Guest Piece by Larry Schweikart
Some of you may know that I’m a historian of American banking and finance—that was my original research area and I probably wrote 4-5 books on the subject. What makes that all the more remarkable is that I never took a formal course in banking, finance, or even economics in my life. It was all “on the job training.”
So in a recent chat with a former co-author, Professor Charles Calormiris of Columbia University, on an article that came to be the most-cited piece I’ve ever written (“The Panic of 1857,” Journal of Economic History), our conversation naturally turned to banking. He began discussing research from his 2015 book “Fragile By Design” with Stephen Haber. He mentioned that something they found in that book now seemed all the clearer in light of recent riots.
In the 1990s through the early 2000s, there was a merger wave occurring among banks and financial firms. Many of you will remember your local, hometown banks began to disappear, replaced by J. P. Morgan Chase, Citibank, Wachovia, and Bank of America. It turns out that in the late 1990s, in order to gain congressional approval for these pending mergers, the banks needed to get certain legislators on their side. Legislators who were, shall we say, highly persuaded by minority communities. More to the point, the big banks needed leading black organizations and leaders to support their mergers.
Now, you ask, what possibly could be the benefit to minorities of having giants like Citibank or Chase take over more local banks? Under normal circumstances, nothing. But shakedown artists like Rev. Jesse Jackson and the Rev. Al Sharpton always know where to find a buck. In this case it was “community reinvestment.” Banks, they figured, could be “encouraged” to make massive loans in minority neighborhoods. Gee, someone might have to, er, “direct” such lending, wouldn’t they?
Absolutely. May I introduce NCRC, the National Community Reinvestment Coalition. Bank loans to the “minority community” were funneled through the NCRC—no doubt with the reverends taking a reasonable fee for their services—and in return, the black community wrote letters and gave testimony supporting the mergers. Just how much money are we talking about here? Two trillion dollars.
That money began to run out in 2015. The loans were usually either 10- or 15-year loan programs. “What’s the big deal? Just go back and shake them down again,” you say. Not so fast: the mergers are already complete. The banks don’t need the black community anymore. Just where were the bulk of these loans made? Oh, my friends, you know the answer to that. Calomiris and Haber found the usual suspects: Baltimore, St. Louis, Chicago—virtually anywhere there has been a riot recently.
It’s abundantly clear that one (perhaps only one, but perhaps the most important) of the factors that kept the streets quiet was the “walkin’ around money” spread by the banks seeking mergers. While the “Black Lives Matter” corporate coercion may produce relative dabs of cash, the leaders of these movements cannot hope to make up a $2 trillion shortfall. There may be much more to these riots than just “police brutality.” The gravy train has run out, and for now, even the ransom payments from corporate America won’t come close to replacing it.
Larry Schweikart is a historian, the co-author of A Patriot’s History of the United States with Michael Allen, author of Reagan: The American President, and is “America’s History Teacher” with a full US and World History curriculum for homeschoolers and other educators at www.wildworldofhistory.com.
That is all.
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