The ‘bankruptcy exploiters’

In one of those front-page editorials disguised as "news" stories, The New York Times blames "the lucrative lending practices" of banks and other financial institutions for helping create the current financial crisis of millions of borrowers and of the financial system in general.

It must take either a willful determination to believe whatever they want to believe or a cynical desire to propagandize their readers for The New York Times to call "lucrative" the lending practices that have caused many lenders to lose millions of dollars, some to lose billions and some to go bankrupt themselves.

Blaming the lenders is the party line of congressional Democrats as well. What we need is more government regulation of lenders, they say, to protect the innocent borrowers from "predatory" lending practices.

Before going further down that road, it may be useful to look back at what got us into this mess in the first place.

It was not that many years ago when there was moral outrage ringing throughout the media because lenders were reluctant to lend in certain neighborhoods and because banks did not approve mortgage loan applications from blacks as often as they approved mortgage loan applications from whites.

All this was an opening salvo in a campaign to get Congress to pass laws forcing lenders to lend to people they would not otherwise lend to and in places where they would not otherwise put their money.

The practice of not lending in some neighborhoods was demonized as "redlining" and the fact that minority applicants were approved for mortgages only 72 percent of the time, while whites were approved 89 percent, was called "overwhelming" evidence of discrimination by The Washington Post.

Some people are more easily overwhelmed than others, especially when they find statistics that seem to fit their preconceptions. But, if we do what politicians and the media seldom bother to do - stop and think - an entirely different picture emerges.

In our own personal lives, common sense leads us to avoid some neighborhoods. If you want to call that "redlining," so be it. But places where it is dangerous to go are often also places where it is dangerous to send your money.

As for racial differences in mortgage loan application approval rates, that does not tell you much if you are comparing apples and oranges. Income, credit history and net worth are just some of the things that are very different from one group to another.

More important, in the same ways that blacks differ from whites, whites differ from Asian Americans. The fact that whites are turned down for conventional mortgage loans, and resort to subprime loans, more often than Asian Americans do is seldom reported in "news" stories about lending practices, even though such data are readily available.

Shocking as it may be to some, lenders are in the business of making money, and they don't much care whose money it is, so long as they get paid.

Politicians, on the other hand, are in the business of getting votes, and they don't much care whose votes it is - or what they have to say or do in order to get those votes.

It was government intervention in the financial markets, which is now supposed to save the situation, that created the problem in the first place.

Laws and regulations pressured lending institutions to lend to people that they were not lending to, given the economic realities. The Community Reinvestment Act forced them to lend in places where they did not want to send their money, and where neither they nor the politicians wanted to walk.

Now that this whole situation has blown up in everybody's face, the government intervention that brought on this disaster in is supposed to save the day.

Politics is largely the process of taking credit and putting the blame on others - regardless of what the facts may be. Politicians get away with this to the extent that we gullibly accept their words and look to them as political messiahs.

Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His Web site is www.tsowell.com.