Tuesday, July 12, 2005

Spitzer Sued by the Feds

There has been surprisingly little attention paid to lawsuit recently
filed by the Federal Government against AG Spitzer:
Attorney General or Aspiring Governon?"The suit aims to stop Eliot Spitzer's investigation of potential discriminatory lending by the nation's leading banks. The Comptroller of Currency, who oversees banking for the Treasury Department, and a banking trade group, the Clearing House Association, said in their suit the banks were subject to federal and not state regulation.

The attorney general's office is investigating community group claims that blacks and Hispanics are more likely than whites to get higher cost mortgage loans."
What I find interesting about the entire investigation that Spitzer is running is that even if "blacks and Hispanics are more likely than whites to get higher cost mortgage loans" it doesn't necessarily follow that race is a factor in how banks give out loans.

While I only took intro econ classes in college and never had a mortgage even I know that higher credit risk would lead to higher rates and that income would certainly to be a factor in credit ratings for a bank making an individual a large loan (like a mortgage). That being said couldn't the obvious answer be that blacks and hispanics simply have less income (according to recent census data) and thus the lender must balance that risk with higher rates?

In other words, perhaps bankers who give higher mortgage rates to those with lower incomes (who are disproportionately black and hispanic) is doing so because the alternative is not giving them a mortgage at all.

All this forces any reasonable person to conclude that there is a political motive behind this investigation. If that is the case, then Spitzer has taken the cynical approach that it is politically advantageous to make a false yet visible stand in support of blacks and hispanics (even when such a stance actually may hurt those it pretends to help), when the alternative is to do nothing at all.

As for the lack of coverage of the lawsuit against Spitzer, the reason is quite simple: Unlike suits filed by Spitzer, the Feds are confident enough to try the case in the courts, rather than the media. That and they don't have Spitzer's pizzazz for creating media attention or his ambition for higher office.

Here's the video of the report on NY1:
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