“The power and the growth of power of our financial oligarchs comes from wielding the savings and quick capital of others… The fetters which bind the people are forged from the people’s own gold.”
So said Louis Brandeis in 1914, but the line could be applied to 2016. The problem, then and now, isn’t simply one bad actor, or even a group—the modern banking system itself simply does not work for the every-man. By treating banks like “normal market actors” and weakening regulations, they have become more concerned with improving efficiency and their bottom line.
This—the implications of the erosion of the social contract between the government and the financial sector over the last 30 years—was the subject of a recent event at New America, which Rachel Black, co-director of New America’s Family-Centered Social Policy Initiative, opened with Brandeis’s quote. The damage done through the breakdown of this contract is vast, but repairing it is not impossible.
As panelist Mehrsa Baradaran pointed out, given how intertwined the fates of the financial system, the government, and the public are, the only realistic solution is to reorganize the banking system into something more resembling a public utility. “Insofar as banks are entangled in federal government policy, they should be working for the people,” Baradaran said.
This also means that it is impossible to talk about wealth inequality or the difficulty low-income communities have in accessing safe and secure financial products without acknowledging the role banking deregulation, made possible by that federal government policy, played. Because of deregulation, many community banks and credit unions were consolidated into larger corporate banks and as a result, access to the mainstream financial system became increasingly concentrated in areas where banks could make a profit. As Baradaran put it, “Money goes to more money.”
Banking services, of course, are essential for everyday life, so alternative providers like payday lenders, check cashers, and pawn shops popped up where these banks once stood. Payday lenders in particular have been mainstream news ever since the CFPB put forth a rule to protect consumers from falling into the debt trap that befalls so many who use their services. This two-tiered system of financial services is efficient, low-cost, and convenient for those with means, but poorly regulated, expensive, and predatory for those without. And those without are also disproportionately of color. It is a fact that households of color are more likely to live in banking deserts and are thus more likely to use alternative financial services like payday lenders.
Another unambiguous connection? The role race plays in the stigmatization of the U.S. welfare system, which is explored in the latest paper coauthored by panelist and New America fellow Aleta Sprague.
“There are 15 states that prohibit families from receiving additional [TANF] benefits if another baby is born while they are receiving assistance. This is the so-called ‘family-cap policy’, and it’s based...precisely on that stereotype of the welfare queen. It’s presuming the ridiculous notion that a woman would have another baby just to receive, at most, another couple of dollars a day in benefits, ” Sprague explained.
The myth of the welfare queen is racialized caricature created explicitly for the purpose of weakening popular support for welfare. Recipients of more universal social insurance programs, like social security and unemployment, do not receive this kind of treatment. In the eyes of federal policy, beneficiaries of these programs are worthy and deserving, whereas TANF recipients are treated with the kind of disdain and suspicion typically reserved for violent offenders—evidence that the two-tiered system of which Baradaran spoke also exists within our welfare policy.
Sprague recalled how the U.S. Treasury Department launched an app back in April that “allow[s] recipients of [social security] who don't have a traditional bank account to check their balances, scan their transactions, and pinpoint locations where they can withdraw cash.” While the importance of this development for unbanked social security recipients is not to be understated, it’s hard to imagine a similar app being developed for welfare beneficiaries. Instead, welfare recipients find themselves relegated to inferior financial products in order to access their benefits, face scrutiny during the application process, and are discouraged to fully engage mainstream financial services.
Stigma is deeply entrenched within the welfare system. An effective strategy to minimize its impact, according to Sprague, is to engage people with lived experience in poverty to inform the policy making process. By consulting actual people rather than societal myths, there is the potential to increase the overall effectiveness of programs, disrupt the prevailing stereotypes, and identify unintended consequences of policy choices.
The necessity of assets limits in TANF is one example of a myth that should be busted. Sprague explained how the limits have been shown to discourage saving. Because households are told they will lose their benefits if their assets rise above a certain threshold (the median is $2,000), many TANF households have come to see even a meager amount of savings as detrimental, and thus actively avoid saving and mainstream banks. Had affected households been consulted during the design process, even in a small way, Sprague believes problems such as these would have been detected sooner.
Promoting financial inclusion within the communities of color at large is what #bankblack movement is about and Gillian White, panelist and senior associate editor at The Atlantic, thinks it’s a start. #bankblack calls for black Americans to move their money into banks owned and operated by other blacks. The idea is that these community-based, black-owned banks will do a much better job at acting in the interests of the black consumer—it is a literal investment in the black community. But for the movement to truly affect change, White says there have to be major regulatory changes because the current system favors large corporate banks over smaller community ones. Keeping your money in your community feels good, but it won’t lead to any lasting change.
That’s because in both cases, the solution boils down to systemic change. Promoting financial inclusion for all is a lofty goal, but that doesn’t mean it’s unrealistic, or that we shouldn’t attempt to reach it. Reversing the damage done by the dissolution of the social contract between the government and the financial sector means changing how things are done at the most fundamental level and writing a new contract for a new age. It’s time to unbind the people from the fetters for the benefit of the people and all of their gold.