One way to stop discrimination in lending is to ban lending. Which reminds me of Groucho Marx’s dialogue with the bellhops working for him in his hotel in The Cocoanuts:
Hammer:
Wages? Do you want to be wage slaves? Answer me that!
Bellhops:
No.
Hammer:
No, of course not. But what makes wage slaves? Wages!
So he proposes not to pay them as a way of preventing their enslavement.
Here in my home county in Maryland, the Montgomery County Council’s attempt to ban discrimination probably intended to ban discrimination the old fashioned way, by making it illegal. But according to today’s Washington Post, the result might end up being more (Groucho) Marxist:
Montgomery County’s effort to curb discrimination in mortgage
lending through harsh penalties against alleged predators ran into two
major obstacles yesterday. A state judge issued a temporary injunction
to halt the law’s enforcement for four months, and the Bush
administration said the measure usurps federal authority.The
double blow jeopardized what Montgomery’s officials characterized as an
effort to strengthen civil rights protections in an increasingly
diverse county. But it also stopped the defection of mortgage lenders
– about two dozen of whom have announced that they would suspend
making loans in Montgomery. Such departures would raise the possibility
that the market would become less competitive and force up the price of
loans.The legislation, which was to go into effect today, would raise from
$5,000 to $500,000 the maximum damages that a lender must pay if a
borrower can show discrimination.
Other brilliant forays into economic fantasyland by the Mongomery County Council can be found here and here.
Podcast RSS Feed
Full EconTalk Text
{ 8 comments }
Maybe next they can save people from high gas prices by outlawing cars.
A similar thing happened a while back in Georgia. A bill was introduced that would not only increase the liability exposure of the original lender in a sub-prime loan transaction, but also of anyone who subsequently buys the loan.
Many of these loans are "securitized" (put into portfolios and sold) and sold on the market. Since the risk exposure of these loand was unclear, the major ratings agencies said they were leery of rating them.
So, the sub-prime lenders almost all announced that if the bill were passed, they would exit the market. This was because the inability to securitize and sell these loans meant that the lenders would have to hold them in their own portfolios.
The bill died a quick and very public death. Of course, the consumer activists that pushed for the bill lamented that killing the bill was soooo bad for the poor folks who chose to take the loans.
If nothing else, it provided a good example to use in my markets and institutions class of how politicians can mess up a market.
You wrote:
So basically, this regulation protects Giant Food, a mediocre chain that fears the encroachment of the extraordinary Wegman's, from serious competition.
Twice I have sat down to blog about this issue, and both times I became too frustrated to finish it. This Safeway/Giant union-related corruption with the Montgomery County officials is pathetic and disgusting. My wife and I are counting down the days until we get out of this county, and into a new state that doesn't legislate against Wegman's.
Rammage – the Wegmans here in Hunt Valley, MD is kicking butt. You cannot even park in the lot.
Of course, I pay a little extra and shop at a small "Gucci" grocer, becuase I never wait in line there. They open a new register immediately if someone is waiting.
Mcwop -
I am green with envy. Our nearest Safeway typically has two registers open on week nights. And why not? They have no competition.
Another example, as if we needed one, of the old adage that "the problem with Capitalism is the unequal distribution of wealth; the benefit of Socialism is the equal distribution of poverty."
Funny, just the other day my wife and I were discussing how we shop at Giant because it so much closer than the competition and how we wished someone else would open a supermarket near by. Our local politicians are terrible. I hope Doug Duncan doesn't get elected governor. I would hate to impose his idiotic ideas on the entire state.
His stance on the ICC is fairly typical of him. He wants the ICC built because he wants to relieve traffic congestion. Fair enough. But along with it are plans to buld new homes along its path, which means more cars, which means more traffic. Not surprisingly, his biggest campaign contributors are land developers. His campain slogan should be "I'm available to the highest bidder".
I've just been letting everything wash over me. I've pretty much been doing nothing. I've just been sitting around not getting anything done.