When did I write that Institutional Racism is a reality? I was neither arguing for or against the existence of IR, only that questioning its belief or the evidence of its existence can arouse anger by those who look to it as a social axiom that is not to be challenged, especially by “minority.” However, the existence of Institutional Racism has yet to be proven. Indeed, the proponents of its existence can’t really seem to provide a definitive uniform definition of what constitutes Institutional Racism.

Anyway, thanks for the links. I read the first one and it was informative. But as you noted, lending institutions tend to “target individuals of lower incomes and lesser education.” How can one honestly claim that is a racist practice? Racism as historically been defined has an irrational belief in the absolute superiority or inferiority of one race over another. If these “predatory” lenders are indeed “targeting” their “prey” on the basis of income and education (as you noted) then they would appear to have rational basis for charging more interest than those who are more educated and are better financially situated- they can. Hence, racism (a belief or action based on irrational beliefs) is not what seems to be going on here.

It is my understanding that, in a free-market, merchants tend to charge as much as they can for a service or good. As unsavory as it may be, those consumers who are poorly educated on their options in regards to borrowing money are perfect “marks” for lenders trying get as much as they can. Is that wrong?

As for people trying to “explain away these studies as if they had no validity are clearly mistaken,” I don’t think that is what Thomas Sowell is doing; certainly, I’m not saying that. I am saying that these studies do not make the connection that race alone is the cause of the discrepancies reported.

A quick note on how the transfer of information can be disingenuous.

The synopsis of the study reads, in part:

“African-Americans and Latinos get high-priced subprime mortgages far more frequently than whites — even when they are equally qualified, according to a groundbreaking new study from CRL.”

Admittedly, I quickly read through the study, but I found no mention of the words “equally qualified”; I did, however, find the vaguely defined “similarly-situated.” But do these two phrases convey the same meaning? It seems highly unlikely that applicants studied where “equal” in all respects, and the authors’ of the study don’t make that claim (not that I read). But that doesn’t stop tendency of reporters from disingenuously and incorrectly saying that those studied were “equally qualified.”

First a little background. Accusations of discrimination in lending are nothing new, they have been going on for decades and it is a fact that the first accusations were very sloppy, many of the supposed proof of discrimination suffered from the exact same problems that Observer mentioned in his post. So while LaurenceB is correct in pointing out the new and improved research, Observer is also correct in pointing out that previously, when the research was shabby, some were very quick to jump to the discrimination conclusion.

Secondly, most if not all, of the studies out primarily focus on the front end of the lending process - how much time with loan officers, how much information was provided and so forth, and so this must be kept in mind when analyzing charges of discrimination.

Thirdly, not all of the studies prove the same point. For example, there were times where the same people doing the study found that in different cities the treatment favored African Americans.

Fourthly, all of the studies I have seen either (purposely?) omit to include Asians or, when they are included, show that Asians actually get more favored treatment than latinos, blacks and even whites.

Which brings me to my point, LaurenceB, in your reply, you didn’t address what I think was Observer’s strongest point: That Asians get even better treatment than Whites. In other words, if you see the discrepancies as pure discrimination, than you would be forced to conclude that there is also discrimination against Whites in favor of Asians. Does that seem likely?

That is certainly one possible explanation but an explanation that I think fits the data better is that alot of the discrimination involved, indeed probably most of it, is not discrimination in the traditional sense, but instead what economists call “statistical discrimination”, or statistical differentiation, see here and here for more information on what this is.

To give a quick definition, statistical discrimination is defined as “judging people on group averages when you have no additional information” and you need to make an informed decision immediately. Since FICA scores and many of the commonly used metrics to judge a persons risk level are not perfect, these lenders may simply be using statistical discrimination to increase the probability of having the loans paid back.

In other words, the rate of loan defaults is not completely predicted with current loan metrics used, whether that is FICA scores, debt to income ratios or what ever other methods loan agencies currently use. There are other factors besides FICA scores and debt to income ratios that can help increase the probability of candidates paying back their loan in full. For example, it is a statistical fact that blacks and latinos are less likely than whites and asians to have rich family members that can help them out in a bind. Knowing this fact, should it be used by loan officers to discourage more blacks and latinos from taking out loans as big as whites or asians? Some would say yes.

