Nader effort threatens credit market - Ralph Nader's effort to counter racism in mortgage lending - Column

Insight on the News, Sept 20, 1993 by Llewellyn Rockwell, Jr.

It was a familiar scene. Ralph Nader held a Washington press conference to tout another of his statist projects. He impugned the good name of an entire industry and called for a government crackdown. Fifty reporters dutifully transmitted every smear.

His target this time: mortgage lenders. Nader says they are discriminators, racists and violators of federal law because they make too few minority loans. His evidence? A report by Essential Information Inc., a Nader front group that claims to have produced "the most comprehensive computer study of mortgage lending practices ever performed."

Sounds impressive, but as usual with Nader, it's a con. Americans are used to demagoguery dressed up as science, but this bogus study should have embarrassed even Nader.

All the data in this report on the racial breakdown of mortgage lending have been publicly available for years from the Federal Reserve Board, which in turn requires it from lending institutions. All Nader did was illustrate the figures on colorful, computer-generated maps and hold a press conference.

Economists have known for years that these figures are virtually useless. They tell us nothing about why some people get loans and others don't -- that is, about the credit ratings, assets, incomes, marital status or job history of applicants, all of which are essential to businesslike mortgage decisions.

Using these figures, Nader concluded that "minority neighborhoods" get fewer loans than "white neighborhoods." But he ignored blacks who live in majority white neighborhoods -- meaning much of the black middle class -- and whites who live in majority black neighborhoods.

Even more incredibly, Nader blames banks and mortgage companies for "inducing" people not to apply. Apparently, he won't be satisfied until companies yank passersby in the front door and ply them with cash.

In an attempt to bolster what even he must realize is a feeble case, Nader cites a 1992 Boston Federal Reserve study, even though its author, Alicia Munnell (now an assistant secretary at the Treasury Department), admitted to Peter Brimelow of Forbes magazine that her work did not prove mortgage bias.

Take away all the hoopla, and the root of Nader's complaint is what he calls "exclusionary underwriting standards." This is another way of saying banks and other lending institutions want to get their money back. Is this "exclusionary"? Yes, just as it was "inclusionary" lending that got savings and loans in so much trouble.

Like other leftists, Nader can't stand the market. He's horrified that in a free economy, banks and mortgage companies allocate credit on merit instead of race. The differences between blacks and whites in income, assets and credit history -- as even the Fed quietly admits -- more than explain racial variations in lending. If anything, banks are making too many special-interest loans now, thanks to regulatory pressure and the extortion tactics of community groups.

For some reason, Nader neglected to mention in his "study" that, according to the same Fed data, Asians are approved for mortgages at a higher rate than whites. Why? Their income levels and credit ratings make them better risks.

If Nader were just an isolated crackpot, we wouldn't need to worry. But he is part of a dangerous campaign to smear the banks as "racist" and to turn them into welfare offices.

Until recently, the campaign was conducted mostly at the local level. But now the feds are sending out chip-on-their-shoulder spies (called "testers") to fool and intimidate loan officers. Liberal groups are calling for new federal legislation. And the Clinton administration has bolstered the myth of bank racism by endorsing new "community development banks" that will try to sever creditworthiness from lending, at a high cost to the taxpayers, of course.

So far, the banking and mortgage industry has taken all this lying down. But it had better wake up goal of the Naderites. They want to harness private funds for government use and wipe out the free market for credit. Nader in particular wants to do to banks and credit it markets what he did to the Corvair (a safe, economical and technically advanced car, by the way). That would be a disaster for the industry, and for the country.

Thanks to this sort of pressure, Decatur Federal Savings and Loan in Atlanta was forced to pay heavy fines, institute lending quotas, pay bonuses to people who didn't qualify for mortgages, hold racial brainwashing sessions for employees and pay a hefty ransom to liberal community groups. This is the model Nader wants to impose on the whole country.

Instead of calling on Janet Reno to punish the institutions he called racist, Nader should apologize to them. They are providing a good product at some risk. And like all capitalists who take personal risks to serve the public, they deserve medals. We could make them out of the martyred Corvair.