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gwern comments on A Parable On Obsolete Ideologies - Less Wrong
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But the outlawed lending practices weren't fair. My next door neighbor took forever to get a business loan even though he was an excellent risk. The new system was also broken, but the old one wasn't good.
Edited to Add: To be more specific, his white wife handled the application and it was all smooth sailing until he walked in to sign the bottom line, and then the offer was unceremoniously retracted with no explanation.
Incidentally, when these lending rules came into effect and he did get a loan, his business boomed and he paid it off without incident. So...
"You say X on average, but a friend of mine did ~X, so you must be wrong!"
It was often enough that it got to be a nationally known problem that needed a solution, right? That the solution was terrible doesn't change that.
If the solution didn't work, maybe one should consider the possibility that whatever problem there was, it wasn't what one thought it was.
The solution DID work. It just came with a bunch of other problems. Unforeseen consequences do not negate the original problem.
Actually, they sorta do. ("The operation was a complete success! Unfortunately, the patient died.")
It is possible to construct examples where they are connected like that.
The topic at hand is not one of them.
I disagree. The claim is that they were discriminated against unfairly and this can be proven by your anecdote that someone didn't fail to repay a loan. Yet in aggregate, there was a lot of non-repayment going on.
The question is much less about whether he actually did repay the loan. It's about the decision process.
Everything looked great until they realized they were about to lend to a black man.
That is fucked up. And it doesn't happen in isolation.
Whether he actually managed to pay the loan off or not is almost aside from the point, though his success is indeed frosting (from the argument's PoV - obviously rather more important to us personally).
No, it's not. It's useful information. What you're emoting about is like saying
Whatever rates they estimated as just barely covering the risk of nonpayment and allowing them to eke out a profit based on their estimate from his personal wealth and existing track record is not the rate they would have estimated after learning additional stuff. Being black is some of that additional stuff.
The solution actually wasn't THAT bad- the community banks actually regulated by the community reinvestment act had/have lower rates of foreclosure then the national average, and lower rates of foreclosure on their loans to minorities.
Edit: this is because they are generally required to keep more skin-in-the-game, not BECAUSE they were regulated by the CRA (most fall under various patches of the regulations put in place after the S&L crisis). My point being, community banks were able to responsibly lend to a diverse population, and certainly the CRA wasn't causal in the foreclosure crisis.
That doesn't necessarily address my point: if there were unjust discrimination, discrimination which was not a rational reaction to the credit risk, then saying "well, they didn't cause as many losses as some aggregate measure of loss during the greatest period of property-related losses in the history of America" isn't proving that. To prove that, you need to show something like that the loans turned out to have been made profitably on net in the long-term after adjusting for risk and opportunity cost etc.
I'm not sure thats true, I think what you would want to show is that the loans 'forced' on the community banks are at-least-as-profitable as the loans the banks voluntarily took on. Given the bizarre financial period we just lived through, the losses on loans is going to be markedly higher across all institutions.
Maybe the next decade of CRA type lending won't be contaminated by massive changes in the financial sector and a large crash- in which case maybe the questions of discrimination will become easier to untangle. For the last decade, the housing market underwent major changes, and the community banks were such a negligible sliver of the overall market that the CRAs effects are on community banks are higher order corrections to higher order corrections.
No, because you're comparing apples and oranges. If the banks were forced to take on loans to the groups in question due to political pressure despite having been previously correct in demanding higher interest to compensate them for the loans, and also simultaneously engaged in an epic miscalculation about the safety of loans to other groups based on naive models, then you could produce this inversion. They made a mistake, and then made an even larger mistake; this doesn't make the original mistake not a mistake.
Only if the loans were in different asset classes. Because these are all housing loans, the underlying model of the housing market is an input to both group's loans, with minority status as an additional adjustment.
Anyway, I don't think looking at CRA and pre-CRA loans to minorities you can answer discrimination questions with any kind of precision. The data seems to lean in the direction of former discrimination, but massive structural changes to finance dwarf the tiny changes created by the CRA.