Mehrsa Baradaran on Lessons from the CARES Act: Banking for All in the Time of COVID-19

UCI Law Board of Visitors member Michelle Jordan interviews Professor of Law Mehrsa Baradaran on the CARES Act, banking for all in the time of COVID-19, and the racial wealth gap. Introductions by UCI Law Dean L. Song Richardson. Recorded on June 16, 2020 via Zoom virtual presentation. Part of the UCI Law COVID-19 & the Law lecture series.

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UCI Law Talks · Mehrsa Baradaran on Lessons from the CARES Act: Banking for All in the Time of COVID-19


  • Mehrsa Baradaran

    Associate Dean for Equity, Diversity and Inclusion
    Professor of Law

    Expertise: Banking Law, Contracts, Property, Housing, Inequality
  • Michelle Jordan

    Principal of Jordan LLC

Podcast Transcript

[Narrator]: Welcome to UCI Law Talks, from the University of California Irvine School of Law. Join us on Twitter @UCILaw.

[Song Richardson]: Good evening, everyone. It's my great pleasure to welcome you to this presentation in UCI Law's COVID-19 and the Law series. And today's talk is titled “Lessons from the CARES Act, Banking for All in the Time of COVID-19.” Today's discussion features UCI Law Professor Mehrsa Baradaran, and will be moderated by Michelle Jordan. And I'll introduce them both in a moment. But first I want to recognize the people who made this evening's event possible and they are Rebekah Bergeron, Jillian Henry, Dennis Slon, and Mary Ann Sodan. Thank you so much for pulling together this program. So we are so fortunate to have Professor Mehrsa Baradaran at UCI Law. And she joined our faculty in 2019. Professor Baradaran writes about banking law, financial inclusion, inequity, and the racial wealth gap. She is a prolific scholar and has authored two books: “How the Other Half Banks,” which is published by Harvard University Press, and “The Color of Money: Black Banks and the Racial Wealth Gap.” Her “Color of Money” book has been highly praised, including recognition as the best book of the year by the Urban Affairs Association.

Professor Baradaran and her books have received significant national and international media coverage and have been featured in The New York Times, The Atlantic, Slate, American Banker, The Wall Street Journal, the Financial Times, and on NPR's Marketplace, C-SPAN's Washington Journal, and PBS's NewsHour. Professor Baradaran has advised U.S. senators and congressmen on policy, she's testified before the U.S. Congress, and spoken at national and international forums like the U.S. Treasury and the World Bank. In fact, just this past Thursday, Professor Baradaran testified before the U.S. House of Representatives Committee on Financial Services, and she testified on the topic of inclusive banking during a pandemic. Professor Baradaran is a brilliant lawyer and a thought leader in her field, and we are so very fortunate to have her here at UCI Law. Welcome, Professor Baradaran.

[MB]: Thank you so much. That's too generous.

[SR]: And now, it gives me great pleasure to introduce our moderator, Michelle Jordan. Ms. Jordan is principal of Jordan LLC, which is a consulting firm that helps CEOs and their companies with their strategic communication needs. Ms. Jordan specializes in issue and reputation management, crisis communications, and brand strategy. Her communications work also includes managing media relations for clients whose situations have placed them and/or their organizations in the spotlight. And, as she has shared in the past, reputation is a capital asset and should be treated accordingly. Earlier in her career, Ms. Jordan also served as president of the L.A. office of the GCI Group, which is a division of Grey Advertising. She also headed corporate communications for Digital Pictures, which is a pioneer of interactive video games based in Silicon Valley. She also held senior management positions with The Dilenschneider Group and Hill & Knowlton in New York.

