Book Review: How the Other Half Banks

By Common Consent may seem like an odd place to review Mehrsa Baradaran‘s excellent How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy (Harvard University Press, 2015) [Amazon]. Although Professor Baradaran is Mormon, the book has little explicitly Mormon content (I mean, it does mention a couple of Sen. Wallace Bennett’s interactions with the regulation of banks, but that’s as close as I remember it getting).

That said, as Mormons, we’ve been encouraged to become informed and involved in our communities. And understanding banking, especially as it relates to the poor, is, if not absolutely essential to that charge, at least tremendously important. 

And 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).

So far, so good, right? But how, you ask, does the history and policy of banking have anything to do with Mormonism?

Mormon discourse is tremendously wary of debt. In General Conference in April 1938, President J. Reuben Clark famously warned the Saints of the dangers of incurring debt:

Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.

Church leaders have continued to encourage this kind of retiscence around debt—essentially counselling us to avoid it as a form of bondage. In reaction to the economic realities of our time, though, they’ve allowed that in certain circumstances—buying a home or a car or financing an education—debt may be necessary. But consumer debt, aside from these big-ticket items? No.

What struck me as I read Professor Baradaran’s book was how class-specific these exceptions are. Homes, cars, and higher education are things that the middle class and above acquire and finance. They are, in many cases, outside of the reach of the poor.

And the poor aren’t using debt to fund excess consumption. They’re borrowing money (at exorbitent rates) to pay their rent, to buy food, to smooth their spiky income. They’re borrowing to meet financial emergencies—more than half of Americans couldn’t get $400 without selling something or borrowing money.[fn1] They’re perfectly aware that debt—and that borrowing from usurious fringe lenders—is not ideal. But they’re stuck: they need their housing, their medical care, their food, their car.

That’s not to say that Pres. Clark was wrong—he’s absolutely right that we should avoid debt to the extent possible. But it strikes me that this proscription on debt should be one of those inward-looking things. That is, even as we personally avoid debt, we also need to recognize the importance of being able to access money. As we look to alleviate poverty, we need to consider policies that will ease the poor’s access to borrowing. We shouldn’t let our personal ethic of avoiding debt bleed into a broader societal ethic.

Back to How the Other Half Banks: it is well-written, fascinating, and important. I can’t recommend it highly-enough. It’s essential if you’re interested in the barriers that the poor face or how to alleviate them. But it’s also an essential introduction to a world many of us don’t inhabit, a book that can open our eyes to the world around us.

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[fn1] The other month, we spent more than that in emergency room copays. We were fortunate both we could pull that money out of our savings account and that we have health insurance (because it would have been thousands, not hundreds, without insurance), but we didn’t have any choice but to come up with that money. That is, overshooting $400 isn’t that hard.