Buried in the financial-reform bill President Barack Obama signed in July is an innocuous-sounding provision, Section 342. It establishes Offices of Minority and Women Inclusion (OMWI) in each federal financial regulatory agency in an effort to expand gender and racial diversity and mitigate predatory financial practices. For many conservatives, Section 342 is anything but anodyne. Among the shrillest critics has been the nation's financial paper of record, The Wall Street Journal. Fearmongers on the Journal's editorial board have branded Section 342 "the biggest under-reported threat" of the bill, declaring it "the most brazen attempt to hijack central bank policy since its founding nearly a century ago."
There is little reason for such hysteria. Section 342 confers no enforcement powers; instead, it merely takes a cue from the Wall Street mantra that if something is not measured, it doesn't matter. Underlying the OMWI is the idea that greater racial and gender equity among regulators will produce an informal institutional check against predatory financial practices. These practices disproportionately target the women and communities of color for whom the housing crisis wiped out a generation's worth of wealth-building assets.
Attracting particular conservative opprobrium is 342's mandate that financial institutions hire these traditionally underrepresented groups and contract with minority- and women-owned businesses to the "maximum extent possible." To critics, this is code for the quotas, but the bill contains none -- a quota bill would never pass constitutional muster in federal court.
Conservatives haven't always been so dismissive of efforts like 342. National Review Online and The American Spectator hailed the Resolution Trust Corporation (RTC), created by Congress after the savings and loans crisis of the 1980s, as a model for winding down troubled financial institutions. McCain, stumping in battleground states in 2008, endorsed the creation of an "RTC 2.0," given the success of the original in "cleaning up the savings and loan industry."
From 1989 to the mid-1990s, the RTC put unsafe thrifts out of business to protect the larger economy and hired private firms to help, just as today's Troubled Asset Relief Program (TARP) does. The RTC required its contractors to work in joint ventures with minority- and women-owned companies. Pamela Bethel, an attorney with O'Riordan Bethel, a women- and minority-operated firm specializing in federal procurement, told Congress in May that as a result of those policies, "many diverse firms gained exposure and expertise that would have been denied them."
When Franklin Roosevelt responded to the Great Depression with the New Deal, the White House and Congress willfully ignored rampant discrimination at the local and state levels to placate conservative voters. The current financial crisis appears to have introduced a Dirty Deal redux, with the inclusionist successes of the RTC lost on TARP. Women- and minority-owned firms have been largely overlooked by the program. Indeed, of 52 contracts awarded by Treasury under TARP, minority-owned firms received three. More striking, according to the Government Accountability Office, not a single women-owned law firm specializing in financial services was awarded a contract under TARP.
"While tens of millions of dollars in legal-service contracts have been awarded by Treasury under TARP, no significant dollar amount has been allocated to diverse minority- and women-owned law firms," Bethel told a House subcommittee in May. Data from the GAO backs up her testimony, as the aggregate size of majority contracts and agreements dwarfs those awarded to women- and minority-owned financial firms.
When the rare opportunity has presented itself, these firms have outperformed their competitors. Selected by the Federal Reserve to manage mortgage-backed securities, women- and minority-owned firms boasted an aggregate performance that exceeded most of the larger majority firms over the last few years.
Despite the highly regarded work of qualified women and minorities, their numbers have not appreciably increased since the last national credit crisis. Between 1993 and 2008, diversity initiatives in the financial service sector have flatlined, after previously making consistent and regular gains in improving the numbers of women and minorities. In the private sector, women represent only 27 percent of senior management in the financial services; this figure has barely changed since the early 1990s. Racial minorities (African, Asian, and Hispanic Americans) total only 10 percent, representing a slight uptick in 15 years. The upper reaches of federal financial regulators fare even worse. The oversight committee of the Consumer Financial Protection Bureau, which includes representatives from more than 20 federal regulators, including the Federal Deposit Insurance Corporation and the Federal Reserve, is entirely white and includes only two women.
Making matters worse, the financial crisis is widely suspected to have exacerbated diversity issues on Wall Street. Recent surveys taken by the Robert Toigo Foundation, a nonprofit specializing in diversity at Wall Street firms, suggest the crisis has reduced minority representation in these firms. Orice M. Williams-Brown, a GAO official, warned Congress that the crisis could lead to less diverse management in the financial sector, saying that the firms may "believe in diversity, but when you look at statistics, it does raise an obvious question."
That's where Section 342 comes in. Rather than falsely blaming the global financial crisis on government efforts to provide underserved communities access to credit, it addresses a more serious and better documented problem: predatory lenders that target those communities. Rep. Maxine Waters of California, who chairs the House Financial Services Subcommittee on Housing and Community Opportunity, says she came up with 342 "so there's someone who's sitting at the table who can say, 'Friends, don't you remember that we just had a subprime meltdown where minority communities were targeted, sold bad products, talked into no-doc loans?'"
A seat at the table can never guarantee the end of predatory financial practices victimizing women and racial minorities any more than putting more cops on the street promises to zero out crime. But the community policing of financial markets can ensure an important check-and-balance will be in place, one intended to make citizen consumers safer regardless of gender or race. Having witnessed arguably the greatest stripping of wealth from minorities and women in our nation's history, one thing is certain: They know the price of living without Section 342, and it has been steep.
