FBN: Flaherty Assails Racial Mandates in Financial Regulatory Overhaul

I was interviewed by David Asman on the Fox Business Network on Wednesday, July 21. The topic is the racial mandates contained in the Dodd-Frank financial services regulatory overhaul. Here’s a transcript:

David Asman: The financial regulation Bill is now law and while we know that the twenty three hundred page document is full of new bureaucracies and regulations you may not know there is actually language in this law that requires racial profiling. Peter Flaherty is President of National Legal and Policy Center an ethics watchdog based in Washington. He has done some digging into this Bill. Peter, you know, I couldn’t believe it when I first heard it – I mean this is an Administration that prides themselves on being anti-racial. They are against racial profiling that doesn’t exist, for example in the Arizona immigration law. Get this: lenders will – these new data collection system that has to be now instituted as a result of the law. Lenders will now be required to report if small business applicants are minority owned. That is racial profiling. You are going to be forced to say whether you are white, black, Latin, whatever.

Peter Flaherty: That is correct. This provision ended up in the bill, due to the efforts of Congresswoman Maxine Waters. Now she denies that it will impose racial quotas on lending. But if you have this data being collected, being demanded of lenders, the result is going to be the same. What institution would submit numbers for the government that could be used as basis for charge of discrimination? What is really kind of puzzling to me, David, is how this provision stayed in the Bill. The Bill that was signed today was only passed due to the support of Republicans from the northeast, Susan Collins and Olympia Snowe from Maine and Scott Brown from Massachusetts. It seems to me if they demanded that this thing be taken out it would the not have been a deal killer for the Democratic leadership but nonetheless it is in there,

David Asman: I am bothered by racial profiling. This kind of racial profiling where the government insists on people naming – I mean – forget about it. I would protest, I would not do this. I would take to it court and demand an explanation of this.  By the way it is not the only place where they require racial profiling. The Financial Stability Oversight Council – that’s the big kahuna, the one that decides whether financial institutions stay or is broken up and I have big problems with that.  Big government, talk about big brother coming in saying who’s good or bad – but it requires, again that word, requires, to consider an institution’s quote importance as a source of credit for low income, minority or under served communities before winding it down. Therefore, in other words if you have a bad bank and if you are a minority owned bad bank you get considerations that a white or whatever bank doesn’t get, right?

Peter Flaherty: Well what does it mean? If you have a lot of borrowers who are in default and they happen to be black or Hispanic, you can’t close down the bank? It is really an indictment of one of the central features of this Bill, and that is the resolution authority vested in this board of overseers. The overseer is going to be captured by the big banks if politics intrudes and this is the first sign that politics will intrude. In fact it has been institutionalized because it is in the Bill even before the ink on the Bill is dry.

David Asman: How did the stuff get in there?

Peter Flaherty: Maxine Waters put it in and probably was as surprised as the rest of us that it stayed in there.

David Asman: You say Scott Brown should have put up a fuss and some of the other Republicans also. I mean, we needed to know about this before. Part of the reason why it is so dangerous to put legislation in that frankly most of the Congress people have not read is because stuff like this can be stuck in there and after it becomes law we find out about it. Is it too late to go in there and rip it out of the law?

Peter Flaherty: Well it’s too late now. What we saw was this phenomenon where you give the federal government more and more power and special interest groups both in Congress and outside Congress will seek to put their imprint on it, and use the power of the federal government to impose an agenda that is separate from the purpose of the Bill which is financial regulatory reform.

David Asman: What agenda? It is racist. It is racist. It is racist. The idea. I keep thinking of Dr. King’s statement judge by the content of character not by the color of the skin. This is directly opposed to that – directly opposed to that.

Peter Flaherty: Not only that, this is what got us into this financial mess in the beginning.

David Asman: Precisely.

Peter Flaherty: The Community Reinvestment Act, required banks to lend money, from where they get deposits, which sounds good in theory but the way it was enforced is banks had to show they did a lot of lending, in minority communities, whether borrowers were qualified for not. Of course the banks wouldn’t make the loans otherwise, but had they ability to turn around and sell them to Fannie and Freddie, one week later, so risk was put on the government, and now taxpayers are stuck with multi-billion dollar liabilities for both of those institutions.

David Asman: You know, just imagine again if the situation was reversed and we had to favor another group of racial preference instead of the one preferred from this particular Bill – I mean it is absolute racial profiling – Something that the Administration claims to be against but they put it in a Financial Regulatory Bill. Did you ever think this would happen?

Peter Flaherty: No. I didn’t like the Financial Regulatory Reform Bill for a number of reasons but this is really the razor blade in the apple. This was completely unexpected. There is a dry run for what is going to happen. There is a bank in Chicago called Shore Bank which has good political connections with the White House. It is run by the accolytes of Saul Alinsky. It styles itself as serving the un-served. They are deep under water. The FDIC wants to liquidate them, but the White House has been putting pressure on other big institutions like Goldman Sachs and Citigroup to lend Shore Bank money so it can qualify for TARP money.

David Asman: They have lended and now they qualify for TARP money. I know. I know. We have covered it before, but it is outrageous. Peter Flaherty, good to see you, thanks for bringing it forward to us. Appreciate it.

Peter Flaherty: Thank you David.