This is why I find the inclusion of asians so telling, asians, remember, tend to have the exact opposite stereotype than blacks and latinos - namely that of having a higher income level, wealthier families, and an overall more likely chance of paying back loans. This is the case even when you compare asians with whites. So if statistical discrimination is the culprit, you would expect asians to be treated better than blacks, latinos, and whites, and every study I’ve seen seems to support that.

So yes, there probably is ‘discrimination’ occurring, but certainly not the type that many I.R. advocates claim. After all, is it not the responsibility of the loan officer, as an employee of the lending company, to maximize profits and use his/her best judgment in determining likelihood of loan repayment?

Another thing that should be mentioned here is that while unjustified statistical discrimination in lending harms the latinos and blacks looking for loans, it also harms the very agencies that perform the (unjustified) statistical discrimination. After all, every loan applicant missed that would have paid back the loan in full is a loss of revenue for the company and if they lose enough of them, it could force them - especially in the highly competitive loan industry - out of business. In addition, if the amount of unjustified statistical discrimination is large enough, you or any other entrepreneur, can immediately become very wealthy by opening up a loan agency yourself and specifically targeting this disenfranchised group of people. So there already is a free market based solution to minimize this as much as possible.

On the other hand, if the statistical discrimination is justified, meaning that it is a good indicator of probability of paying back loans, then trying to prevent it could also have a negative affect on blacks and latinos. If you try to force companies to reduce statistical discrimination, specifically when it is a good indicator of loan repayment, you are in affect forcing these loan companies to take on riskier loans and assigning to them the same rate they would give less riskier loans. Which will in turn raise the floor level on the amount of risk these loan agencies could tolerate, and since blacks and latinos dominate at the lower end of the economic ladder, meaning they tend to apply for more riskier loans, this will result in many of them being shut out of the lending process, or at the very least, greatly reduce their available options - all in all hurting them, not helping them.

For the record, my response here only addressed the clear cases of what someone might consider discrimination. Cases involving ‘disparate impact discrimination’, things like marketing to a higher income bracket that will in the end result in less minorities, was purposely left out. Primarily because I think the case for discrimination there is a lot shakier and I would rather address the stronger cases. Secondly, I also took for granted that these studies were definitive and clearly showed evidence of some form of discrimination. Yet even a remote google search on the topic will show that this is far from definitive and there still are several objections - both strong and weak - one can raise against the current ‘proof’ that there is discrimination in lending (although I grant, that the proof does seem to point more in the affirmative). My point here was only that, taking the most sympathetic view towards the studies, at most they prove that statistical discrimination is occurring, not ‘traditional’ discrimination.

With all of that said, I want to thank you for replying LaurenceB, while we may disagree on a lot of things, your honest dialogue and respectful tone is always welcome on this blog!

Thank you for reading the studies.

As you did, I came away from a quick perusal of these studies with the distinct impression that what they have actually shown is that there exists a definite tendency on the part of predatory lending industry to target individuals of lower incomes and lesser education. Since minorities demonstrably make up a disproportionate percentage of that target group, it seems plausible to me that these predatory lenders are simply targetting the easiest prey, and finding (quite by accident) that that group is dominated by minorities - thus the quite obvious discrepancies.

I want to emphasize here that I don’t mean to suggest that racism is not at least part of the problem - I suspect it is. I just want it to be clear that I also think that some piece of the explanation may be no more than simple economics and greedy lenders. Mostly conjecture on my part, I might add.

In any case, those (like Thomas Sowell above) who attempt to explain away these studies as if they had no validity are clearly mistaken, and may be disengenuous.

Excuse me. Clearly I misunderstood what you were trying to say. I’m glad to hear that you and I are in agreement that Institutional Racism exists and that it is manifested in lending practices as demonstrated by numerous studies. My bad.

I have a good friend (albeit a bit emotional) who tends to give knee-jerk reactions, which are sometimes wrong, to arguments or opinions she disagrees with.

