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How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy
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 U.S. 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."
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 U.S. 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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First published October 6, 2015
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About the author
Mehrsa Baradaran
10 books388 followersMehrsa Baradaran is Professor of Law at UC Irvine Law and a celebrated authority on banking law. In addition to the prizewinning The Color of Money, she is author of How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy. She has advised US senators and representatives on policy and spoken at national and international forums including the World Bank.
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December 13, 2018
About five years ago, I got my first introduction to the world of payday loans when, as an ecclesiastical assignment, I was asked to work with several individuals and families who were struggling with finances. One of these families was making payments of $200 a month or so on a loan that had been taken out several years earlier. I quickly calculated that the individual had payed around $5,000 already on this loan, which, I assumed, had to have been fairly substantial. It was not, I later discovered. It was originally a loan for $700 dollars, which had been needed to fix a car, without which, nobody in the family could have worked.
I was, of course, outraged. But I assumed that it had to be some sort of illegal loan shark operation. We were looking at an interest rate of over 100% a year, and they were no closer to paying off the loan than they had been when they started All they ever paid was interest. I made a few phone calls, thinking that all I had to do was report whoever held the loan to some law enforcement agency or another and it would all be taken care of.
That’s because I didn’t know very much. As Mersha Baradaran explains in her much-needed book How the Other Half Banks everything about this loan--and hundreds of thousands like them--was completely legal. The dumbfoundedness that I felt when I found this out became the lens through which I read and processed the book.
How the Other Half Banks is not a long book, but it is a book that does a number of things--all of them important to its overall argument. In the first place, it is a history of banking in the United States, going back to Hamilton’s first national bank and then looking at Andrew Jackson’s bank wars, the nineteenth-century’s ramp up of the banking industry, and a variety of bank types that emerged in the 20th century to try to address the banking needs of poor and lower-middle-class Americans.
This is not a general history, though. It has a very specific point. Baradaran demonstrates--quite conclusively in my view--that the banking industry has never been governed purely by market forces, nor could it ever be. It cannot exist without certain types of market-skewing interventions by the federal government. This is not incidental. It is a constitutive part of what banks do. They have to have an enormous amount of trust. People have to be completely confident giving them their money. And only government backing has the power to generate this kind of trust.
This is crucial to the second thing that Baradaran does, which is explain the very serious problem of subprime, predatory lending. These are the payday loan companies, the auto title-loan firms, and other institutions that extend credit to people who need fairly small amounts of money and do not have any other option. These companies have built a business model around charging exorbitant interest rates on relatively small loans for short amounts of time that keep getting extended and extended as people have difficulty making the repayments.
Baradaran further demonstrates that the two primary ways that society has tried to deal with these predatory lending practices--education and regulation--have not and cannot work. People cannot be educated out of taking these loans because they are not an irrational response to the situations that people find themselves in. The people who take out these loans generally know exactly what they are getting themselves into, and they do it anyway because they have an immediate financial need that they cannot meet. This is also the reason that regulation does not work. These lenders fill a real market niche, and, as long as this is the case, they will reinvent themselves every time they are regulated and come back in a form that fills the need. There is no way to get rid of them as long as there are people who need credit and can’t get it anywhere else.
And this is the third, and ultimately the most important thing that Baradaran does in How the Other Half Banks: she makes the argument that there needs to be a public credit option--some way that the government can use its resources to facilitate credit at interest rates that reflect the actual market value of that credit. Such an option would not be an entitlement program. A great deal of data shows that it could be self-sustaining. But it would not be predatory, which would translate into saving hundreds of thousands of people from bankruptcy and financial ruin.
There are plenty of objections to this kind of proposal. Most of them come from the Ayn Rand Book of Libertarian Fantasies: it is socialism, the government shouldn’t pick winners and losers, the federal government shouldn’t have that much power, it will run up the deficit, it is massive government interference with the free market.
But Baradaran has already anticipated all of these objections with her first two chapters, which demonstrate, with overwhelming evidence, that banking is not and has never been a free-market enterprise. There are government interventions propping up all of the “normal” lenders, and even when they fail they don’t fail because both Democratic and Republican institutions intervene to keep them solvent. To do otherwise would jeopardize the confidence upon which the entire banking industry depends. People who use traditional banks benefit from government interventions into the market on a daily basis.
Traditional banks are based on a kind of socialism that never made it into Atlas Shrugged: the socialization of risk. We all bear the financial cost of the government’s interventions to prop up “too-big-to-fail” banks. Those costs are real elements of the free-market equation. This is not a complaint. There are perfectly good reasons that banks need the stabilizing power of the federal government, even though the exercise of this stabilizing passes risk and eventually cost, onto the taxpayer.
But it is disingenuous to then turn around and suggest that the people who can’t afford to use one of the subsidized, risk-socializing banks must submit to the forces of an unregulated free market. They are literally the only ones who must do so in their banking choices.
In the penultimate chapter, Baradaran suggests that the US Postal Service could offer these banking services. As I read it, though, this is less of a proposal than an illustration of how it could work. The proposal is that we, as a society acting through the mechanism of our government, need to do something. America’s status as a democracy is jeopardized by the fundamentally unequal access to credit that is created when rich people have access to credit subsidies and poor people don’t. And I agree. A non-market-driven public option for credit is the only way to assure the basic equality of opportunity that our nation is supposed to stand for.
I was, of course, outraged. But I assumed that it had to be some sort of illegal loan shark operation. We were looking at an interest rate of over 100% a year, and they were no closer to paying off the loan than they had been when they started All they ever paid was interest. I made a few phone calls, thinking that all I had to do was report whoever held the loan to some law enforcement agency or another and it would all be taken care of.
That’s because I didn’t know very much. As Mersha Baradaran explains in her much-needed book How the Other Half Banks everything about this loan--and hundreds of thousands like them--was completely legal. The dumbfoundedness that I felt when I found this out became the lens through which I read and processed the book.
How the Other Half Banks is not a long book, but it is a book that does a number of things--all of them important to its overall argument. In the first place, it is a history of banking in the United States, going back to Hamilton’s first national bank and then looking at Andrew Jackson’s bank wars, the nineteenth-century’s ramp up of the banking industry, and a variety of bank types that emerged in the 20th century to try to address the banking needs of poor and lower-middle-class Americans.
This is not a general history, though. It has a very specific point. Baradaran demonstrates--quite conclusively in my view--that the banking industry has never been governed purely by market forces, nor could it ever be. It cannot exist without certain types of market-skewing interventions by the federal government. This is not incidental. It is a constitutive part of what banks do. They have to have an enormous amount of trust. People have to be completely confident giving them their money. And only government backing has the power to generate this kind of trust.
This is crucial to the second thing that Baradaran does, which is explain the very serious problem of subprime, predatory lending. These are the payday loan companies, the auto title-loan firms, and other institutions that extend credit to people who need fairly small amounts of money and do not have any other option. These companies have built a business model around charging exorbitant interest rates on relatively small loans for short amounts of time that keep getting extended and extended as people have difficulty making the repayments.
