- The Washington Times - Wednesday, July 14, 2010

ANALYSIS/OPINION:

Senators who appear poised today to pass the lumbering, intrusive new financial-institution regulation bill should ask themselves, and be asked by their constituents, if they really want to be on record supporting discrimination imposed by rampaging bureaucrats. Four members of the U.S. Commission on Civil Rights, along with numerous outside observers, have complained that Section 342 of the new Dodd-Frank bill would have just that effect. The provision makes an already bad bill into a repugnant one. It should not be enacted into law.

Section 342 requires each of the many federal agencies involved in regulating financial institutions to set up a new Office of Minority and Women Inclusion (OMWI). Each of those offices must take numerous steps to promote “racial, ethnic and gender diversity” and must “give consideration to the diversity of the applicant.” Even contractors “shall ensure, to the maximum extent possible, the fair inclusion of women and minorities in the work force of the contractor and, as applicable, subcontractors.” If the contractors and subcontractors don’t succeed at that goal, as determined by the purely subjective and discretionary judgment of the director of the Office of Minority and Women Inclusion, the director “shall make a recommendation to the agency administrator that the contract be terminated.”

Translated out of bureaucratic mumbo jumbo, this means federal hacks can pressure a vast array of private companies to make hiring decisions based on race. It is a backdoor way of instituting a racial quota system. Sure, no law will officially require a quota, but if the head of a small credit union doesn’t want to be harassed by the regulatory agency, or if there is a danger of losing any contract or subcontract with any larger institution subject to these regulations, he will know darn well that he needs to show that his institution has a high proportion of minorities and women as employees.

If the regulated institution is in, for example, one of the Dakotas, where the minority population is very low, this could lead directly to discrimination against qualified white applicants. Sen. Byron Dorgan and Sen. Kent Conrad, both North Dakota Democrats, and Sen. Tim Johnson, South Dakota Democrat, all might want to think twice about this equation.

“In this case, the bureaucrats are not even being asked to prevent discrimination, but to ensure ‘fair inclusion,’ ” wrote the members of the Commission on Civil Rights. “The likelihood that it will in fact promote discrimination is overwhelming.”

Roger Clegg, president of the Center for Equal Opportunity, raised another valid point in a July 12 essay. “Constitutional issues are raised by the various provisions of Section 342 because it is problematic when the government uses classifications or preferences based on race, ethnicity or sex … Indeed, such classifications and preferences are ‘presumptively invalid.’ “

The disruptions to the economy of such a coercive policy also could be severe. These pressures for minority outreach almost certainly will, in practice, pressure lending institutions into making loans to otherwise unqualified borrowers. That, of course, is part of what precipitated the financial crisis in 2008. The future holds significant risk when that practice is combined with existing trends in interest rates, which continue to drop nationwide to lure the hesitant into taking big loans. Buckle up for another wave of defaults.

In short, Section 342 is pernicious. It ought to be excised.

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