Should We Take Our Money Out of Banks?

Jeremie Greer:
We can’t depend on the banks to do right. Wells Fargo was making up fucking account holders.

Solana Rice:
Yeah, totally illegal.

Jeremie Greer:
[inaudible 00:00:09] fraud.

Solana Rice:
Absolutely-

Jeremie Greer:
It wouldn’t be fraud. But if we don’t regulate them, they will continue to act in this way.

Solana Rice:
Hi, you all. Welcome to Racism is Profitable, a pod about racism in the economy. I am Solana Rice, co-founder and co-executive director of Liberation in a Generation Action and I’m joined by my co-founder and co-executive director, Jeremy Greer.

Jeremie Greer:
What’s up, you all? Peace. Yo, Solana, what was Senator Warren talking about that she thought Rachel Maddow caught off fire. What was she talking about?

Senator Elizabeth Warren:
The second part is the regulators themselves, in particular, the Fed in particular, Jerome Powell, the chairman of the Federal Reserve Bank, who took that change in the laws and boy did he run with it. In fact, he ran further than a lot of people even thought the law will let him in tailoring the oversight of those banks in order to make it as weak as possible. Then there’s part three and that is those executives, those bank CEOs who lobbied hard to get this change in the law.
Those are the ones who when the window opened, wow, were they ready to go. And they went out and they decided to load up on risk. And why? They loaded up on risk because it made their banks more profitable and that meant it made them have higher salaries. They got to rule over bigger banks. They got big bonuses. They brought in their friends and they did all that by taking on more risk. And it worked. SVB increased its profitability of the last three years by 40%. They took on all that risk, made themselves more profitable right up to the day that the bank exploded.

Solana Rice:
Yeah. Well, you have to give it to Senator Warren. She’s been saying the same things about regulating banks for a long time.

Jeremie Greer:
Oh. Yeah.

Solana Rice:
So this is while a bank collapsed, like Silicon Valley Bank is startling, we shouldn’t be surprised. It’s not something new. And I think the question really is, should we all be concerned? Should black people be concerned? Should people of color be concerned? Should we start taking our money out of banks?

Jeremie Greer:
Right.

Solana Rice:
I got that question a couple times.

Jeremie Greer:
Right.

Solana Rice:
“What should we be doing?” But we should probably talk about what is Silicon Valley Bank?

Jeremie Greer:
Yeah.

Solana Rice:
And what really happened? It was not the first bank either to… It was the first recently, but it was not the last one to have some troubles.
Senator Warren capped it off pretty well. Right?

Jeremie Greer:
Right.

Solana Rice:
This bank was investing in… It had a lot of risk, basically. Let’s be clear, banks take in deposits and they then can undergird those deposits with bonds. They were like, “Yeah, yeah, yeah, yeah. Your money’s going to be here. It’s okay. We can just sell off some of these bonds when we need to if you need your money back.”

Jeremie Greer:
Well, we need to.

Solana Rice:
Well, we need to. Meanwhile, bond rates kept going up, but they have bought them at really cheap levels. Right?

Jeremie Greer:
Yeah.

Solana Rice:
And so they weren’t worth as much as when they originally thought.

Jeremie Greer:
Right.

Solana Rice:
And then investors started coming back being like, “No, no, no. I want my money out. I want my money out. I want my money out.” And they were like, “Wait-”

Jeremie Greer:
And there was a run on the bank.

Solana Rice:
There was a run on the bank.

Jeremie Greer:
A run on the bank. Yeah.

Solana Rice:
And they said, “Oh Lord, we don’t have all this money.” That’s [inaudible 00:04:17].

Jeremie Greer:
Yeah.

Solana Rice:
So it became pretty dicey. But this risk, I think we have to say that the risk that these banks take is not normal. You and I can’t take on these kind of risky things. If I go to my bank and say, “I want a loan.” They’re like, “Ooh, you look too risky, lady. You don’t make enough money. You don’t have enough collateral behind you. We can’t take your stuff. You don’t have enough of stuff of value that we could take it if we need it.” But we allow banks to do this kind of behavior all the time. And it’s what we call at LibGen, this dual financial system-

Jeremie Greer:
System.

