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A Lesson Not Learned



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Both the Wall Street Journal and City Journal have noted this week a new twist in the Obama administration’s banking policies, namely a particularly pointless (and constitutionally unjustifiable) form of affirmative action. Quoting Nicole Gelinas’s analysis in City Journal:

And the administration is making yet another mistake, one that afflicts all types of big-government ventures: it’s obscuring its main policy goal—in this case, getting bad assets off banks’ books—by adding unrelated social-policy goals. In its latest update of the P-PIP criteria, Treasury notes that it “will encourage small, veteran, minority- and women-owned businesses to partner with” the big private-asset managers it selects for the program, urging the big guys to invite the minorities and ladies to be junior partners in their funds or to provide services like “trade execution” and “valuation.” Historically, big contractors’ hiring of female and minority subcontractors and partners to make their government funders happy has bloated project costs unnecessarily and hurt the quality of the work, since race or sex isn’t a good indicator of whether one can execute trades or value securities effectively. Moreover, such engineering would distort the all-important pricing of the mortgage-backed securities by adding political, rather than economic, inputs to the bidding process.

The irony, of course, is that a big part of the banking/mortgage meltdown is attributable, in the first place, to government insistence on injecting political correctness into lending policies.



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