Ms. Jordan was born and educated in the U.K. and lived and worked in London, Paris, New York, Toronto, San Francisco, L.A. and Orange County. She's also an Orange County Business Journal Women In Business honoree. Ms. Jordan once said that she would like to meet either Marie Antoinette or Elizabeth I, because they'd lived extraordinary lives that continue to fascinate. Well, the very same thing could be said of Michelle Jordan. Her life is extraordinary and she continues to fascinate. And I am so grateful that she is a member of UCI Law's Board of Visitors and for all of her incredible and valuable contributions. So thank you so much, Ms. Jordan, for taking the time to moderate this evening's event.

[Michelle Jordan]: It is such an honor and such a pleasure, and thank you so much for inviting me, which I believe now is a cue to start, correct? So, correct me, but when this series was first put together, it was really driven by the mega-crisis of COVID-19. But by the time we're speaking tonight, it's been overtaken by the global explosion of the Black Lives Matter movement. And both have huge economic impact of course and potential consequences and each is a full blown topic which you, Professor, are an expert. And if I may call you Mehrsa, it's easier for me. Thank you so much.

[MB]: Yes, please. Yes.

[MJ]: I know that you can keep us spellbound for hours on either of those, but I'm going to try we can do in this sort of rather limited time is touch on both. But what I'd like to do, if I may, is start with just a little bit more of a personal introduction to you. We're certainly well aware of your academic excellence, which is impressive every time I hear it. So in a Huffington Post interview, you described yourself as immigrant, liberal, Mormon, Muslim, feminist, lawyer, mother who generally dislikes labels. This is your chance to add something else to your list. So I have to ask you, how did, with a background like that, land you in the scholarly pursuit of banking and the law?

[MB]: Well, that's a lot of questions there. And yeah, I think the list was to defy labels, because I think once I get into one, there is this rabbit hole of identity that comes with it. But yes, I grew up, you know, I'm an immigrant to the United States. I came when I was nine. I'm from Iran. My parents were activists there, and were sort of against the Shah but also against the Khomeini, so kind of stuck politically in between, and we were kind of expelled from the country by sort of violence and other means, and were gratefully accepted into this one by Ronald Reagan actually, who passed some pretty liberal immigration laws. And then I grew up Shiite Muslim, but my family converted to Mormonism here. To some extent, I'm since a little bit rootless religiously, but that was my background, my shaping sort of two very religious upbringing. Also have always been liberal, because of my birth and my parents. But I grew up all over the country, in New York and in Iran and all over the country as my parents moved around a lot.

And I think part of what that has given me, spoke several different languages, I speak three. And what I think I've gained from that is the ability to... I can see myself in a lot of different people's lives and because I lived in America with a lot of communities from all over and in pretty poor communities. If I'm be honest, we never, my parents didn't own a house until I was almost ready to go to college. And so my work in equality and poverty and racial justice really stems from this idea that I think we just, people who have elite educations tend to discount how much ingenuity and smarts a lot of people who live in those vulnerable communities have to have to survive. And I think the narrative that we tell about those communities and poverty in general is one of irresponsibility and laziness and all this stuff, and that it just does not comport with my experiences.

And so I think being in between a lot of different communities, as I am now, I don't think there's a single community that I would feel wholly comfortable in, because I'm no longer Iranian, I'm not fully American, I'm not fully Mormon or Muslim or any of these things. But I do feel a kinship with all people who don't feel included, in a way. And then the banking research just came from my professional background, being at the center of the financial crisis in New York at a Wall Street banking firm from 2005 until 2010. Just kind of like blew my mind in how public all of the banks ended up being, and how much the Fed and policymakers were involved. And then just observing the political commentary on, oh, well, we don't have the funds for schools and we don't have the funds for this staff. And yet, I watched from my desk at Wall Street, trillions of dollars going certain banks.

And so that's where my sort of personal life and my professional life meet, is looking at this just one sector of banks, equity and credit, and saying what myths have created this completely unequal society that we have now? And there are several strands of that and I'd be happy to follow your lead in some of these questions as it relates to right now.

[MJ]: Well, thank you for doing that, because we always think it's so interesting when we hear from somebody to understand the background of all of those things that of course landed you where you are. But let's sort of come all the way up to the future to the topic for tonight. So, you've written two great books. How has COVID-19, and we have to now add of course the global Black Lives Matter response, highlighted the problems that you write about?