Baradaran further demonstrates that the two primary ways that society has tried to deal with these predatory lending practices--education and regulation--have not and cannot work. People cannot be educated out of taking these loans because they are not an irrational response to the situations that people find themselves in. The people who take out these loans generally know exactly what they are getting themselves into, and they do it anyway because they have an immediate financial need that they cannot meet. This is also the reason that regulation does not work. These lenders fill a real market niche, and, as long as this is the case, they will reinvent themselves every time they are regulated and come back in a form that fills the need. There is no way to get rid of them as long as there are people who need credit and can’t get it anywhere else.
And this is the third, and ultimately the most important thing that Baradaran does in How the Other Half Banks: she makes the argument that there needs to be a public credit option--some way that the government can use its resources to facilitate credit at interest rates that reflect the actual market value of that credit. Such an option would not be an entitlement program. A great deal of data shows that it could be self-sustaining. But it would not be predatory, which would translate into saving hundreds of thousands of people from bankruptcy and financial ruin.
There are plenty of objections to this kind of proposal. Most of them come from the Ayn Rand Book of Libertarian Fantasies: it is socialism, the government shouldn’t pick winners and losers, the federal government shouldn’t have that much power, it will run up the deficit, it is massive government interference with the free market.
But Baradaran has already anticipated all of these objections with her first two chapters, which demonstrate, with overwhelming evidence, that banking is not and has never been a free-market enterprise. There are government interventions propping up all of the “normal” lenders, and even when they fail they don’t fail because both Democratic and Republican institutions intervene to keep them solvent. To do otherwise would jeopardize the confidence upon which the entire banking industry depends. People who use traditional banks benefit from government interventions into the market on a daily basis.
Traditional banks are based on a kind of socialism that never made it into Atlas Shrugged: the socialization of risk. We all bear the financial cost of the government’s interventions to prop up “too-big-to-fail” banks. Those costs are real elements of the free-market equation. This is not a complaint. There are perfectly good reasons that banks need the stabilizing power of the federal government, even though the exercise of this stabilizing passes risk and eventually cost, onto the taxpayer.
But it is disingenuous to then turn around and suggest that the people who can’t afford to use one of the subsidized, risk-socializing banks must submit to the forces of an unregulated free market. They are literally the only ones who must do so in their banking choices.
In the penultimate chapter, Baradaran suggests that the US Postal Service could offer these banking services. As I read it, though, this is less of a proposal than an illustration of how it could work. The proposal is that we, as a society acting through the mechanism of our government, need to do something. America’s status as a democracy is jeopardized by the fundamentally unequal access to credit that is created when rich people have access to credit subsidies and poor people don’t. And I agree. A non-market-driven public option for credit is the only way to assure the basic equality of opportunity that our nation is supposed to stand for.
September 14, 2016
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, read this one, and will hopefully get to Dark Money and The Money Cult 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 book into the life of some fascinating character that drives the narrative through the channels of postal banking. One of the byproducts of the Michael Lewis era of financial reporting is there is this unspoken expectation of the sexy and the sensational. There needs to be narrative arcs and glitter, and perhaps even a banker in a strip club. I'm saying that only partially in jest. The reality is that form of reporting has its place and certainly is enjoyable. And while I often love Lewis' ability to dance through a financial derivative with a bit of prep-school swagger and keep his audience semi-erect during a lesson on dark pools, most banking policy AND most banking issues are, by design, not meant to be read on the beach or seen on the Big Screen.
Mehrsa 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 a well-crafted, scholarly, peer-reviewed, piece. Her logic, arguments, and writing are tight. Tight. The pieces of this book seem to fit like some Incan stonemason's master puzzle. No Mortar. No knifable clefts. Solid and clean. This book 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
-- 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, read this one, and will hopefully get to Dark Money and The Money Cult 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 book into the life of some fascinating character that drives the narrative through the channels of postal banking. One of the byproducts of the Michael Lewis era of financial reporting is there is this unspoken expectation of the sexy and the sensational. There needs to be narrative arcs and glitter, and perhaps even a banker in a strip club. I'm saying that only partially in jest. The reality is that form of reporting has its place and certainly is enjoyable. And while I often love Lewis' ability to dance through a financial derivative with a bit of prep-school swagger and keep his audience semi-erect during a lesson on dark pools, most banking policy AND most banking issues are, by design, not meant to be read on the beach or seen on the Big Screen.
Mehrsa 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 a well-crafted, scholarly, peer-reviewed, piece. Her logic, arguments, and writing are tight. Tight. The pieces of this book seem to fit like some Incan stonemason's master puzzle. No Mortar. No knifable clefts. Solid and clean. This book 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
February 28, 2016
This book is an excellent primer on the history of banking in the United States, as well as a compelling argument for a significant political proposal.
I read this book with a couple of different brains. One was the brain of a girl who grew up "middle class poor" and experienced a lot of the instability Baradaran describes among the unbanked or working poor. In my understanding of our family's struggles, lack of credit was never a consciously felt harm. When we were strapped for cash, we never wondered how to get a loan or went to a payday lender--we either got help from our family, or we got evicted. If there had been an option to go to the post office and get a $300 loan to make rent this month, would we have used that? Would that have helped? If my single mom had atrocious credit, would we have been eligible? In my version of poverty, the philosophy was ALWAYS to find some way to go without rather than incurring any debt, but I realize now as an adult that debt is a key path to many for building enormous fortunes. I'm left with a question--is debt ever anything but a death sentence for the poor? The answer to most of these questions is "I don't know." My poor person brain sees this whole notion of providing easier, safer access to credit to the poor as just a tiny band-aid on the problem of poverty, and lands me back at the conclusion that fighting capital directly through organizing workers is the best bet the working class in this country has. Postal banking seems like it would be a helpful addition, but not a vehicle for structural change.
The other brain I used to read this book, though, was my history major, political brain, and that brain just ate it up. Chapter 2, "History of the Social Contract" between the banking industry and the state, should be required reading for every high school student of US history. I was a history nerd, and still my eyes glazed over in every discussion of Hamilton and Jefferson and their fight about the establishment of a national bank, and what exactly the Federal Reserve does, etc. etc.. Baradaran does an amazing job of opening up that history and making it accessible to non-banker types. (Not just accessible. Enjoyable!) And she makes a very compelling case that our current era, from the 1980s on, is a dramatic departure from anything else we've seen in the history of this country in terms of banking and the state. With this brain, this topic seems huge and important. This seems like a deep and invisible seam running through the whole story of economic inequality in this society, a shadow we need to bring to light.
