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Comment by Nasrudith | Hacker News Reader

To be fair even if it literally is 100% reflective of reality that doesn't mean it lacks unjust feedback loops. If after generations of past policies the stats say 100% of people with red hair are bandits and the longstanding policy is that they are to be shot at on sight only redheads with plans to rob or kill you will approach within rifle range.

I think the best that can be hoped for is rigorous justification of lending criteria in non pure correlative ways. As opposed to discrimination laundering bullshit like sentencing based on the size of their yard. Judge them via their neighborhood foreclosure rates as opposed to ethnic make up. There are antidiscrimination in real estate laws on the books but I don't know enough to comment upon the current implementation and its pros and cons.

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> To be fair even if it literally is 100% reflective of reality that doesn't mean it lacks unjust feedback loops.

if you're worried about feedback loops, maybe don't lend based on any criteria other than the best possible estimate of ability to pay the loan back.

if you loan somebody money for a house that they can't pay back, they're going to 1) end up with even worse credit and 2) lose the house, which they made other emotional and financial investments in.

Or, alternatively, 3) - they sell the house for a profit, and everyone (who matters) wins.

The assumption of 3) was what drove 2008.

So how do you measure "the best possible estimate of ability to pay the loan back"? Because I think that broad assumption is a lot more complex and interesting than a simple FICO score.

For a crude example, pick health history. The leading cause of bankruptcy in the US is medical bills due to a health crisis. This of course spills over into mortgage foreclosure. But someone might have excellent credit, and a high cancer risk. They get cancer, byebye loan. Are you accounting for that?

Someone has excellent credit, but works in a dying industry and has no skills to move to an equal-paying job in another industry. Their job goes away in five years, byebye mortgage. I can go on with these. But my point is, I don't know if you realize just what a difficult point you're making with your simple answer.

Likewise, if you watch "Abacus, Small enough to Jail," you can see an Asian community bank president talking about lending to small business owners because he can go to their restaurant and see how crowded it is, all the time. There are actual 50-something Chinese businessmen who make over a million a year but who work 80+ hour weeks and man their own forklift to save on money. There are people with little empires of alternative health businesses, who keep some large portion of their money in the proverbial mattress because they've had experiences in the past where a different government confiscated their or a friend's holdings, and there are some people like that who try to apply for loans by sending in screenshots of their bank's web apps.

And banking industry consolidation has cut into those community ties that can change lending patterns. If we want to do something with regulatory policy, I'd think trying to keep banks small and local would be a fine start.

How did smaller banks fare during the crisis? I think that's the issue at the heart of whether encouraging them or not.

I think the problem with using money lending as a tool for social justice and equality was laid bare during the crisis. The downsides - lack of mobility for workers, pushing the risk from wealthy people (investors) to poorer people and the fact to function the system needs loans to be paid back at some percentage approaching 100 - all conspire to make this a really poor tool for change.

I think that something like the Australian approach - with enforced retirement savings set at 9% of income (where you earn $50K, and your employer pays $4.5K into super) - is a saner approach to wealth creation for the poorer groups than lumbering them with mortgages.

I think the problem with using money lending as a tool for social justice and equality was laid bare during the crisis.

There's a big difference between a community bank using community ties as a source of superior intelligence, and a big company acting as a mortgage mill trying to maximize throughput "countrywide" until the bubble bursts. Before the community banks existed, Asian community groups would arrange private lending within the community.

It sounds good on the surface. I'd let people opt-in on that, though.

I think the problem with using money lending as a tool for social justice And equality was paid bair during the crisis

That’s not what happened. It wasn’t poor people who caused most of the defaults - it was investors working with mortgage brokers, real estate agents, and appraisers who were all part of the take. Poor people weren’t doing most of the no doc/negative interest or other types of “non conforming mortgages”. The investors walked away, did strategic defaults, and were free and clear within 3 years - ask me how I know....