[MB]: Right. So in a way it's hard to say, to have to be like, I told you this was a problem, when it's become such a problem. So let me take just one, the inclusion aspect and the hearing this past week was on trying to get stimulus payments out to people fast, so that they can keep their homes and just live. But we're telling people you have to stay home. And then so they need money to pay rent. And so many Americans, more than half of Americans, that paycheck, every single cent of that, is called for. It's food, it's rent. So what happened is the government wanted to issue these checks and it turned out that there was three hour lines in Manhattan with people coming from all five boroughs, like a man bicycling in from Queens to save the $3.00 fee because he couldn't find the check anywhere, except for this one branch. So literally for weeks and weeks there's been three hour lines at this one ATM for people to pull out unemployment benefits or this $1200 stimulus fund.

And then a bunch of rural areas, a bunch of elderly Americans, who are not getting these funds because they don't a bank account or they don't have a bank in their community. And so they have to wait five months, up to five months, for a check to come. And in five months, I mean, what rent and food have you missed? So these are problems of financial inclusion that I try to be kind of ringing the bell on for the last 10 years because what happened during the financial crisis is an intensifying of some of the trends of the last several decades, which is that banks have just up and left a bunch of communities, leaving a whole bunch of people without banking services. And you think, well, who cares? Like, I don't need the bank anyway. But what that means is a lack of a debit card, right? If you get paid in cash, how do you pay your bills in cash, right? They won't accept your electricity bill, your cellphone bill.

So what a lot of people have done is go to check cashers or money, sort of payday lenders, or any of these prepaid debit card. And these things are very expensive and the expense is borne primarily by low income people. The other thing is bank fees, right? Banks, most of their income comes from fees, and the only customers that pay fees are those who don't have enough, have to pay overdraft fees. And so those are the things that are highlighted, and there are simple solutions actually to this stuff. And one of the things that I've been pushing for a while is a post office bank, right? So you could go to the post office, which still is in every community that banks have long deserted. You would go there and you would just have an ATM, you could get your check there. Simple bank account with a debit card and then you would be linked up to sort of a network and be able to shop online and all of this stuff. It's to me like such a no-brainer thing, but we have yet to adopt it.

[MJ]: No, how is...  I mean, yeah, when I was a kid growing up in England we had post office savings accounts, right?

[MB]: I know, yeah.

[MJ]: So how did that go down? Did it go over well or like a lead balloon?

[MB]: At the Congress?

[MJ]: The concept, yeah.

[MB]: Yeah. So I testified several times on a bunch of different things. And yeah, every time, the hearing is ostensibly about one thing, which this time was about financial inclusion, but there are, you know, one of the things that lots of people who work in politics know is that a lot of times what the lobbies care about is more important than what are actually good ideas. And so this hearing I think ended up being about a blockchain deregulatory bill that they were pushing. Mostly the Republicans, to be honest, they were, all the questions were blockchain oriented. And so just, you get the sense that it wasn't really about inclusion, because the simplest way to give people financial access is to give them the thing that we all use, which is a debit card and an ATM, and that's simple, very low cost. But the thing that they seemed to want is blockchain. So I think my testimony was received well, I think it was... but at the end of the day, I don't think there is enough political power to push for something like this.  And I think that's part of the struggle with passing policies like this is you need a lobby. Who's going to lobby for the unbanked people in rural America? I mean, truly. Like the congressmen don't really I think a lot of times have their best interests at heart, and they need to get reelected and they need money, so who's going to pay them? It's going be some well-financed financial institution or some other sector lobby. And it's not poor people. So a lot of these ideas tend to sit dormant. Sometimes they get passed if there's a crisis. Often they don't. So I'm not super hopeful on that one.