This book is, without a doubt, hugely important. Baradaran brings a dogged focus to the needs of the poor; in a book about banking, this alone is refreshing. I almost want a sequel to get a more detailed about some of the issues she raised. She mentions that "Technology and market changes came first," before the avalanche of deregulation. Perhaps it was outside the purview of this book, but I want that broken down--what kinds of changes? How is this connected to the widescale "globalization" of the US manufacturing economy, and the all-out war on organized labor? Baradaran makes a point to mention how different eras of banking interacted with race--but the examples she mentions briefly just raise more questions for me, and leave me wanting a whole book on that topic. (Good news for me! I believe the author is currently writing that book!) I've always deliberately chosen to do business with a credit union over a bank, and this book diminished some of my optimism around that--I'd love a whole extra chapter devoted to the current day state of the credit union movement, and how they compare to banks. I loved how firmly Baradaran insisted that access to credit was not just an economic issue, but an issue that spoke to the overall health of our democracy. I would have LOVED to hear more from her about how the concentration of capital threatens political democracy. "How the Other Half Banks" provides an amazing survey of a lot of interconnected, complicated issues, and I think it's the sign of the writer's gift with words that it left me wanting more on the topic. The book probably wouldn't have gotten read very widely if it came out at 700 pages, so the amount of information and detail she did provide struck a healthy balance between educating the reader and making sure the information remained accessible.
While it's obvious that Baradaran feels passionately about the proposal to institute postal banking, she also does not pretend that it is the core solution to economic inequality and the ravages of capitalism. After reading this, I understand in a new way why credit tracking/rating/reporting is such a big deal in our society, and why capitalism is predicated on the infinite, suicidal need for endless growth. And, I still hate all that. I still think the way we go about it is so fundamentally broken that it would be best to just scrap it all and start over. But as long as we're stuck with this system, voices like Baradaran's are essential in ameliorating its harms and making it work a little better for as many people as possible.
I read this book with a couple of different brains. One was the brain of a girl who grew up "middle class poor" and experienced a lot of the instability Baradaran describes among the unbanked or working poor. In my understanding of our family's struggles, lack of credit was never a consciously felt harm. When we were strapped for cash, we never wondered how to get a loan or went to a payday lender--we either got help from our family, or we got evicted. If there had been an option to go to the post office and get a $300 loan to make rent this month, would we have used that? Would that have helped? If my single mom had atrocious credit, would we have been eligible? In my version of poverty, the philosophy was ALWAYS to find some way to go without rather than incurring any debt, but I realize now as an adult that debt is a key path to many for building enormous fortunes. I'm left with a question--is debt ever anything but a death sentence for the poor? The answer to most of these questions is "I don't know." My poor person brain sees this whole notion of providing easier, safer access to credit to the poor as just a tiny band-aid on the problem of poverty, and lands me back at the conclusion that fighting capital directly through organizing workers is the best bet the working class in this country has. Postal banking seems like it would be a helpful addition, but not a vehicle for structural change.
The other brain I used to read this book, though, was my history major, political brain, and that brain just ate it up. Chapter 2, "History of the Social Contract" between the banking industry and the state, should be required reading for every high school student of US history. I was a history nerd, and still my eyes glazed over in every discussion of Hamilton and Jefferson and their fight about the establishment of a national bank, and what exactly the Federal Reserve does, etc. etc.. Baradaran does an amazing job of opening up that history and making it accessible to non-banker types. (Not just accessible. Enjoyable!) And she makes a very compelling case that our current era, from the 1980s on, is a dramatic departure from anything else we've seen in the history of this country in terms of banking and the state. With this brain, this topic seems huge and important. This seems like a deep and invisible seam running through the whole story of economic inequality in this society, a shadow we need to bring to light.
This book is, without a doubt, hugely important. Baradaran brings a dogged focus to the needs of the poor; in a book about banking, this alone is refreshing. I almost want a sequel to get a more detailed about some of the issues she raised. She mentions that "Technology and market changes came first," before the avalanche of deregulation. Perhaps it was outside the purview of this book, but I want that broken down--what kinds of changes? How is this connected to the widescale "globalization" of the US manufacturing economy, and the all-out war on organized labor? Baradaran makes a point to mention how different eras of banking interacted with race--but the examples she mentions briefly just raise more questions for me, and leave me wanting a whole book on that topic. (Good news for me! I believe the author is currently writing that book!) I've always deliberately chosen to do business with a credit union over a bank, and this book diminished some of my optimism around that--I'd love a whole extra chapter devoted to the current day state of the credit union movement, and how they compare to banks. I loved how firmly Baradaran insisted that access to credit was not just an economic issue, but an issue that spoke to the overall health of our democracy. I would have LOVED to hear more from her about how the concentration of capital threatens political democracy. "How the Other Half Banks" provides an amazing survey of a lot of interconnected, complicated issues, and I think it's the sign of the writer's gift with words that it left me wanting more on the topic. The book probably wouldn't have gotten read very widely if it came out at 700 pages, so the amount of information and detail she did provide struck a healthy balance between educating the reader and making sure the information remained accessible.
While it's obvious that Baradaran feels passionately about the proposal to institute postal banking, she also does not pretend that it is the core solution to economic inequality and the ravages of capitalism. After reading this, I understand in a new way why credit tracking/rating/reporting is such a big deal in our society, and why capitalism is predicated on the infinite, suicidal need for endless growth. And, I still hate all that. I still think the way we go about it is so fundamentally broken that it would be best to just scrap it all and start over. But as long as we're stuck with this system, voices like Baradaran's are essential in ameliorating its harms and making it work a little better for as many people as possible.
November 4, 2021
How the Other Half Banks, Mehrsa Baradaran, 2015. ISBN 9780674286061. Library-of-Congress HG.2491.B269.2015 College Library.
This is a horror story.
Unbanked people spend $89 billion a year on financial services and fees: all to payday lenders, check cashers, and their ilk. p. 212. (The U.S. Postal Service's annual revenue is on the order of $65 billion.)
Baradaran makes a good case for a public option in banking.
The rationale for bailing out the banks with $trillions added to the national debt was that if we did, the banks would lend. The banks did not lend. They sat on the money, paid shareholder dividends and executive bonuses. The bailout profited the banks but not the public. pp. 22-25.
The U.S. Government abandoned gold and silver for paper fiat money in 1862 (for 4 years) and (permanently) in 1971 to fund the Civil War and Vietnam War, respectively. p. 36.
"Burn down your cities and leave our farms, and your cities will spring up again as if by magic. But destroy our farms and grass will grow in the streets of every city in the country." --William Jennings Bryan, 1896. p. 38.
A struggle between the idle holders of idle capital and the struggling masses who produce the wealth. --William Jennings Bryan, 1896. p. 39.
Louis Brandeis recommended turning banks into public utilities. p. 43. In his book, Other People's Money, 1914.
Investment banks now openly prey on customers. p. 57.
The 6 largest banks hold 67% of U.S. financial assets, as of 2014. p. 58. JPMorgan holds $2.4 trillion--the size of England's economy.
