Saturday, December 04, 2004

Robert Rubin, smooth operator, but in some ways not so "progressive" as a banker.

I'm getting my NY Times op-eds via Portugal these days. Before opening the dead-tree version of today's edition of my hometown paper, I've already read Tim Worstall's sharp catch of Robert Rubin's smooth op-ed in it.

Rubin writes about Congressional do-goodism of the sort that makes Democrats like him proud...
Congress passed the Community Reinvestment Act in 1977 ... Under the act, regulators consider reinvestment performance when a bank seeks permission to expand or merge. Since its inception, the law has prompted banks to channel more than $1 trillion into reinvestment projects - without requiring a single dollar of Congressional spending.
Ah, isn't that great? Congress wants to send money to favored constituents, but doesn't want to pay the political price of collecting the taxes to do so. So it orders private businesses to spend their money there, or else.

And it is so proud of itself -- it's spent a trillion dollars without spending anything!

But I digress, that is not the point of this post.

Mr. Rubin continues, noting with alarm that regulators now are moving to ease restrictions they currently impose on small banks under the Act, because this will harm the poor...
Under the law now, banks with assets of more than $250 million undergo full periodic reviews of their lending, services and investments in low-income communities. At smaller banks, examiners limit their review to lending practices only.

The F.D.I.C. proposal would raise the asset level for this limited scrutiny to $1 billion, making many fewer banks fully accountable. The F.D.I.C. claims that the new rule is aimed at reducing the regulatory burden on banks. But there is a real question as to whether changing the rule would result in any meaningful savings for banks.

And communities will suffer if enforcement is curtailed, because the act has been working. A Treasury report presented in 2000 to the Congress concludes that mortgage lending to low- and moderate-income borrowers and areas rose substantially in the 1990's.
Well, that's what happens during an historic boom economy, eh?
At the same time, banks have learned that lending, investing and providing basic services in low-income communities can be good business.
And now that they have learned this, certainly we must impose the Act on them, or they will stop doing what they know is good business.
"The lower-income mortgage market has become demonstrably mainstream and more competitive over the last decade." The Federal Reserve Board, too, has deemed this lending to be safe and profitable.
Mainstream, safe and profitable -- certainly we need to apply the Act to have regulators compel mainstream, safe, profitable behavior.
Low-income families can be part of the mainstream economy only if they can buy homes, start businesses and live in stable, vibrant communities.
A touching thought ... But a thought that wasn't in the op-ed is that Mr. Rubin is Chairman of the Executive Committee of Citigroup, a bank that won't get a break from the regulators under the new rule while a 1,000 of its smaller competitors do.

Hmmm... considering his fiduciary obligation to Citigroup, he must be aware of that, and of his duty to do his best to prevent Citigroup from incurring any new competitive disadvantages. But why mention such a small thing when advocating a policy to help the poor -- even if it forces those 1,000 smaller competitor banks to make profits against their will in doing so!

But here's an oddity: As a good Democrat Rubin thinks "the rich" should pay much more than the little guys in taxes to support the modern welfare state. Yet he certainly doesn't here seem to think that among banks the richest and biggest -- his -- should pay more in regulatory burden than the littler banks to support the welfare state. I guess being a progressive has its limits.

(For the record Rubin's footnote on the op-ed has four words saying he is "a director of Citigroup" and 14 saying he "is the chairman ... of the Local Initiatives Support Corporation, a community development support group.")

Hat tip to Mr. Worstall.