[MJ]: Well, I hope we don't we have to have another. Before we move from that, there was one question that came in earlier and it touches a little bit on what you're saying. So I'm going to just take a hop over to that, if I may. It says that "I'd love Mehrsa to address barriers to access to relief funds delivered via prepaid card." I mean, it seems such a logical thing to do.

[MB]: It is logical. It is absolutely logical. I mean, you could just give people a debit card, and that is the easiest step from this is the problem, easy solution, we have the technology. We don't have to invent a new thing. We don't have to put it on the blockchain. It is there. And a lot of us actually... And the data is very clear on this. For people who earn below $50,000, their primary mode of financial sort of access is a debit card. They prefer that, to credit cards, to any other app or whatever. And so you could actually just give benefits to a debit card. Now, you have to have a way to like put cash on that debit card without a fee. So some of the prepaid cards that are, like you would get at a store, a 7-Eleven, you, one, if you lose it, it's gone. The other is every time you check your balance or you put money on it, you have to pay a fee.

So what the Treasury could do is just issue a prepaid debit card, no fee. It's just your money on that card and you can use it, linked to your Social Security or whatever. It's really easy. It's not a technological issue. It's just politics.

[MJ]: So is it the same as the post office? It's going to need another crisis to make it happen?

[MB]: Or a really motivated bureaucrat. I think this is where I do have faith in career people at Treasury and FDIC and the Fed. And I've worked with a lot of these people, and there are people who just genuinely get hung up on an issue and get things done within an agency, outside of the political channels. And so I think that one, I do know some folks at Treasury that I think could roll something out like that in time.

[MJ]: Yeah?

[MB]: Yeah. Yeah.

[MJ]: So just let's go back to the banks for a moment. I mean, they are the gateways to the monies available in the CARES Act. How have banks performed in discharging fair practices?

[MB]: Right.

[MJ]: Because from what I've heard is that you've got a great relationship with your banker, you go to the top of the list.

[MB]: Yeah, yeah. And in a way it's not fair to ask banks to do more than... I mean, it's like saying like, I'm going to put you in the tiger cage, and if the tiger bites, I'm going to blame the tiger. Like a tiger is a tiger. And a bank is a profit-oriented institution. And what we've allowed for banks to do, they're no more evil than any of us, but it's about policy and the structures and what we've allowed banks to do is turn... there's five or six big banks that control 80 percent of the market, so they've closed up all the branches that are no longer fruitful and they've cut off the customers that they don't need, right. So this is small businesses, most of them don't need credit from banks so they'd rather have big businesses.

And so when a program like this goes from Treasury and says here's a big pot of money and we're going to allow the banks, right, to hand it out to whoever they want. Now, they didn't say, whoever you want, but basically, as long as they comply with these three things, it's totally at your discretion. And so they gave it to their biggest customers. And that was obvious. I mean, I was talking to reporters before this happened, and I'm like, this is what's going to happen. Anyone who knows about banks was like, this is what's going to happen. And then the reporters come back and like, hey, it turns out it was the big clients. Because of course that's what's going to happen. It's like executive compensation, right? You get what you incentivize.

And so what we've incentivized is sort of a winner-take-all market in banks, a profit-oriented system, no public duties and no public mandates. And that's fine. I actually, I'm fine with banks going out for profits. I think they should be smaller and not cause so much destruction that the public has to then pick up. But I think if we want to give access to people, we just go around the banks and just give it directly. I mean, the Treasury could just hand out the PPP loans through the Small Business Administration. They could do it through any agency that we have. They don't need to go through banks. So that was one of the big problems, I think, here.

[MJ]: I just had a comment come up which we'll circle back on, if we may, because it's relevant, about the debit cards. The comment is, "I did receive my stimulus package prepaid card. Four million Americans did. But the problem is how it was packaged. Looked totally like a scam, and includes small but still ATM and other balance fees. Apparently people were throwing them out." That's heartbreaking. That's real appalling to hear.