The probability of a banking crisis was similar during 1880-1913 and 1973-1997, and nearly zero during 1945-1971. p. 61.
During the Great Depression 20% of banks failed, but only 2% of building & loans. p. 88.
Credit unions, savings banks, and building and loans all abandoned their mission of serving the working class, in favor of profits. p. 91. Loan sharks overran the microlending industry (chapter 6).
Usury limits, which had hovered around 6 to 12% for most of U.S. history, were in the 1980s allowed to reach 300 to 700%. pp. 109, 124, 127. The Supreme Court decreed that lenders could export the interest rates of one state to any other. States raced to the bottom in borrower protections. As of 2021, most states permit interest rates of 261% to 664%, shown in this map by the Center for Responsible Lending: https://www.responsiblelending.org/re... Loan-sharking was legalized, and is enforced by police, prosecutors, and judges [and by credit-rating agencies and all businesses that use them]. p. 110.
Federal mortgage and student loan markets and loose credit policies led to the creation of the American middle class. pp. 110, 145, 149. [Progressive taxation, labor law, and antitrust law were important, too. The U.S. Government worked from 1942-1981 to lessen the verticalness of the playing field between the .01% and the rest (of Americans). See Thomas Piketty's wealth and income database. https://wid.world/ ]
Until 1994, banks were geographically restricted, to prevent an undue concentration of banking and financial power, and instead to keep the private control of credit diffused as much as possible. p. 145.
By 2012, four banks controlled over half of all bank deposits. p. 146.
[The book doesn't mention the idea of progressive corporate taxation, but if each doubling of corporate profit increased the company's income-tax rate by 1%, mergers & acquisitions would suddenly be less attractive.]
Most Americans do not have savings large enough to cover unplanned expenses. p. 116.
Medical expenses are the #1 cause of bankruptcy in the U.S. p. 116.
Debtors' prisons are back after 200 years in abeyance, after a 1983 judge-made law. p. 120. Bearden v. Georgia, 461 U.S. 660, 103 S. Ct. 2064 https://www.law.cornell.edu/supremeco... Judges imprison debtors on the rationale that, as they're dressed well or have expensive tattoos, they could've paid.
There are more payday lender storefronts in the U.S. than McDonald's and Starbucks combined. p. 122.
The Department of Justice in 2013 told banks to stop giving access to the Federal Reserve's payments and clearance system to payday lenders who violate state usury laws. The payday lending industry sued the DOJ for "unfairly" targeting them. Congress forced the DOJ to back off. [Best government money can buy!] pp. 127-128. About 40% of payday lending is by organizations that do not have the legal right to originate loans.
Payday loans increase Chapter 13 bankruptcies. Prohibiting them increases Chapter 7 bankruptcies. p. 130. https://www.nolo.com/legal-encycloped...
Payday lenders charge the maximum rate allowable by law. p. 131. They average 170% per year profit. p. 132.
In 2008-2009, most of the U.S.'s largest banks were insolvent: liabilities > assets. The bailouts saved them. p. 135. $7.7 trillion in bailouts [as of this 2015 reckoning. Later books show higher amounts]. p. 214.
The U.S. Post Office operated savings banks for 58 years, from 1910 to 1968. pp. 202-206. Banks fought this competition and finally killed it. Postal banking paid less interest than commercial banks paid, and limited deposits to a few hundred dollars--all to appease bankers--so that only poor, unbanked, people would use it. Moreover, postal-bank deposits were to be redeposited in local commercial banks. p. 201. Postal banks had to turn away nearly half of offered deposits due to the limit. p. 202. Postal banks offered customers information in 24 languages; phrase books helped clerks serve non-English speakers. p. 202. In 1909, there were 62,000 post offices in the U.S. p. 196. (77,000 in 1901; around 30,000 since the 1970s. )
Baradaran stops well short of admitting that poverty is because of wealth: the have-nots have not because the haves have it; high incomes are possible only because of low incomes: eradicating poverty necessarily means eradicating wealth.
This is one of the best books on the subject. Others: https://www.goodreads.com/review/list...
The author's website: https://www.law.uci.edu/faculty/full-...
Mehrsa's goodreads pages: https://www.goodreads.com/user/show/1...
https://www.goodreads.com/author/show...
This is a horror story.
Unbanked people spend $89 billion a year on financial services and fees: all to payday lenders, check cashers, and their ilk. p. 212. (The U.S. Postal Service's annual revenue is on the order of $65 billion.)
Baradaran makes a good case for a public option in banking.
The rationale for bailing out the banks with $trillions added to the national debt was that if we did, the banks would lend. The banks did not lend. They sat on the money, paid shareholder dividends and executive bonuses. The bailout profited the banks but not the public. pp. 22-25.
The U.S. Government abandoned gold and silver for paper fiat money in 1862 (for 4 years) and (permanently) in 1971 to fund the Civil War and Vietnam War, respectively. p. 36.
"Burn down your cities and leave our farms, and your cities will spring up again as if by magic. But destroy our farms and grass will grow in the streets of every city in the country." --William Jennings Bryan, 1896. p. 38.
A struggle between the idle holders of idle capital and the struggling masses who produce the wealth. --William Jennings Bryan, 1896. p. 39.
Louis Brandeis recommended turning banks into public utilities. p. 43. In his book, Other People's Money, 1914.
Investment banks now openly prey on customers. p. 57.
The 6 largest banks hold 67% of U.S. financial assets, as of 2014. p. 58. JPMorgan holds $2.4 trillion--the size of England's economy.
The probability of a banking crisis was similar during 1880-1913 and 1973-1997, and nearly zero during 1945-1971. p. 61.
During the Great Depression 20% of banks failed, but only 2% of building & loans. p. 88.
Credit unions, savings banks, and building and loans all abandoned their mission of serving the working class, in favor of profits. p. 91. Loan sharks overran the microlending industry (chapter 6).
Usury limits, which had hovered around 6 to 12% for most of U.S. history, were in the 1980s allowed to reach 300 to 700%. pp. 109, 124, 127. The Supreme Court decreed that lenders could export the interest rates of one state to any other. States raced to the bottom in borrower protections. As of 2021, most states permit interest rates of 261% to 664%, shown in this map by the Center for Responsible Lending: https://www.responsiblelending.org/re... Loan-sharking was legalized, and is enforced by police, prosecutors, and judges [and by credit-rating agencies and all businesses that use them]. p. 110.
Federal mortgage and student loan markets and loose credit policies led to the creation of the American middle class. pp. 110, 145, 149. [Progressive taxation, labor law, and antitrust law were important, too. The U.S. Government worked from 1942-1981 to lessen the verticalness of the playing field between the .01% and the rest (of Americans). See Thomas Piketty's wealth and income database. https://wid.world/ ]
Until 1994, banks were geographically restricted, to prevent an undue concentration of banking and financial power, and instead to keep the private control of credit diffused as much as possible. p. 145.
