From: Douglas Barnes <cman@c2.net>
Date: Wed, 11 Dec 1996 11:27:17 -0800 (PST)
To: cypherpunks@toad.com
Subject: Re: Redlining
Message-ID: <2.2.32.19961211192516.00b72708@blacklodge.c2.net>
MIME-Version: 1.0
Content-Type: text/plain



Another interesting aspect -- there's been huge growth in the "making
loans to folks with non-traditional or bad credit histories" market
recently, as the market for folks with good credit histories has 
become saturated. This has been done largely by various NBFIs operating
outside of the normal "bank" structure, and specializing in certain
kinds of consumer loans.

It is vitally important to realize that to a bank, a loan is a "product,"
that they "sell" to customers.  It is how the bank makes money. If
the market is operating properly, irrational refusals to loan on the
part of some institutions will create a market opportunity for other
institutions.

The problem with banking & financial services is that they are already
so heavily regulated, and the barrier to entry is so high, that the
market seldom operates properly. Thus we see _more_ regulation piled
on (such as the CCRI) to address the problems that come about from the
previous piling-on of regulations. 

When there is little competition between banks, this creates a situation 
which, viewed in isolation, seems "unfair" to those at the fringes of the 
loan market. The superficial answer to this problem is to force banks
to lend in areas that are less profitable for them than their traditional
areas -- at this point banks almost begin to resemble monopoly public
utilities, which, when you look at the regulations they operate under,
is almost the case.

The more enlightened answer is to back off enough on the regulation so
that marginal loan markets become attractive business opportunities,
and any truly irrational lending practices (e.g. based on race) lead 
directly to losing business to a competitor.

Doug

At 11:31 AM 12/11/96 EDT, you wrote:
>From:	IN%"mjmiski@execpc.com"  "Matthew J. Miszewski" 11-DEC-1996 03:52:03.23
>
>>This is the essence of, at least, my disagreement with you Red.  I dont
>>agree that redlining doesnt harm people.  You see no harm.  I do.
>
>	Of course redlining causes harm to those who are redlined... they
>can't get credit. But the same can be said of any system of keeping
>track of who is likely to repay credit; it means that someone who has
>defaulted on past loans won't get future ones. Quite simply, while I
>would agree with you that racism certainly persists (it would be
>difficult for me to grow up in the South and not see this), I would
>argue that you have no evidence for that the basic motivation behind
>redlining is that the people in such areas are less likely to repay
>credit.
>	-Allen
>