Getting Government More Involved in Banking?

AuthorMcKinley, Vern
PositionHow the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy - Book review

How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy

By Mehrsa Baradaran

336 pp.; Harvard University Press, 2018 (reprint edition)

In banking policy circles, there are issues that are argued over and over for decades on end. The fight over Glass-Steagall restrictions is one such example. The act was passed during the early 1930s, slowly reduced in scope during the 1970s and 1980s, and finally most of its restrictions were repealed with the Gramm-Leach-Bliley

Act of 1999 (GLBA). The financial crisis less than a decade later reanimated the conversation on banking activities, with many fingering the changes up to and including the GLBA as one of the causes of the financial crisis.

Another issue with a similarly long shelf life is the argument over allowing the post office to provide banking services. University of Georgia law professor Mehrsa Baradaran is one of the most high-profile advocates for a modernized version of a postal bank and she lays out her vision in How the Other Half Banks. Previously, she wrote The Color of Money: Black Banking and the Racial Wealth Gap.

Baradaran refers throughout How the Other Half Banks to a "social contract with the banks." This contract has evolved over time, but its history shows that "banking policy has always been deeply intertwined with politics." As an example, she points to the financial safety net for banks, which includes federal deposit insurance, the ability to borrow from the Federal Reserve, and government bailouts. Those interventions, she argues, justify policies to help the unbanked: "Many describe modern banks as private enterprises but this is illusory.... To be sure, individual banks are private companies, but each of these private banks sits atop a foundation of state support." The implication is that financial institutions cannot survive without some form of government backstop.

Emotional appeal / The title of the book is a clever twist on How the Other Half Lives, Jacob Riis' 1890 photojournalism expose of abysmal living conditions in New York City during the Gilded Age. The book was a classic example of muckraking journalism intended to appeal to people's emotions to bring about social change. Similarly, Baradaran's goal is to present the dire situation that the unbanked and underbanked face in order to trigger changes in the way policymakers approach banking policy.

She presents data that the average unbanked family has an annual income of $25,500. Nearly...

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