By 2012, four banks controlled over half of all bank deposits. p. 146.
[The book doesn't mention the idea of progressive corporate taxation, but if each doubling of corporate profit increased the company's income-tax rate by 1%, mergers & acquisitions would suddenly be less attractive.]
Most Americans do not have savings large enough to cover unplanned expenses. p. 116.
Medical expenses are the #1 cause of bankruptcy in the U.S. p. 116.
Debtors' prisons are back after 200 years in abeyance, after a 1983 judge-made law. p. 120. Bearden v. Georgia, 461 U.S. 660, 103 S. Ct. 2064 https://www.law.cornell.edu/supremeco... Judges imprison debtors on the rationale that, as they're dressed well or have expensive tattoos, they could've paid.
There are more payday lender storefronts in the U.S. than McDonald's and Starbucks combined. p. 122.
The Department of Justice in 2013 told banks to stop giving access to the Federal Reserve's payments and clearance system to payday lenders who violate state usury laws. The payday lending industry sued the DOJ for "unfairly" targeting them. Congress forced the DOJ to back off. [Best government money can buy!] pp. 127-128. About 40% of payday lending is by organizations that do not have the legal right to originate loans.
Payday loans increase Chapter 13 bankruptcies. Prohibiting them increases Chapter 7 bankruptcies. p. 130. https://www.nolo.com/legal-encycloped...
Payday lenders charge the maximum rate allowable by law. p. 131. They average 170% per year profit. p. 132.
In 2008-2009, most of the U.S.'s largest banks were insolvent: liabilities > assets. The bailouts saved them. p. 135. $7.7 trillion in bailouts [as of this 2015 reckoning. Later books show higher amounts]. p. 214.
The U.S. Post Office operated savings banks for 58 years, from 1910 to 1968. pp. 202-206. Banks fought this competition and finally killed it. Postal banking paid less interest than commercial banks paid, and limited deposits to a few hundred dollars--all to appease bankers--so that only poor, unbanked, people would use it. Moreover, postal-bank deposits were to be redeposited in local commercial banks. p. 201. Postal banks had to turn away nearly half of offered deposits due to the limit. p. 202. Postal banks offered customers information in 24 languages; phrase books helped clerks serve non-English speakers. p. 202. In 1909, there were 62,000 post offices in the U.S. p. 196. (77,000 in 1901; around 30,000 since the 1970s. )
Baradaran stops well short of admitting that poverty is because of wealth: the have-nots have not because the haves have it; high incomes are possible only because of low incomes: eradicating poverty necessarily means eradicating wealth.
This is one of the best books on the subject. Others: https://www.goodreads.com/review/list...
The author's website: https://www.law.uci.edu/faculty/full-...
Mehrsa's goodreads pages: https://www.goodreads.com/user/show/1...
https://www.goodreads.com/author/show...
November 18, 2015
This is an intriguing book and I was ready to give it high marks until the final chapter. In fact, for a general history of banking options for low and moderate income bank customers as well as an excellent overview of how banking has changed (and why) this is a great book. In “How the Other Half Banks” the author, Mehrsa Baradaran, proposes the creation of a postal savings bank that would be a low cost/high tolerance banking option for low income participants. Good idea – but she doesn’t seem to have a firm grasp on the administrative and performance problems facing the postal service. In her summary chapter – A Public Option in Banking – some of her assertions caused me to question her objectivity. On page 217 she writes that one reason the Post Office is a logical choice to provide banking services to the underserved is because “the post office is not an institution motivated by profit making.” Does the author not read the news? The profitability –or the lack of - of the Postal Service has been in the news for years. It cannot be denied and the Postal Service has even acknowledged that they cannot compete with the private sector absent additional support from the government and increased revenues in the form of ever increasing stamp costs. The Postal Services’ profitability is at the center of the struggle to survive in the 21st century.
Consider this comment from Forbes in 2013:
The United States Postal Service has run up $4 billion in losses so far this year, on top of last year’s $15.9 billion deficit. Congress is considering legislation to rearrange the deck chairs on the postal Titanic. The only solution is for Washington to get out of the mail business.
In another example the author makes the statement (p. 218) that “the post office is the crowded and bustling place where the neighborhood gathers to do its business.” Yes, in 1950 in Mayberry but hardly so now. As someone who still regularly uses and prizes the Postal Service I can attest that the post offices near me (and near my office) are near-dead zones, hardly a person to be found. While that might change if they provided banking services their current level of ‘busyness’ [my word] is not, as the author suggests, a fact based upon my own experience as a customer.
Is there a need for the type of banking service she describes? Absolutely, but it seemed to me that the author’s desire to prove her point may have caused her to overlook the many real problems the Postal Services faces. To encourage low income citizens to rely on a government agency already on the ropes doesn’t seem like a really good option at all.
June 1, 2022
Phenomenal book. Thought I knew most of the topics and ideas covered but was surprised at the depth and breadth within. Must read for anyone interested in financial markets/banking.
February 10, 2017
BANKING AS A SOCIAL JUSTICE ISSUE. I had no idea.
This book helped me understand both why payday lenders/predatory lending practices exist, why their services are (currently) necessary, but how we can better meet the banking needs of the poor without being exploitative. I also understand the politics and reasoning behind the recent bank bailouts much better, and how the industry of banking has evolved. It was so, so interesting despite being really outside my normal wheelhouse, but I thoroughly enjoyed it.
This book helped me understand both why payday lenders/predatory lending practices exist, why their services are (currently) necessary, but how we can better meet the banking needs of the poor without being exploitative. I also understand the politics and reasoning behind the recent bank bailouts much better, and how the industry of banking has evolved. It was so, so interesting despite being really outside my normal wheelhouse, but I thoroughly enjoyed it.
February 9, 2016
Informative exploration of how the poor are forced to rely on abusive fringe lenders (such as payday lenders), and how lack of access to more mainstream forms of credit ends up being extremely expensive. Also has a good historical background on the institutions that used to supply banking services to the poor, though I wanted some more numbers: how many people were unbanked or underbanked when those institutions were around? I had a harder time with the solution proposed, namely a revival of postal banking; the post office used to provide *deposit* services, but it doesn't appear that it ever provided *credit*, and that seems, to my eye, beyond the post office's competence. I can believe that there needs to be a public option for small-dollar loans, but I'm not sure the post office is the right answer. At any rate, it's worth a read.
August 25, 2016
This book was really a greatly expanded law review article that followed the standard formula (Introduction, General Background, Discussion of the Issue, Proscription). Fortunately, knowing that allowed me to quickly skim through the general background (possibly interesting but not the reason I got the book) to get to the issue. By the end, I was thoroughly convinced of the plight of the poor and their abandonment by traditional banking institutions. However, I left unconvinced that a return to the postal banking system was a worthwhile policy objective. While certainly it could be beneficial, it seemed that Prof. Baradaran's argument was based more on her inherent biases and less on having thought the argument through. For example, she seemed to make the argument that postal banking could return the post office to break even/profitability, and then basically said, "or if not, then the government could bail them out like it bailed out other banks. It's the least they could do to bring equal banking access to the poor." Overall, this book was very insightful as to the issues involved, if not so much for the proposed solution.
