Showing posts with label Dodd Frank Section 342. Office Of Minority And Women Inclusion. Show all posts
Showing posts with label Dodd Frank Section 342. Office Of Minority And Women Inclusion. Show all posts

Sunday, July 17, 2011

Why Does the Fed Have So Little Supplier Diversity?

Interview on DiversityInc.com website by Barbara Frankel on Jul 12, 2011 concerning our FOIA request:

We submitted a FOIA to the Fed, a Freedom of Information Act request, a formal request of a federal government agency for information. We asked for information on "minority" business contracting. How much money did the Fed spend with women firms (WBEs), minority firms (MBEs) and others? We were really looking for information on their spending patterns or their support of minority-owned banks. We were basically trying to (expand and) complete the data set concerning their support for foreign banks, foreign corporations, domestic corporations..related to the financial crisis.

What we found was that the Fed has not spent a lot of money with women- and minority-owned firms. In response to our Freedom of Information Act request, the Federal Reserve Board provided data on contract awards for the year 2010, broken out by ethnic and by gender designations. We found that, for example, in 2010, the Fed only spent 1.73 percent of their contracting dollars with minority-owned firms and 6.31 percent with women-owned firms. The total amount of money spent was reported to be $113,109,000. This only covers the Board of Governors in Washington, D.C. This does not cover the entire Federal Reserve System.

We are trying to determine how much support was given to minority firms. We sought to compare that to the level of support provided to Goldman Sachs, Merrill Lynch and other financial institutions and corporations as a result of the financial crisis.

http://diversityinc.com/article/8456/Why-Does-the-Fed-Have-So-Little-Supplier-Diversity/

Sunday, June 5, 2011

Commentary: New law a boon for women- and minority-owned firms

From the Washington Post:

"This may be the best time in recent memory to be a minority- or woman-owned contractor seeking to do business with the federal government."

(Actually, I think I would dial that back a little. With concern over government spending growing, it looks like women and minority firms may be getting to the party just as the food and beverages are running out...unless they are defense contractors.)

"A recent article in Capital Business [“Federal Reserve Bank seeks diversity in contractor pool,” May 16] discussed efforts by the Federal Reserve Bank of Richmond to increase contracting with women- and minority-owned firms. This effort is far broader and more significant than the article indicated, however.

Section 342 of the recently enacted Dodd-Frank Act requires nearly 30 agencies that oversee the financial system, including the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corp., to establish offices of minority and women inclusion to monitor diversity within their ranks and the pool of contractors who provide goods and services to the government.

One of the most important provisions requires the agencies to examine diversity efforts at the 27,000 financial institutions the 30 agencies regulate. Knowing that they are being watched will spur the financial institutions to hire more minority employees and spend more money with minority contractors."

(Actually, I would word this differently now. Financial institutions will be motivated by marketplace pressures related to a customer base that is increasingly diverse, not by government pressure...)

"The government has yet to determine what the penalties will be for financial institutions that fall short of diversity standards. I suspect it mostly will be shame. The bad list will get wide publicity. Financial institutions’ customer bases are more diverse than they were 20 or 30 years ago, and they don’t want to be seen as lacking a sufficient number of minority and women employees and contractors. Being on the bad list will cost them shareholder value and hurt their ability to recruit and retain employees. No one wants to work for a firm that doesn’t get it.

My opinion is that firms that fall short should be fined. I don’t think that will happen but a fine would impact their long-term behavior."

(Again, to reword slightly, fines are probably not realistic. A more likely penalty will be the loss of contracting opportunities for firms that consistently break the law...)

"Section 342 simply aims to bring players with differing backgrounds into the government contracting marketplace. As businesses compete for contracts, they will provide better goods and services at lower cost.

The effort will be good for women and minority contractors and the government. More competition, ultimately, will save the government — and taxpayers — money."

For the full article, see:

http://www.washingtonpost.com/business/capitalbusiness/commentary-new-law-a-boon-for-women--and-minority-owned-firms/2011/06/01/AGxHCfJH_story.html

Thursday, July 29, 2010

Section 342. Office Of Minority And Women Inclusion

Much recent attention has focused on Section 342 of the Financial Reform Bill (Dodd-Frank Bill). The section calls for the creation of Offices of Minority and Women Inclusion at all Federal financial institution regulatory agencies. While most blog comments on the Section have been negative, there has been a lack of accurate information about just what this section calls for and why.