[MB]: Yeah, so some people who were already set up on the system of Treasury did get prepaid cards. But yes, there were fees. So this is the problem, is they have to go through some other third party servicer to get these fees out. So it's either Visa or whatever. And they have to take their cut, right? So they're going to do it for free, and so they have to charge fees and whatnot. And what I'm saying is, put it in the post office. The post office is still one of our last democratic organizations. It has a public mission to serve every community regardless of cost. The post office will come to your house, way out in the boondocks, even if they make no money from it. And that's like per the U.S. Constitution, and that's why in your home country and most European countries, most even developing or other sort of countries in Asia, South America, all over, Africa, they have postal banking, right? And the U.S. did too. And this is because the post office is a natural, sort of public institution that is available.

[MJ]: Yeah, not for profit.

[MB]: Not for profit, exactly. And so this is the thing is like you need to give them the debit card, but you can't charge people. This is just money that, because here's the thing. Those of us who have enough money to have a bank account, I don't get charged when I use my debit card. I don't get charged when I go to my bank and put money on or take money out. They do it free for certain customers. Because the payment system is a federal payment system and banks get access to it. It's all public. And so we just charge a toll to poor people, and that I think is just fundamentally unfair.

[MJ]: So we're going to dig a little deeper into that in a moment. But before we get too bleak, what's worked?

[MB]: What's worked in the past? Again, postal banking worked in America, so-

[MJ]: I'm talking actually just in regard to the CARES Act. I know it's a little bit early…

[MB]: Oh, what worked? Yes. This stimulus payment, the unemployment benefits were quite healthy, and I think it was a bipartisan bill and I think it was fast and it was effective and it went to the people who needed it. Now, there were some things that they had to come back to, to increase and of course there are ways to critique it. But that was great. I think the spirit of the PPP, the small business loan thing, if it had been administered to actual small businesses, would have been great. I think a lot of the investments in some healthcare industries and hospitals were long overdue. But we should appreciate that too. The Federal Reserve just this week issued a new monetary policy, sort of lending facility for small businesses, the first time they've ever done that despite lots of people pushing them to sort of be more inclusive in their monetary policy. They just did that. It's too soon to say but it's a really great move.

Just today, there was a senate hearing in which Senator Brown, Sherrod Brown, who I've worked with quite a bit and I really respect, asked the Fed to consider how their policies affect racial equality. And it was just a really stunning and positive thing to explore. And I think the Fed has been receptive. I mean, they know that it's an institution that is accountable to the public. And the public has demonstrated that they care about this. I mean, that is what the people on the streets are saying, is like enough, do something. And I think every agency, especially the Fed, but inclusive of the Fed, needs to focus on how their policies have caused these problems. Because it's not just the police, right? I mean, the police is this most obvious and horribly salient feature of a whole system. But it's the lenders. It's the people who’ve been foreclosing on these homes. It's the banking deserts. These are grocery store deserts. Fed monetary policy. So during the financial crisis, when the subprime crisis blew up, the Black community lost 53 percent of their wealth, which they have not recovered. And the Federal Reserve, instead of putting in trillions to save homeowners, that was one option very much on the table, they chose instead to buy up the toxic assets from the banks, and let them recover. So we're talking about Goldman Sachs and the investment banks. Let them recover a hundred cents on the dollar invested and let homeowners get foreclosed on. And so that is the kind of stuff that is the back burner fire that then you get, you create these unequal structures and then you light a match, and how do you expect people to sit at home? And what's been heartening about this wave of protests is, I mean, I joined one in San Clemente. The fact that like San Clemente had hundreds of people out, I just think this one has just gotten to people, I hope, in a way that it looks to be that you have a majority of people demanding change. So I'm hopeful.

[MJ]: So I'm going to come back to that in a second. But you talked about obviously was the fact that you felt that as a result of what has just happened, there's a move by the Feds to take another look at this. What do you expect? What do you hope the banks are going to do? I mean, I was reading just yesterday that I think it's B of A, Wells Fargo, I think Morgan Chase, they don't have... and there may be one more... they don't have one Black in senior leadership. So I mean, I could say what's wrong with that picture. We know what's wrong with that picture. But what should we expect of the banks?