Anyway, you really should read more carefully. I never once wrote or implied that that “discrimination in lending simply doesn’t exist”; that is a fiction your mind concocted. Of course discrimination occurs in lending, but it is the basis of that discrimination that is, in part, what I question. Furthermore, I never took the position that “institutional racism” is nonexistent; just that questioning its existence tends to bring about emotional driven responses from devout believers.

Was I wrong?

I have two question. If blacks and latinos get high priced subprimes more often, isn’t that a matter of more aggresive marketing by these companies that skews the overall lending results?

I checked out the first site by LB and I notice that its seems minorities are victums of predatory lending by high price subprimes rather than some concerted effort to charge only minorities more. After all, if lenders are lending money to make money, wouldn’t they go after those they feel they can make more money on?

http://www.responsiblelending.org/reports/HMDA2006.cfm

http://www.ncrc.org/policy/analysis/policy/2006/2006-05-23_2005HMDAreport.pdf

He will notice that the introduction to the first report reads thusly:

African-Americans and Latinos get high-priced subprime mortgages far more frequently than whites — even when they are equally qualified, according to a groundbreaking new study from CRL.

Lenders say they charge more because African-Americans and Latinos on average have shakier credit histories, which makes lending to them riskier. But that explanation is simply wrong.

In the most extensive study of its kind, CRL found that African-Americans and Latinos are commonly almost a third more likely to get a high-priced loan than white borrowers with the same credit scores.

In other words, had Observer even bothered to do a quick google search on these studies he would have known that his tenuous objections to the studies were just plain wrong!

Of course, I’m guessing Observer will be able to come up with another set of questions that will somehow, in his mind, justify his preconception that discrimination in lending simply doesn’t exist. And, once again, I’m betting his new set of objections to these studies will have no basis in facts or statistics, just conjecture.

By the way, it took me about half an hour to do this research. Is that too much to ask?

[Observer’s] point there was that some people cling to their faith so strongly that no amount of facts will sway them otherwise.

Hmmm… It seemed to me the opposite was true. Observer simply re-stated facts that the opposition had presented, and then clung to his preconceptions even when the facts contradicted him. He presented very few “facts” to bolster his argument.

In the case of lending practices, for example, the “IR believer” presents Observer with a concrete study that black and latino applicants are more likely to be turned down. The study has statistics and “facts” that are - presumably - the results of research. Observer counters not with facts, but with a tenuous set of questions all of which amount to little more than conjecture: What was the debt history of the applicants? Was it possible that the black applicants wanted higher-risk loans? And on and on. Notice that Observer has taken no pains to actually investigate the study, or to counter it specifically with “facts”. Instead, he simply assumes that there must be something wrong with the study. Something must be wrong because Observer believes instinctively that IR does not actually exist, and no amount of facts will cause him to change that opinion. He sees the Virgin Mary in his morning toast, and it must be miracle - don’t bother him with “facts”, “statistics”, and “studies”.

I’d say “Americans” are fed up with the simplistic mentality that race is at the center of many, if not all, issues. However, many “revolutionary” minded Chicanos are not. And as a result, open, honest, cordial discussion of whether or not “institutional racism” exists is near nil. They simply believe in IR, and asking for proof tends to bring about an expression that the questioning of God existence would to a devout Christian. It is with this group that taking a position, such as mine, is tantamount to heresy; not “fine Americans.”

Institutional Racism is the most talked about but least seen (and proven) social phenomena that the Left (“minority” and non-minority alike) brings to the table of racial politics. Sadly Siderius Nuncius, you have once again helped to prove that finding someone to intelligently and honestly discuss its supposed existence is, much like whites like their steaks, rare.

As for the supposed existence of my “white friends”- I notice that many Chicano liberals are friendly with those white e-liberals who have taken an interest in all things Mexican. It’s kinda funny that the price liberal Chicanos tend to charge whites for befriending them is little more than whites asserting that there is “white privilege,” supporting Affirmative Action, and denouncing all things Republican. In other words, whites have to prove the negative that they’re not racist; you know, convince Liberal Chicanos that they’re one of the “good ones.”

Contrary to many Liberals, I care about character, not color. So anyone is welcomed to discuss this topic with me, provided they do so honestly.