Solana Rice:
Where, you and I can’t take on this type of risk, black led banks can’t take on this type of risk.

Jeremie Greer:
So can’t take it on.

Solana Rice:
But we let these Fortune 500 companies and banks in particular take on this type of risk all the time.

Jeremie Greer:
Yeah. I think it’s important to start with what is Silicon Valley Bank? Silicon Valley Bank was a bank that essentially was an investment bank for venture capitalists, like people out in Silicon Valley putting money in these new tech startups and that that’s really what they exist. So like you said, they back out with buying securities, which they were buying treasury bonds at a rate where it was 1% return on those bonds. And then what happened was the Fed, our boy, Jerome Powell, who was the only white man I know named Jerome, I think, anywhere in the world, the Federal Reserve chair increased interest rates, which now means that those rates, those bonds are worthless.

Solana Rice:
Are worthless. They’re just worthless.

Jeremie Greer:
Not worthless, but worth less.

Solana Rice:
No. Less.

Jeremie Greer:
And now all of a sudden, all these investments aren’t backed by anything. And by the nature of borrowing or making these investments with venture capitalists, these are by nature risky investments because most startups fail. And they know that and that’s built into the system.

Solana Rice:
They’re risky and we should note that the lot of the folks that our trying to get their money out are depositing way more than $250,000.

Jeremie Greer:
That’s a… Yeah.

Solana Rice:
So-

Jeremie Greer:
Because of the Federal Depository Insurance Program.

Solana Rice:
Yes.

Jeremie Greer:
FDI Corporation.

Solana Rice:
Yes.

Jeremie Greer:
The FDIC.

Solana Rice:
FDIC. So when folks ask me… I had some folks ask me this weekend, “Should I be worried?” I’m like, “Do you have more than $250,000 in your deposit account?”

Jeremie Greer:
Which 250,000 is a threshold in which deposits are insured, right?

Solana Rice:
Correct.

Jeremie Greer:
More than that, they’re uninsured. Yeah.

Solana Rice:
Correct. So if you go into a bank and you’re like, “I have $249,999”, it is backed by the government. It is backed by… Not the government, actually. The banks themselves put in money so that if there is a run and depositors need their money out, it is… They can get their money out to that point. We want to be clear, this is a tech focused type of bank, these are deposits in large part that are huge. Yes, there are entrepreneurs who are venture capitalists, who are tech startups, that are black people, that are Latinos, that are Indian folks. Yes. We have all… Yes, people of color-

Jeremie Greer:
But-

Solana Rice:
-had deposits there, but they are not-

Jeremie Greer:
But-

Solana Rice:
-our typical consumers.

Jeremie Greer:
No, no. I mean, it is the Silicon Valley. And I think we’ve… There’s lots of data on how not very diverse Silicon Valley is. So when you can think about who’s investing and working with this bank, it’s largely pretty wealthy white folks, people with the… That can deposit more than $250,000 in an account. And what is startling to me and where it hits this dual financial system is the FDIC backed these accounts anyway. That was a decision that was made to back these accounts anyway, even though they were uninsured. So now we’re at a place where, okay, so this happened and they’re going to take care of these folks. But we were… This isn’t the first time there was a run on the bank.

Solana Rice:
Right.

Jeremie Greer:
Right? 2008, there was a run on the bank at Washington Mutual.

Solana Rice:
Yeah. How did we-

Jeremie Greer:
There was a run on the bank-

Solana Rice:
Didn’t we learn… What happened between the time-

Jeremie Greer:
Well-

Solana Rice:
-Washington Mutual and now? I thought we had some regulation? Did we say-

Jeremie Greer:
Yeah, there was a senator named Dodd, Christopher Dodd and a congressman named Barney Frank that passed the Dodd-Frank Financial Regulations Act. And that bill basically was to prevent something like what happened in 2008. For those that don’t remember, it was the largest bank failure and financial crisis since the Great Depression and that law was supposed to set things straight. And what happened in this case was the Trump administration had rolled back some of the regulations to prevent that from happening again. In particular, and what Senator Warren was talking about in her response to Rachel Maddow was that the Federal Reserve required banks to do trust tests and basically look at, okay, if these type of things happen, like interest rates go up-

Solana Rice:
Yeah. Are you going to be all right?