June 23, 2024
This is an excellent book on US banking history, particularly how it applies to the rich and the not-so-rich.
I was particularly interested in the development of Fringe Banking (Payday loans, Title loans, etc.), where the people dependent on such services are often well-educated and, of course, need to be in some form of employment but have no option since it's not in the interest of the central banks or credit unions to offer loans of small amounts.
Even today, we see changes in the banking system, the continued closure of bank branch offices, and the move to electronic banking. "How the Other Half Banks" is recommended reading.
I was particularly interested in the development of Fringe Banking (Payday loans, Title loans, etc.), where the people dependent on such services are often well-educated and, of course, need to be in some form of employment but have no option since it's not in the interest of the central banks or credit unions to offer loans of small amounts.
Even today, we see changes in the banking system, the continued closure of bank branch offices, and the move to electronic banking. "How the Other Half Banks" is recommended reading.
Want to read
September 18, 2017(will have to read this eventually: "To repeat, the credit union industry, created to serve the poor, now fought against a law requiring it to serve the poor.”")
And I have always favored Credit Unions due to their mandate to serve...
And I have always favored Credit Unions due to their mandate to serve...
September 10, 2023
An interesting read on the history of banking and the different ways our country has tried different ways of financial inclusion, specifically to lower income people. I think her argument for a public option for banking was convincing!
Also - I think reading this book today I would be interested in the author’s analysis on different pay as you go services such as Klarna. Felt very similar to a lot of what she discussed!
Also - I think reading this book today I would be interested in the author’s analysis on different pay as you go services such as Klarna. Felt very similar to a lot of what she discussed!
October 29, 2015
[Full review here]
You can’t get through Professor Baradaran’s book without becoming more informed. Over the last half decade or so, a lot has been written about the financial crisis. And Professor Baradaran has made a worthy contribution to this crisis library. She doesn’t spend a lot of time retreading what I’ve seen in other books—she doesn’t really trace the machinations associated with determining whether to save the banks, and which banks to save, or the details of the financial instruments that blew up, or much of the current intrigue.
Instead, she lays out the history of banking, with a focus on its relationship to the state. Banks, she explains, have been controversial in the United States since its founding; they’re essential to grow an economy and put money where it needs to go but, by gathering money together, banks can accrue outsized power and influence.
Originally, banks in the U.S. were local; only during the Civil War, when the country needed lots more money than it had, banks really become national. And even then, they were tightly regulated. That regulation ensured both that the banks received necessary support from the government, and that the banks were roughly democratic in how the treated depositors and borrowers. Even with regulation, though, banks tended to shift power to urban areas and to the wealthy, at the expense of the rural and the poor.
In her book, Professor Baradaran traces several good banking movements (including credit unions and savings and loans) that were originally meant to provide banking services to a broader population than the banking industry did. She also traces the downfall of these various attempts, as they either transformed into the banks they were meant to supplement, or otherwise failed.
As deregulatory pressures mounted, the banks managed to almost completely shake their social-contract obligations toward the poor, leaving the poor unbanked and at the mercy of expensive and sometimes-unsavory fringe lenders. She explains in significant detail why this state of affairs is bad, and recommends a solution (postal banking, but you’ll want to read her book to understand why).
You can’t get through Professor Baradaran’s book without becoming more informed. Over the last half decade or so, a lot has been written about the financial crisis. And Professor Baradaran has made a worthy contribution to this crisis library. She doesn’t spend a lot of time retreading what I’ve seen in other books—she doesn’t really trace the machinations associated with determining whether to save the banks, and which banks to save, or the details of the financial instruments that blew up, or much of the current intrigue.
Instead, she lays out the history of banking, with a focus on its relationship to the state. Banks, she explains, have been controversial in the United States since its founding; they’re essential to grow an economy and put money where it needs to go but, by gathering money together, banks can accrue outsized power and influence.
Originally, banks in the U.S. were local; only during the Civil War, when the country needed lots more money than it had, banks really become national. And even then, they were tightly regulated. That regulation ensured both that the banks received necessary support from the government, and that the banks were roughly democratic in how the treated depositors and borrowers. Even with regulation, though, banks tended to shift power to urban areas and to the wealthy, at the expense of the rural and the poor.
In her book, Professor Baradaran traces several good banking movements (including credit unions and savings and loans) that were originally meant to provide banking services to a broader population than the banking industry did. She also traces the downfall of these various attempts, as they either transformed into the banks they were meant to supplement, or otherwise failed.
As deregulatory pressures mounted, the banks managed to almost completely shake their social-contract obligations toward the poor, leaving the poor unbanked and at the mercy of expensive and sometimes-unsavory fringe lenders. She explains in significant detail why this state of affairs is bad, and recommends a solution (postal banking, but you’ll want to read her book to understand why).
August 11, 2016
“There are more payday loan store fronts than Starbuck and McDonalds combined.”
“The average payday borrower profile is a white woman who is divorced or separated, does not have a college degree, and is between twenty-five and forty-four years old.”
“The average unbanked family with an annual income of around $25,000 spends about $2,400 per year, almost 10 percent of its income, on financial transactions.”
This book can lull you with its textbook like prose and then drop one of these incredible facts in that almost slips by unnoticed. And these are why the book is compelling. The great unbanked are a compelling story. It’s focus is another example of private businesses rejecting the unprofitable aka poor clients. But Banks deal in credit. And pursuing happiness without access to credit is incredibly hard. And Baradaran approaches this problem with an understanding of both the history of how we got here and the present we find ourselves in. She’s not asking BoA to open new branches and lower fees (although that overdraft fee is fairly miserly). But let’s stop blaming the unbanked. People don’t get payday loans because they are dumb, they get them because they are desperate and there are no other options. And the Banks are powerful. They stopped WalMart from getting a bank. Walmart is the skinniest pig at the financial profit trough.
The book's big reveal of POSTAL BANKING is almost a desperate plea because how many people are ready for the sentence, "The answer can be found at the Post Office". There is another story here about how the GOP has tried to destroy the USPS and how the public's perception of the Post Office has changed. Maybe Nader will write that if it hasn't been written already.
“The average payday borrower profile is a white woman who is divorced or separated, does not have a college degree, and is between twenty-five and forty-four years old.”
“The average unbanked family with an annual income of around $25,000 spends about $2,400 per year, almost 10 percent of its income, on financial transactions.”
