Financial History Issue 130 (Summer 2019) | Page 17

Customers wait in line at the Dunbar National Bank in Harlem, New York, January 7, 1933. The bank was owned by African Americans and served the local Black community. out of their homelands, cheated out of their new lands, subjected to the socialist policies of the Bureau of Indian Affairs (BIA) and regularly called derisive names, Indians nevertheless persevered and even prospered, until the bases of their prosper- ity (grazing lands, mineral rights, casinos, tax exemptions) were ripped from them anew. Amerindian scholars like Robert Miller and Dean Chavers have shown that Indians are people too, not stoic environmentalists happy to live in squa- lor. Rampant alcoholism, diabetes and suicide stem from desperation, not Indian culture, which was highly entrepreneurial before the long chain of tragedy unleashed by the arrival of Columbus in the New World destroyed Indians’ incentives to work hard or smart. Contrary to myth, many pre-contact Indians engaged in manufacturing as well as agriculture and were avid traders with complex monetary systems only now being partially recon- structed from archaeological and anthro- pological records too long ignored or misinterpreted. Indians, too, have engaged in financial self-help. South Dakota’s Lakota Fund is perhaps the most famous of the few dozen NCDFIs (native community devel- opment financial institutions) that have recently appeared. While they have helped some Indian entrepreneurs, many Indians remain desperately poor and will remain so until the BIA stops infantilizing them with its paternalistic policies, significant land tenure reform is undertaken and bigotry declines. Just 20 years ago, a white South Dakotan actually issued a faux license to hunt and trap Indians. The plight of American Indians reminds us that while finance can empower individ- uals and spark economic growth, it cannot overcome systemic stereotyping based on race, class or gender, a lesson that the US government seems to have forgotten in the 1990s and that all Americans paid for dur- ing the 2007–9 financial crisis. The story is a long, complex one, but it boils down to the fact that regulators believed that discrimination in mortgage markets could be eliminated by both forcing and enticing lenders to ignore asymmetric information and lend willy-nilly, virtually to all comers regardless of their assets, income or credit history. Fancy new derivatives, which turned out to be neither novel nor all that sophisticated, were purported to render such dodgy loans perfectly safe. Hearts thumped while home prices and home ownership rates ticked upward, drowning out the cries of reasoning minds. Easy credit policies and the resulting crash also spurred a wave of financial predation (deliberately lending to vulner- able borrowers to seize their collateral) unparalleled in its ferocity. Had regulators continued to promote financial self-help, a few small institutions certainly would have failed, but financial predation would have been kept in check and the global financial system would not have been endangered. Today’s zeitgeist points toward another potential catastrophe, direct government lending. Although some colonial loan offices succeeded, most government lend- ing direct to individuals turned out badly. Politicians used the promise of loans, then of loan forgiveness or forbearance, to buy votes, practices that many found difficult to reconcile with democracy. Financial exclusion, discrimination and predation make us all poorer by keep- ing deserving, creditworthy individuals trapped in poverty instead of unleashing their full potential as consumers, entre- preneurs and workers. Government, how- ever, cannot end such practices by fiat. The best it can do is to encourage those who feel discriminated against to innovate and form their own financial institutions and markets.  Historian Robert E. Wright has served Augustana University as its Nef Family Chair of Political Economy for the last decade. The decade before that he taught economics at NYU’s Stern School of Business and the University of Virginia. He is the author of 19 books including, most recently, Financial Exclusion: How Competition Can Fix a Broken Sys- tem (Great Barrington, Mass.: American Institute for Economic Research, 2019), from which this piece is adapted. He has been a member of the editorial board of Financial History since 2008. www.MoAF.org  |  Summer 2019  |  FINANCIAL HISTORY  15