Jeremie Greer:
What will happen? Are you going to be all right? Right? It’s looking at your books and saying, “Okay, are we going to be all right if these things happen?” And they required that they do those stress tests. And what happened was during Donald Trump’s administration… And I’ll just say Democrats and Republicans were behind this [inaudible 00:10:37] because it got through Congress and then was signed by Donald Trump. And remember Congress was… You can’t get anything out of Congress if Democrats don’t vote for it or if Republicans don’t vote for it. And what happened was they lowered the threshold of the size of bank you have to do this trust test.
So all of a sudden, banks like Silicon Valley Bank and Signature Bank, which is the other bank that failed a couple weeks ago in New York, didn’t have to go through these trust tests. So they didn’t do it. And had they done it, there might have been some red flags that like, “Yo, these interest rate hikes that the Federal Reserve is doing is going to impact you in this way, so you need to take actions to protect these deposits.” And they didn’t do it. And so what we see here is risk…
How do these two things come together with 2008 and now and these questions about can this happen again, is you have the toxic mixture of very risky behavior by the financial institutions, which in 2008 was around the mortgage market and subprime mortgages and deregulation by the government. Basically the government taking its eye off of what the banking industry is doing. And what we see is these massive bank failures. And what happens every time, or most of the time is that the pain of those failures gets pushed down to the very lowest place it can be pushed. In 2008, that was black home buyers for large part that were foreclosed upon. It was renters who were evicted because their buildings had been foreclosed upon. It was people who lost their jobs because they couldn’t access credit because the businesses they work for couldn’t access credit and needed to cut costs, so they cut staff.
That was what that looked like in 2008. What it looks like today is these venture capitalists are going to… Couldn’t get their money, but the thing is, a lot of those venture capitalists were invested in companies that had payrolls at this bank. So there was a lot of people going around like, “Are we going to be able to make payroll this week?” That is what happens in these crises. And what it means is this risky behavior, if the government doesn’t have its eye on the regulations, banks are going to act in this way. They’re going to do risky things and it’s going to get pushed down.

Solana Rice:
I thought it was really interesting that the banks are also trying to do what they can to not spread the contagion. They acknowledge the risk. So with First Republic, for example, they were like, “Oh, no. No, no, no. No, wait, wait, wait, wait, wait. First Republic, you’re a little regional bank…” Not little. I mean, it’s a sizable bank. “We’re going to put some money into you all as well.” What does that… Should we applaud that? Is that great?

Jeremie Greer:
Nah.

Solana Rice:
And is it really to stem the contagion?

Jeremie Greer:
One, the idea of a small bank I think is absolutely hilarious. Even the smallest banks, we’re talking about billions of dollars in… Hundreds of billions of dollars in assets that they own. So this idea of a small bank is a laughable concept. It is only because of the massive size of a bank like Wells Fargo, JP Morgan Chase, Bank of America, the big five. Right? So the truth of the matter is the banking system is structured such that any bank failure is going to have incredible harm, so they basically hold us hostage. So you asked a question, is it okay to bail these banks out? They’ve created a structure where the government has no fucking choice.

Solana Rice:
Yeah.

Jeremie Greer:
Because if they don’t, the harm gets felt… Like I said, the harm gets felt downstream. And so the only answer is regulating them to the level, to the point where the failures don’t happen. And that’s what Dodd-Frank was about, was to avoid the failure. Not to bail out when the failure happens. But Republicans keep coming in and trying to roll this stuff back and we end up in the same place. And then we can’t depend on… The regulation is also important because we can’t depend on the banks to do right. Wells Fargo was making up fucking account holders.

Solana Rice:
Yeah.

Jeremie Greer:
They were exhibiting-

Solana Rice:
Totally illegal. Absolutely-

Jeremie Greer:
Blatantly fraud.