This book can lull you with its textbook like prose and then drop one of these incredible facts in that almost slips by unnoticed. And these are why the book is compelling. The great unbanked are a compelling story. It’s focus is another example of private businesses rejecting the unprofitable aka poor clients. But Banks deal in credit. And pursuing happiness without access to credit is incredibly hard. And Baradaran approaches this problem with an understanding of both the history of how we got here and the present we find ourselves in. She’s not asking BoA to open new branches and lower fees (although that overdraft fee is fairly miserly). But let’s stop blaming the unbanked. People don’t get payday loans because they are dumb, they get them because they are desperate and there are no other options. And the Banks are powerful. They stopped WalMart from getting a bank. Walmart is the skinniest pig at the financial profit trough.
The book's big reveal of POSTAL BANKING is almost a desperate plea because how many people are ready for the sentence, "The answer can be found at the Post Office". There is another story here about how the GOP has tried to destroy the USPS and how the public's perception of the Post Office has changed. Maybe Nader will write that if it hasn't been written already.
November 17, 2015
Mehrsa Baradaran has written a clear, concise history of the banking system in the US. She then details how poor and low income folks pay inordinate high prices for banking and loans (high fees with banks and high interest with payday lenders).
Her story of the banking and how many attempts to create banking services for low income folks is extensive. From Morris Banks, Credit Unions to Saving and Loans, we find how all these banks were established to service all customers from poor to wealthy. In the end the profit motive took over and edged the poor out into the high interest, high fee banking of today.
The author suggests that the US Postal Service could again become a bank for all with low fees and short term loans. What a great idea from a very well written, interesting book.
Her story of the banking and how many attempts to create banking services for low income folks is extensive. From Morris Banks, Credit Unions to Saving and Loans, we find how all these banks were established to service all customers from poor to wealthy. In the end the profit motive took over and edged the poor out into the high interest, high fee banking of today.
The author suggests that the US Postal Service could again become a bank for all with low fees and short term loans. What a great idea from a very well written, interesting book.
March 27, 2016
This is both a history of the philosophy behind banking in the U.S. and a prescriptive for what needs to happen to return to the democratic ideal of access for all Americans. Written in a chronology that makes sense of a complicated political and economic history, Baradaran has done us all a favor. Read this and then buy a copy for all your friends. I plan to send it to my people who are bankers, teachers, lovers of history and people who are committed to the American ideal. Great book that fills a gap we need to understand.
February 11, 2016
Baradaran describes not only the misfortune of those in the US without a bank account, but also how difficult it is to reach them with existing banking infrastructure. Postal banking could offer a solution in line with what has worked abroad and, in the past, in the US. Also describes the critical role of the US postal services in the making the country.
December 21, 2017
A marvelous, detailed, well-researched read on the history of banking, and the groups that get left out of banking, and there for economic freedom and mobility. "Microanswers for macroproblems" is how Baradaran words it, and brilliantly at that. Totally absorbable even for someone not familiar or versed in banking or bank history. Highly recommend!
May 6, 2018
Great book. Clear, understandable explanation of the banking system (no easy feat). I think Baradaran does a fantastic job describing the troubling effects of our financial system on the poor, why this has occurred, and possible solutions. Even those who don't work at a bank I think will enjoy!
April 21, 2016
A thorough and understandable explanation of the history and current operation of the banking system in the United States. The book is well documented and her reasoning is persuasive. The forces against this simple logic are those with money, so . . .
January 17, 2021
This book is extremely well thought out: a clear, persuasive, solidly-researched argument in favor of a public financial services option (the Post Office) to serve the chronically financially underserved portions of the US population.
I learned about the history of banking in the US, including variations on the traditional bank and the reasons that were originally put in place. I learned more about predatory lending practices and their intersection with issues such as race and economic caste.
This was one of those books where the whole time I was out of my comfort zone, out of my depth, navigating unfamiliar history and terminology—and it was incredibly engrossing. I love books that rearrange how I understand the ways the world fits together; if you do too, put this on the top of your list.
I learned about the history of banking in the US, including variations on the traditional bank and the reasons that were originally put in place. I learned more about predatory lending practices and their intersection with issues such as race and economic caste.
This was one of those books where the whole time I was out of my comfort zone, out of my depth, navigating unfamiliar history and terminology—and it was incredibly engrossing. I love books that rearrange how I understand the ways the world fits together; if you do too, put this on the top of your list.
December 3, 2020
I found some of the early US banking history a bit boring, but I suppose it's necessary. It's a saddening, but convincing, read through the history of how every well-meaning effort to provide banking services for the poor eventually stopped serving the poor. You just can't make as much money doing that as you could fleecing the poor or providing services to whales. Thus, we should admit it and have a public option (i.e. postal banking). She makes another interesting argument--that banks should be regulated not just because all industries should to some extent or because the stability of the economy depends on it, but because they owe their existence, and the public trust, to the government and its insurance and regulations.
January 4, 2023
a history of how efforts to democratize credit and bank the underserved lead to insolvency or a turn to usury (time to watch It’s A Wonderful Life)
bits of Brandesian antitrust arguments against the concentration of finance
solution: postal banking (trust in social contract > profit-maximization)
bits of Brandesian antitrust arguments against the concentration of finance
solution: postal banking (trust in social contract > profit-maximization)
August 16, 2018
Well researched, well reasoned, and a clear explanation of how our current banking system is skewed in favor of the wealthiest among us. Baradaran offers a succinct, comprehensive solution that makes a great deal of sense. I wish our policy makers would listen to her.
April 4, 2023
Very informative look at the history of banking, specifically in the United States, and how it has at most times excluded the poor.
June 8, 2017
Mehrsa Baradaran’s How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy examines the banking system with a focus on the “unbanked”, or those who don’t have access to the banking system and resort to shady operations like payday loans.
Baradaran provides a brief overview of the history of banking systems over time noting that few, if any, banking systems have evolved on their own. To the contrary, nearly all banking systems have been inextricably linked to the state, directly or indirectly. Prior to the Great Depression, the American banking system s was loosely regulated and volatile, whereas the several decades following the Great Depression era were heavily regulated and relatively stable. Although the post-Great Depression was marked by relative stability, and looked upon almost with nostalgia by some, it was not without its shortcomings—namely the practice of redlining which effectively locked out many minorities from access to credit.
Baradaran also examines the rise of credit unions as an alternative to the conventional banking system, which provided local communities with better access to credit. These credit unions, at least initially, relied on trust and relationships to assess creditworthiness, which resulted in lower interests than would be imposed by conventional banks. However, over time credit unions realized that there was more money to be made lending to the middle and upper class consumers and have largely turned away from lending to low-income consumers.
As this is happened, the line between credit unions and conventional banks has become increasingly blurred. Savings and loan and thrifts institutions both started off with intentions similar to those of credit unions—providing credit to low-income consumers—though using somewhat different mechanisms. However, like credit unions, both institutions increasingly evolved away from providing credit for low income consumers and focused more on providing credit for more affluent consumers.