[MB]: So I am the type of person who I don't think we can wait on corporations to lead the way toward social change. That is not…They are structurally not able to do that. So I think what we need to do is create policies that incentivize the right kind of banking, right? So I don't care if JP Morgan... I mean, when I saw this picture of Jamie Dimon outside Chase bank, or JP Morgan... I don't know which CEO, which bank, but he was kneeling in protest of Black Lives Matter and my response was like, get up. Go back inside and give people back their homes. Right? Cut out the performative justice, right? And the lack of diversity is appalling. But even if you bring in the diversity and your policies still create these structural inequalities, that's not enough. And so I don't think JP Morgan is going to up and tomorrow say, oh, we're going to stop exploiting these communities. Because there was profit there. There's always been profit in that exploitation.

And so what we need to do is say, you know what, JP Morgan's going to be JP Morgan but we can stop that exploitation by saying you may not sell this kind of mortgage. You may not be so large and so powerful that your lobbyist can go to the Hill and buy whatever legislation you want. I mean, that's essentially what happens now. We have five or six lobbyists for every one lawmaker, legislator, on Capitol Hill. So any person who tries to pass policy that says okay, we got to make JP Morgan less implicated in this racist system is going to face five lobbyists with money, versus who? I mean, who really is on that other side? And so I think those are things. I want them to have less power over people's lives as opposed to counting, waiting for them, for their hearts to change, and for them to really look out for the interests of people. I mean, I would love for them to do that, but in the meantime, I think we need to have the society that we want, instead of what the society that JP Morgan decides they want to provide us, right?

[MJ]: Well, it's interesting you should say that, because I read a recent study and it was really about why don't the underserved trust banks? And it was appalling to me that 25 percent of U.S. households are unbanked or underbanked and the survey indicated that 50 percent say it's thus, because 50 percent don't have enough money to keep in the accounts. Geographic location. But 30 percent of the underbanked or unbanked households here, 30 percent say they don't trust the banks.

[MB]: And why should they? I mean, truly, why should they? I mean…

[MJ]: Tell me, why shouldn’t they?

[MB]: Yes, okay. Okay, so one is the lack of trust is much higher in Black and brown communities, and part of that is this history, and I go through this in my second book, of truly just exploitative practices of taking deposits from Black communities and lending them to white communities. From like some act of true violence within bank branches to keep Black customers out. Before FDIC insurance, from just taking money and it not being there when you went back. And so a lot of this kind of gets passed down from grandparents to parents, to say don't trust those institutions, like they've never worked for you. It's a little bit like this just lack of trust for police. There's just been so much bad behavior, and so many instances of salient bad behavior, that you just say, you know what, I'm not going to take a risk that there are good banks of course, but there's been so many instances of me being treated poorly that I'm going to take my money out.

And the outside of the racial context, and this history is just very, very tragic and kind of shocking, but outside of that if you're poor and if you have, you know, I think the recent is $2,500, if you can't keep $2,500 always in your account, and you dip below that, you're going to get these penalties and fees and they're going to seem random and punitive. Like they'll build, right? So you can overdraw and then get these fees stacked up. So by the time you go back to finding out that you've had fees, it's already past due and you now owe $150. So that happens to you once and you don't trust the banks with your money. So you'd rather go to a check casher, which is objectively more expensive, but it's a reasonable choice at that point. Right, this is what I mean by… I trust the poor to make the rational decision and in this the rational decision is to -- I know the fees that you charge me, I know they're high, but these banks charge these weird fees, and I get these statements that are very hard to understand. And purposefully so. I don't feel respected when I go into a bank branch. They're not serving my community, they're not speaking my language, whatever the case may be, they don't look like me. So I just don't trust banks.