Solana Rice:
Absolutely [inaudible 00:15:29] totally illegal.

Jeremie Greer:
And so it says, if we don’t regulate these things-

Solana Rice:
Do you know somebody who got prosecuted on that, by the way? Did anybody actually-

Jeremie Greer:
I didn’t hear about anybody. No, no one did. No one did. So this is just blatant fraud and that if we don’t regulate them, they will continue to act in this way. And what they will continue to do is make sure that they’re doing what they can to make the money that they can and do it by exploiting consumers way down, which at the very end of that is black and brown consumers.

Solana Rice:
Absolutely. Absolutely. So I think for me, what I think is important is that we have a little bit of nuance here, which is that traditionally banks left to their own devices will fail black and brown communities whether we are consumers, whether we are taking out loans, making deposits.

Jeremie Greer:
They will take our money-

Solana Rice:
They will take-

Jeremie Greer:
-but will not do anything for us.

Solana Rice:
They will take our money.

Jeremie Greer:
That’s what they’ll do.

Solana Rice:
They are not about to go out on any risk on us.

Jeremie Greer:
No.

Solana Rice:
Yet they will leverage their own risk all the time, mostly for white wealthy folks. Regardless of that fact though, it’s the idea that we need to as a nation regulate and make sure that we have the teeth in our governing bodies to hold these institutions accountable is paramount. Whether or not it’s Silicon Valley Bank that’s serving mostly tech folks or if it’s our local small banks that are supposed to be serving black and brown communities, we have to have ways to regulate and make sure that we’re not just accepting bad behavior and for this unmitigated unmitigated risk.

Jeremie Greer:
Yeah, and I think ultimately the big point and why I think there was real progress with Dodd-Frank is you have to start with the question, what are banks for? Banks are for providing access to capital and to financial services so that people can live and thrive. And for so long, banks have violated that responsibility when it comes to black and brown [inaudible 00:18:02]. They have either not made their services available or they have extracted resources out of them and never returned them back. And the role of the government is to ensure that banks are providing that service to everybody. And the reason why they have to is because banks have a special privilege. They get to borrow directly from the Federal Reserve, money directly from the Federal Reserve at very low interest rates to put back into the community. This is how the money gets into circulation.

Solana Rice:
[inaudible 00:18:32].

Jeremie Greer:
They have that special responsibility that they have, which requires that they provide services to everybody. And the only entity that can hold them accountable to providing services to black and brown folks in a way that is going to allow us to thrive, not exploit us, is for the government to regulate them. It is why the Federal Reserve is a bank regulator. It is why the FDIC is a bank regulator. This is the purpose of our financial system. And there shouldn’t be two, one that serves black people and one that doesn’t. There should be one that black people can access equally, as equally and as regularly as those venture capitalists in Silicon Valley.

Solana Rice:
Yeah. So I think our takeaway is today we might not need to be as alarmed as we needed to be in 2008. We should still keep our eyes wide open for opportunities for us to hold these banks accountable. If there are petitions coming across your desk, sign them, et cetera. And we deserve a banking system that serves all of us.

Jeremie Greer:
All of us. Yeah. And we have to be… So if Elizabeth Warren’s on the hunt, we got to make sure that we’re backing the things that she is doing because I’m telling you these… It is not by accident. They will roll back all of that Dodd-Frank legislation if they can. And I’m talking about the Republicans in the House of Senate.

Solana Rice:
Yeah. Yeah. Absolutely.

Jeremie Greer:
Yeah.

Solana Rice:
All right, you all. Well, bank well, keep your eyes wide open. We’ll see you on the flip time.

Jeremie Greer:
Yep. See ya next time. Peace.

Solana Rice:
Thanks for listening. For more information, check out our list of episode resources and visit us at liberationinagenerationaction.org. Shout out to our producer and audio editor, Nino Fernandez, the design team at TrimTab and the LibGen Action communications team. Like what you heard? Help us make some noise by telling two friends about the Racism is Profitable podcast. Until next time, you all. Peace.