody who's credit-worthy should have access to credit. But

• extending credit based mainly on skin color, rather than on an individual's ability to repay, is a recipe for a rotten economy,
  

• not to mention racism of a different kind."

from NY Post column.

• Thanks again, Scott Brown!

via Howie Carr show