The United States has two separate banking systems today - one serving the well-to-do and another exploiting everyone else. How the Other Half Banks contributes to the growing conversation on American inequality by highlighting one of its prime causes: unequal credit. Mehrsa Baradaran examines how a significant portion of the population, deserted by banks, is forced to wander through a Wild West of payday lenders and check-cashing services to cover emergency expenses and pay for necessities - all thanks to deregulation that began in the 1970s and continues decades later. In an age of corporate megabanks with trillions of dollars in assets, it is easy to forget that America's banking system was originally created as a public service. Banks have always relied on credit from the federal government, provided on favorable terms so that they could issue low-interest loans. But as banks grew in size and political influence, they shed their social contract with the American people, demanding to be treated as a private industry free from any public-serving responsibility. They abandoned less profitable, low-income customers in favor of wealthier clients and high-yield investments. Fringe lenders stepped in to fill the void. This two-tier banking system has become even more unequal since the 2008 financial crisis. Baradaran proposes a solution: reenlisting the US Post Office in its historic function of providing bank services. The post office played an important but largely forgotten role in the creation of American democracy, and it could be deployed again to level the field of financial opportunity.
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If one of your brethren becomes poor, and falls into poverty among you, then you shall help him.... You shall not lend him your money for usury. -- Leviticus 25: 35-37
I should disclose right upfront that I know and am friends (probably closer to acquaintances, since we share several friends and geography prevents us from actually breaking physical bread) with Mehrsa. But she didn't give me the book. I bought the HB version of her book and the audio version as well because I was genuinely interested in these subjects.
Financial policy is one of my hobbyhorses, and the literature (JR, The Big Short, Flash Boys, Cosmopolis, The Bonfire of the Vanities, etc), both fiction and nonfiction, that surrounds money I find super interesting. Some of this is probably due to my background. I started off my working life as a policy analyst in an Eastern State and now work as a financial advisor out West. My job used to be to analyze policy proposals and new regulations. Now, I work in the financial industry.
Anyway, I've decided this year to try and read three or four nonfiction book on the financial industry. I started with Bad Paper: Chasing Debt from Wall Street to the Underworld, read this one, and will hopefully get to Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right and The Money Cult: Capitalism, Christianity, and the Unmaking of the American Dream before the end of the year.
In this book Professor Baradaran lays out the theoretical and historical basis for a public option (the US Post Office) to serve the large segment of the American populace that is underserved (read this book and you will be shocked by just how underserved AND just how many) by traditional banks and credit unions. This large segment is often preyed upon by the payday lending and check cashing industries which, from my own vantage point, are industries that add very few positives to the US economy. As we see income disparity grow, and the poor disenfranchised not just from civic life and political participation, but also banking, we are sowing the seeds of trouble for our democracy.
This book carefully lays out the problems, the history, solutions of the past, current alternatives and roadblocks to change, and points to probably the most viable policy option. Given the nature of Congress' polarization and inability to act on some of the most basic responsibilities of governing, I don't hold much hope of change in the near future. But as demographic changes swell the underserved, as certain parties (like banks) continue to shrink their tent, at some point there might be enough energy and support for real, public option, banking reform*. And at that point, this book will be VERY important.
Professor Baradaran is not Michael Lewis. She didn't weave her economic book into the narrative of some fascinating character that drives the narrative through the channels of postal banking. She is not writing New New Journalism. This book won't get optioned for a movie. Sorry Mehrsa. :( This is a book that ends with 86 pages of notes. That is one page of notes for about 3 pages of text. This is, at heart, a policy brief. But here is the analogy I used with my wife last night:
There is a story about Velvet Underground's first album told by Brian Eno. While Velvet Underground and Nico sold only 30,000 copies in its early years, "everyone who bought one of those 30,000 copies started a band." This book is NOT destined to compete with a Michael Lewis bestseller. It won't get optioned. But like money deposited in a bank with a very low reserve rate, some books (and some albums) are big idea multipliers. And who knows, perhaps, everybody who reads this book will also start a band.
*Also, if you read this book, you should also check out the Post Office Inspector General's white paper Providing Non-Bank Financial Services for the Underserved