Let's start with why. As we noted in 2003 and 2006:

"Envy, hatred, and greed have flourished in certain capital market institutions, propelling ethical standards of behavior downward. Without meaningful reform, there is a small (but significant and growing) risk that our economic system will simply cease functioning." (2003);

and

"Individuals and market institutions with the power to safeguard the system, including investment analysts and rating agencies, have been compromised. Few efficient, effective and just safeguards are in place. Statistical models created by the firm show the probability of system-wide market failure has increased over the past eight years. Investors and the public are at risk." (2006).

On April 22, 2009, we noted that "Commercial and investment banks used their size and money to..evade any meaningful effort to impose common sense and transparent risk controls in the public interest, known as regulation. Markets are ruled by two emotions: fear and greed, and these institutions got greedy, very greedy. They created financial products that served no real purpose, other than to generate profit for the bank. To keep customers (their only regulator) from understanding the bank’s true intent, they made these products horribly complicated. These products were, in part, simple bets. These bets were layered on top of each other until only the product designers had any hope of realistically estimating what little value actually existed in the products.

Commercial and investment banks came to act as if they understood that giving these products a veneer of social utility would help them hide their true motivation, so they tied a small fraction of these bets, now known as 'derivatives,' to subprime lending and passed the bundle off as the invisible hand of the free market at work. Subprime lending products allowed white banks to engage in highly negative and discriminatory practices. Such practices 'intentionally assigned black customers subprime mortgages while giving whites better rates.' " On June 24, 2009 Wells Fargo was sued by the City of Baltimore for "discriminatory and predatory lending."

As we said on March 14, 2009, quoting an article by Michael Lewis, "There weren't enough Americans with (bad) credit taking out loans to satisfy investors’ appetite for the end product. (Investment banks) used (financial bets) to synthesize more of them..they weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford..they were creating them out of whole cloth. One hundred times over! That’s why the (financial crisis) losses are so much greater than the loans."

None of the blogs we read on Section 342 mentioned these facts.

Section 342 is actually called for by Adam Smith, who said, in The Wealth of Nations that, "To promote the little interest of one little order of men in one country, it hurts the interest of all other orders of men in that country, and of all men in all other countries." The section seeks to broaden "one little order of men in one country" to include minorities and women.

What the section actually says.

Section 342 does not declare "that race and gender employment ratios, if not quotas, must be observed by private financial institutions that do business with the government." It does not insert "race and gender quotas into America's financial industry." There is no language in the section that would make either of these statements reasonable.

Section 342 calls for the development of "standards for—
(A) equal employment opportunity and the racial, ethnic,and gender diversity of the workforce and senior management of the agency;
(B) increased participation of minority-owned and women-owned businesses in the programs and contracts of the agency, including standards for coordinating technical assistance to such businesses; and
(C) assessing the diversity policies and practices of entities regulated by the agency."

The term "standards" is key. Here is what the legislation says about them: "The standards and procedures developed and implemented under this subsection shall include a procedure for (making) a determination whether an agency contractor, and, as applicable, a subcontractor has failed to make a good faith effort to include minorities and women in their workforce."

This seems reasonable. While "Section 342's provisions are broad" there is no reason to assume that they "are certain to increase inefficiency in federal agencies," unless you assume all women and minorities inefficient, a biased and bigoted assumption, to say the least.

Likewise, to suggest that "the federal government is moving from outlawing discrimination to setting up a system of quotas" or that "the only way that financial firms doing business with the government would be able to comply with the law is by showing that a certain percentage of their workforce is female or minority" is wrong. This is the kind of fear mongering heard after Brown v. Board of Education. It was wrong then. It is wrong now. No quotas are called for, and a firm can certainly comply with the law even without having a single women or minority of staff, assuming it has made a good faith effort to include minorities and women in their workforce.

We recently calculated that the dollar Section 342 potential for minority and women owned firms totals $136 million. To order our full Section 342 report, see: http://www.creativeinvest.com/pubs.html