I can think of at least one instance from an earlier crisis (the 1980s S&L crisis) in which a community bank - in this case, Harlem Bank - had large government deposits suddenly withdrawn in order to shore up a "Too big to fail" bank, causing the collapse of the small, community-oriented bank. This matters. Government is a major cash depositor in many banks, and so government policy of cash placement affects the health of banks and the kinds of banks they support with their business.

> if you're worried about feedback loops, maybe don't lend based on any criteria other than the best possible estimate of ability to pay the loan back.

That is itself the tightest of feedback loops, because the best estimator is either current wealth, or past performance of loans. It is massively exclusionary so I don't think your point is very well made.

To be fair even if it literally is 100% reflective of reality that doesn't mean it lacks unjust feedback loops.

If you study immigrant minorities across history, around the world and going back 1000's of years, certain patterns emerge. Immigrant minority groups who can pool their resources and become participants in the economic life of the host country find a way to prosper, somehow. Before the 20th century, this pattern of prosperity could result in confiscation. With the widespread ideas of Human Rights, this has become less of a problem. (Though it can still be a problem.) Likewise, minority groups who remain in isolation tend to remain poor. Often, this is by the machinations of the elites of those groups, who use this isolation to remain in a position of relative power.

That's an interesting concept. Can you name a couple of examples, or a link to further reading?

http://a.co/cKeH8oK

> the best that can be hoped for is rigorous justification of lending criteria in non pure correlative ways

OP's point is government has better tools for enacting social policy than lending regulations. Improving low-income borrowers' finances, instead of pushing banks to stretch to them, seems saner. Unfortunately, we have a broad segment of the population that enjoys "sticking it" to the banks, thereby perpetuating the cycle.

> If after generations of past policies the stats say 100% of people with red hair are bandits and the longstanding policy is that they are to be shot at on sight only redheads with plans to rob or kill you will approach within rifle range.

The only reason that happens it that you're using exactly 100%.

If it's 98% then the top 2% in that group get approved, which gives you new data on that group that tells you your old numbers are inaccurate and a lower percentage of the group defected than predicted, so in the next generation you approve the top 10% in that group and so on.

This is the exact opposite of a feedback loop. As time passes it amplifies the signal, not the noise.

If what you are describing were anything like reality, the battle for Civil Rights would have been over a hundred years ago and we wouldn't be having this discussion, at least with respect to discrimination in mortgage loans and other financial instruments.

All it takes is a cursory glance at almost any mass migration in the US to show why that amplifying effect doesn't exist: when the [x]% finally get the money to move in, everyone else usually moves because of prejudice, driving the value of the neighborhood down and the [x]% into bankruptcy or financial destitution. I can even name a few towns in California where this has happened in my lifetime.

That's the kind of feedback loop we're talking about. No one bases their prejudices on actuarial tables.

> If what you are describing were anything like reality, the battle for Civil Rights would have been over a hundred years ago and we wouldn't be having this discussion, at least with respect to discrimination in mortgage loans and other financial instruments.

Jim Crow laws were enforced until 1965. They existed in the lifetimes of part of the current generation of would-be homeowners, and that is one thing you can't lay at the feet of the banks.

> All it takes is a cursory glance at almost any mass migration in the US to show why that amplifying effect doesn't exist: when the [x]% finally get the money to move in, everyone else usually moves because of prejudice, driving the value of the neighborhood down and the [x]% into bankruptcy or financial destitution. I can even name a few towns in California where this has happened in my lifetime.

The events you're describing should have the opposite effect. The first family to move in is obviously screwed, but screwed in a long-term sense where they lose the value they paid for their home which only happens in some decades when they want to sell it. Until then their mortgage payment is the same one they budgeted for to begin with. And all the racist white people who are leaving are in the same boat, but right away -- they want to leave but no one will buy their house for what it was worth last year.

Meanwhile there is suddenly a whole neighborhood where housing prices have plummeted and a bunch of white people who would otherwise come in and bid the prices back up are opting out. Doesn't that just make it easier for other black people to buy those homes for a discounted price?

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