MEHRSA BARADARAN 8 23 2016


it’s an honor to be here thank you so
much for having me it is very expensive to be poor imagine for a minute that
you’re not protected by this amazing Union you work at a low to minimum wage
job and your hours are unpredictable it’s a struggle each month for you to
make it from paycheck to paycheck you don’t have a bank account because one
most banks have abandoned your low-income neighborhood and two because
you don’t trust them anymore because they charge punishingly high fees for
minor mistakes without a bank account it’s hard for you to save your money not
only that but you have to pay to turn your pay check into cash and then your
cash into money orders to pay your bills you would be one of the 40 million
unbanked Americans who spends ten percent of your income just to be able
to use it to put that in perspective that’s how much these families spend on
food now imagine a different scenario like nearly half of the US population
that’s right half you have less than five hundred dollars in savings with
such little savings you feel like you’re always just treading water this month
you stumble your car breaks down you need five hundred dollars to repair it there’s no way you’re going to make it
this month you don’t want to get evicted and you’ll do whatever it takes to feed
your kids so what do you do you get a small loan to recover from this
financial setback where can you go the reality is even
with a formal bank account the underbanked cannot get loans from
traditional banks in their moment of need instead they’re only options are payday
lenders title lenders and other fringe lenders these what we call them
modern-day loan sharks charge rate that are totally legal by the way charge
rates of 302 to 2,000% APR so even if you needed five hundred dollars this month
by the time you’ve paid off the loan you spend about two thousand dollars and
you’ve been sucked in to a cycle of debt trying to pick take
out one loan to pay off another not only does this crushing interest make it
difficult for you to ever pay it off it will probably end up ruining your credit
and may result in your bankruptcy so you are looking for lifesaver to get you
through the month but what you got was an anchor that submerged you further
into debt whose fault is this I sometimes hear
people say that those who take out payday loans just need financial
education so that they can choose not to take out these loans but this assumes of
course that people do this frivolously that they have lots of options they do
not it’s not that the low-income are
choosing to borrow because they don’t understand that these loans are costly
they understand just fine they actually have nowhere else to turn banks are no longer interested in small
loans so what I see as a banking scholar is a disparity in banking services today
we have a mainstream regulated federally subsidized banking sector that serves
the wealthy in the middle class and a wild-west hodgepodge of unregulated
lenders that survives by being sharks on the low income right
they’re profiting from people’s misery so how do we get here over the last 30
years there was a merger wave that swept through the banking industry and today
we’ve got five or six banks that dominate that industry so basically in a
decade or two I don’t know if you’re familiar with it’s a wonderful life but
Bailey’s bank not only got swallowed up by Potter’s bank but then even Potter’s
bank got swallowed into bank of america so once the community banks left they
created banking deserts and who filled them with payday lenders so as community
banks are dying our society still stuck in this myth that only community banks
can serve the poor every law enacted over the past 30 years has focused on
trying to induce community banks back into these areas but they’re not
interest did and they can’t do it anymore it’s
too financially difficult so I think we’ve got a large problem and we need a
large solution many people are also thinking that the solution lies in some
new technology right financial technology and certainly that will move
us along but it’s not a replacement for traditional banking which is saving and
borrowing money why because banking requires trust Trust is the currency of
banking banks operate using other people’s money and for this to work you
have to trust a bank so since the beginning of banking until today the
only institution ever in any country across the world that has been able to
provide trust and allow banking to exist is the federal government we can
innovate around the details but the essential government bank relationship
hasn’t changed in hundreds of years in other words when it comes to saving and
borrowing you would rather do it a dusty old government-backed institution that’s
been around for hundreds of years and will be around in another hundred as
opposed to some nimble startup this is why I think instead of just looking for
the future for an answer we may want to study the past for what
has worked and it just so happens that there’s a large national government backed
institution that exists in every poor community and didn’t leave when all
those banks left guess what it is the US post office in fact that’s right in fact the US Post Office served
as a bank for much of its history the US Post Office predates the United States
Constitution and it is not an overstatement to say that the post
