The frustration of trying to invest in my hometown

> If a specific statistical classification indicates more bankruptcy, then it becomes true.

Fortunately this isn't actually the chicken and egg problem you think it is.

Suppose that for defunct historical reasons the model is predicting a higher default rate for some population, so it says to approve 85% of their loan applications rather than 95%. Then half of those people get into trouble that getting a second loan would save them from, but because of the model, only 85% rather than 95% are given the other loan.

So then their repayment rate will be 90% rather than 95%, because not as many were saved by the loan, but wait -- 90% is more than 85%, because only half of them needed the second loan. So now the model starts predicting that it should expect a 90% repayment rate for that population, which then increases their actual repayment rate, and so on until it stabilizes at 95%.

If you could identify the exact degree to which the prediction is affecting itself then you could take it all out at once, but doing that is hard. If the evidence shows a lower repayment rate in a particular area, is that just the holdover, or is it because that area still has a present-day higher level of drug use and violent crime which negatively affects repayment? If it's the latter and you give them loans at scale under the assumption that it's just an artifact, the bank is going bust.

So unless you can disentangle it all, the data to do which is often not reasonably available, the only realistic option is waiting for it to filter through.

Sadly, these buildings just aren’t good investments, and he’s not a good investor. Buildings that old are subject to all kinds of safety regulations, and Birmingham is not an easy town to work through that kind of thing. No one in the city is going to stick their neck out to cut through decades of regulations only to lose their job when there’s a fire or collapse. Any new owner will be tied up in red tape and rehab requirements that would dwarf the value of the buildings themselves. It’s likely that feasibility studies, inspections (and reinspections), and permits alone would cost more than the buildings. They also tend to take months and even years to get through.

I’m a successful real estate investor and while I absolutely love old downtown areas like that, and would love to revitalize them myself, I couldn’t even talk my wife into one of those properties, much less eight for which I had no budget. The numbers just don’t pencil out.

Racism has nothing to do with it. In fact, banks love to make loans to women and minority business owners. But there are some risks that would be irresponsible, and this is a textbook example of a loan that’s likely to default, leaving the banks with costs they couldn’t possibly recover.

Just to make sure this post gets flagged to extinction, I’d like to suggest to anyone sure that this is a case of racism and not pragmatism put together an investment group and help out.

What you’re suggesting is illegal and has been illegal for quite some time. Credit policies have to be neutral in outcome. You can’t just cook up a clever way to be racist and hide it in some zip code algorithm. If your algorithm turns out to weigh against a certain people, it’s illegal. Even if it happened by accident, it’s illegal.