Additionally, the line between savings and loan, thrifts, and banks has also become blurred over time. Baradaran also reviews other attempts to serve the lower-income demographic such as microlending and why such efforts have failed. Near the end of the book Baradaran examines the history of postal banking, its successes and failures, and why a modernized version might be the best solution to the problem of the “unbanked.”
I find Baradaran’s proposal for a modernized version of postal banking intriguing; however, it’s not without its problems. Could this model really work in the United States and be financially sustainable? Baradaran seems to think so. However, the more pertinent question may be whether this model wouldn’t become politically corrupted in time, as many other government sponsored enterprises have been.
Baradaran provides a brief overview of the history of banking systems over time noting that few, if any, banking systems have evolved on their own. To the contrary, nearly all banking systems have been inextricably linked to the state, directly or indirectly. Prior to the Great Depression, the American banking system s was loosely regulated and volatile, whereas the several decades following the Great Depression era were heavily regulated and relatively stable. Although the post-Great Depression was marked by relative stability, and looked upon almost with nostalgia by some, it was not without its shortcomings—namely the practice of redlining which effectively locked out many minorities from access to credit.
Baradaran also examines the rise of credit unions as an alternative to the conventional banking system, which provided local communities with better access to credit. These credit unions, at least initially, relied on trust and relationships to assess creditworthiness, which resulted in lower interests than would be imposed by conventional banks. However, over time credit unions realized that there was more money to be made lending to the middle and upper class consumers and have largely turned away from lending to low-income consumers.
As this is happened, the line between credit unions and conventional banks has become increasingly blurred. Savings and loan and thrifts institutions both started off with intentions similar to those of credit unions—providing credit to low-income consumers—though using somewhat different mechanisms. However, like credit unions, both institutions increasingly evolved away from providing credit for low income consumers and focused more on providing credit for more affluent consumers.
Additionally, the line between savings and loan, thrifts, and banks has also become blurred over time. Baradaran also reviews other attempts to serve the lower-income demographic such as microlending and why such efforts have failed. Near the end of the book Baradaran examines the history of postal banking, its successes and failures, and why a modernized version might be the best solution to the problem of the “unbanked.”
I find Baradaran’s proposal for a modernized version of postal banking intriguing; however, it’s not without its problems. Could this model really work in the United States and be financially sustainable? Baradaran seems to think so. However, the more pertinent question may be whether this model wouldn’t become politically corrupted in time, as many other government sponsored enterprises have been.
June 30, 2020
"The average unbanked family has an annual income of around $25,000 and spend $2,400, almost 10% of its income, on financial transactions... In 2012, the unbanked spent $89,000,000,000 on financial transactions alone... families who filed for bankruptcy in 2012 were, on average, $26 per month short of meeting their expenses."
About 70 million Americans have no access to a bank account, or traditional financial services such as loans except for payday/title loans which charge up to 398% APR. This book is about those people. How do they handle their paychecks? Their bills? Sending money to friends and relatives? The answer is that whatever way they do it, it costs them. A lot. That's bad, and we should try to fix it.
The banking industry exists to make money, and allowing people who'd average under a few hundred dollars in their bank accounts doesn't make them money. So they make it prohibitively expensive for such people to have bank accounts.
Furthermore, every attempt except for two to provide banking services for the unbanked has ended up treading the same path -- the pursuit of profit. This is true of community banks, savings and loans, buildings and loans, microlending, and credit unions.
One of the two attempts that did not tread this path is the Freedmen's Bank, chartered to serve newly freed slaves. Its white trustees speculated with the investments of its black investors and closed owing $3 million to 61,000 newly freed slaves.
The other attempt was postal banking, which existed from 1911 to 1967. It ceased during a period of economic prosperity, when people were taking money out of their postal accounts and putting them in traditional banks for higher rates of return. The author suggests that it's time to revive postal banking. It could offer savings accounts, checking accounts, and small (<$500) loans to those who currently spend 10% of their money on transaction fees and who cannot access small loans except at exorbitant rates.
This is an excellent book on banking history, the state of banking for a large percentage of Americans, and argues well for its solutions.
About 70 million Americans have no access to a bank account, or traditional financial services such as loans except for payday/title loans which charge up to 398% APR. This book is about those people. How do they handle their paychecks? Their bills? Sending money to friends and relatives? The answer is that whatever way they do it, it costs them. A lot. That's bad, and we should try to fix it.
The banking industry exists to make money, and allowing people who'd average under a few hundred dollars in their bank accounts doesn't make them money. So they make it prohibitively expensive for such people to have bank accounts.
Furthermore, every attempt except for two to provide banking services for the unbanked has ended up treading the same path -- the pursuit of profit. This is true of community banks, savings and loans, buildings and loans, microlending, and credit unions.
One of the two attempts that did not tread this path is the Freedmen's Bank, chartered to serve newly freed slaves. Its white trustees speculated with the investments of its black investors and closed owing $3 million to 61,000 newly freed slaves.
The other attempt was postal banking, which existed from 1911 to 1967. It ceased during a period of economic prosperity, when people were taking money out of their postal accounts and putting them in traditional banks for higher rates of return. The author suggests that it's time to revive postal banking. It could offer savings accounts, checking accounts, and small (<$500) loans to those who currently spend 10% of their money on transaction fees and who cannot access small loans except at exorbitant rates.
This is an excellent book on banking history, the state of banking for a large percentage of Americans, and argues well for its solutions.
September 1, 2021
Makes a great case as to why banks can't be treated like other corporations. Points out how the banking industry has abandoned the poor and middle class and makes a strong case for postal banking. I'm not sure how much this book influenced the current legislation but as soon as I finished I contacted my representative. Perhaps not even in my top ten of reforms I'd like to see made - still it's an important one that would have a dramatic positive impact on our society (assuming oversight could prevent the corruption we've seen in the past). The book itself was well laid out - I finished it in a weekend, considering the subject matter I consider this high praise. Lots of research I'll want to follow up on. If the author's desire was to inspire action, mission accomplished.
October 6, 2016
Discusses how the working poor have been shut out of the banking system.
There have been some partial solutions in the past but the hunt for profits and deregulation have always won out.
Highlights what a horrible trap the unbanked (about 30% of the U.S. population) can fall into. The argument centering around: If the banking system has all this federal, that is, public, support, then the banking system needs to provide services to all the public.
Approachable discussion of a major problem. A few caveats: hopelessly liberal, repetitive, always returns to "It's a Wonderful Life."
There have been some partial solutions in the past but the hunt for profits and deregulation have always won out.
Highlights what a horrible trap the unbanked (about 30% of the U.S. population) can fall into. The argument centering around: If the banking system has all this federal, that is, public, support, then the banking system needs to provide services to all the public.
Approachable discussion of a major problem. A few caveats: hopelessly liberal, repetitive, always returns to "It's a Wonderful Life."
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