office built the foundation of our democracy in 1792 our founding fathers
George Washington Alexander Hamilton James Madison made the postal banking
act or sorry the postal act we’re not there yet of 1792 and made several
crucial decisions that remain today one is the post would be financially
supported by Treasury it would be self-sustaining but not profitable that
was diminished a bit too is it every community would be served without
regards to profit and three the Congress would subsidize at the time the
dissemination of newspapers so the merchants that were that were bringing
money into the post office with subsidized information flowing from east
to west so when to Tocqueville comes to the
United States to marvel at our democracy he says it’s the post office that made
it because a logger in Michigan could read the Washington um goings-on of
Congress just as well as someone in DC that that was done by the post
office the first proposal to open postal banking comes in 1871 by President
grants postmaster general but as is often the case with banking in order to
get anything done we need the crisis so after the panic of
1907 Teddy Roosevelt endorsed postal banking right away in
1910 President Taft took up postal banking and so in 1910 we got postal
banking in America by 1913 the times declared it already a success it got 13
million 32 million in deposits within two years mostly from immigrants in
starting in nineteen thirty as the Great Depression took root hundreds of banks
were failing across the country so where did those deposits go to the safest
place possible to the postal banks so every year of the great depression
the savings and the postal banks doubled each year but FDR chose fdic insurance
as opposed to postal banking in 1934 to stabilize the banks but what happens
we’ve got two world wars and a huge mounting debt so FDR says we’re going to
start selling war bonds through the post office and weighs eight billion dollars
to fund two world wars and the Great Depression debt from the post office so
Americans in the nineteen forties were saving through these postal savings
stamps war defense stamps even school children would be saving through their
postal savings account so we had a savings culture part of it part of the
reason for this was because it was so easy to save at the post office by the
nineteen fifties this changed as the soldiers started coming back home
community banks were undergoing somewhat of a heyday at the time and so because
legislation capped what the postal banks could offer on deposits right Congress
wouldn’t let them offer that much returns the community banks started
taking and having an advantage so 1966 President Johnson abolish the postal
banking system and the only descent at the time were the big unions the postal
savings died a quiet death here but it’s important to remember that postal saving
postal banking was America’s most successful experiment in financial
inclusion it brought in a culture of saving and provided safe banking for
much of our history so this historical view is important because in a lot of
ways unfortunately our society resembles 1910
more than 1966 when every community had a bank and there was more of income
equality so what if the new solution to our new big problem is actually an old
one so i think we need to return to a system of postal banking to eliminate
banking desert and leave no American unbanked this is
an institution people trust the post office is not a shark this stability is
crucial to promote savings in fact 60-percent of post offices are now in
banking deserts those long abandoned by banks and because most of the unbanked
still use cash they still need a physical location to put their money that’s not to say that they would remain
in cash once a customer open a checking account they would have a debit card to
use to pay their bills days of paying high fees just to use your money would
be over imagine again that you need five hundred dollars this month except now
you can go to the post office who’s not trying to profit from your desperation
instead of paying two thousand percent interest you can pay ten percent
interest i suspect that if anyone can offer a safe loan it is this public
institution that is so crucial to our democracy in addition to its long-held
mission of public service the post office has lower overhead costs than
banks and payday lenders because it already has existing personnel and
brick-and-mortar so it’s got natural advantages plus the public serving
mission so today in America the poor pay more for credit and financial services
than anyone that is fundamentally unfair the less money you have the more you pay
to use it while offering up the poor a place to save their money will not cure
poverty it will help provide a lifeline instead of a crushing burden in people’s
time of need and there’s no better institution to do this then the trust of
government institution that helped build our country still manages to deliver
mail to every household in the u.s. regardless of cost has a branch in every
neighborhood and is still here to serving the public so the post office
may be struggling to survive but millions of low-income Americans
certainly are and postal banking could breathe life into both institution I think it’s a win-win that we really
need to bet on to thank you very much

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