So that is pretty pervasive. And I also think that banks reciprocate that. They also deter certain clients. They don't want your $500 account. That's what the fees are there for is, I mean, they do make profits from the fees, but also it costs banks the same overhead in having the ATMs and having the tellers. If you have $500 or $500,000, and they'd rather have the $500,000 because they can lend it and you're not coming in every other day to take out money and put in your wages and dealing in cash. That's expensive for them. So they'll say how do I get rid of this $500 customer? So I'm going to close my branch in the area where there's a lot of $500 customers, and I'm going to give them fees so they get pushed out, right? That's a business decision that they've done.

[MJ]: So this is a sort of a nice little segue to the “Color of Money: Black Banks and the Racial Wealth Gap.” I have to tell you when I got your book, and UCI was kind enough to send it to me, I wish I could have read all 300 pages. I didn't. I read the beginning and the end. And I wrote literally a whole list of questions on Black banking until I realized that actually the topic today wasn't that.

[MB]: Thank you. Yeah.

[MJ]: No, it's okay. It was good to do that. But let's touch on that a bit, because again it's so relevant today. Now, if I'm not mistaken, the first Black bank was actually formed less than a decade, I think, after we ended slavery. And since then Black communities have been urged by both Black and white leaders to rely on segregated banks. But even I read as late as 2016, there was even a Black Money Matters movement. But Black banks have barely scratched the surface of closing the wealth gap. And today, I'm telling you what you already knew, 5,000 banks, only 21 are African American owned. I mean, who's to blame? Who's to blame? Do white banks bear a responsibility here too? And if they do work, what do we do? Do we throw in the towel and do something else, or try again?

[MB]: Lots of good questions. So of course it's a white problem. And I think what the Black banks, you know, there are Black leaders who have urged Black banks for different reasons. So the 2016 Black bank push was a protest. It was during the first Black Lives Matter nationwide kind of protest, and Killer Mike, who's a rapper, said, take your money out of these white institutions that are not serving you and put them in Black banks, as a means of protest. Martin Luther King, Malcolm X, a lot of... W.E.B. Du Bois. Lots of leaders said, I mean, so let's be clear. Until 1965, Black individuals couldn't bank at white banks, for the most part. So in heavy Jim Crow in the South, in segregated Northern cities, it wasn't an option. And so you had to have Black banks out of necessity, because you had to have Black beauty parlors and Black funeral homes, and Black whatever services you needed, because the white institutions, it's white water fountains, Black water fountains. So the Black institutions were formed out of necessity.

And then in the book I talk about how post-civil rights revolution, what's happened is that white policymakers, like Nixon and post-Nixon, have used this idea of Black banking to say, okay, well, we'll have white banks and you have Black banks. And instead of integrating, or at least integrating money, you do your own business and banking and all of that stuff. And the reason it hasn't worked is because the power and the capital have been in the white communities. And so you have hundreds of years of Homestead Acts, FHA loans, GI Bill loans. And before that, Jim Crow, sharecropping, slavery, where wealth is extracted from Black communities, they're literally not able to get mortgages to build equity, because of these racial exclusions.

And then you say, okay, without capital, you create wealth yourselves through banking. And I try to expose in the book like that's not how banks work. Banks don't make money out of thin air. I mean, they do, but they have to part of a network of other banks. So it cannot be that you have Black banks over here, building wealth, while the whole society is doing this other thing, right, and not lending within those communities. Not lending the right kinds of loans, right? Because the subprime market did come into those communities. And so there's a whole bunch of factors here. And so I have nothing against Black banks or Black businesses obviously. Very pro them as opposed to I mean, take your money out, put it in a Black bank, don't put it in JP Morgan. But we have been putting the onus of a problem that white policymakers created on Black communities to fix, and that is a problem.

And we do this a lot. We say, okay, well, policing's a problem. Why don't Black communities meet with the police and fix this? Well, policing is a problem that the white suburbs created. Who pays the police? What are the police doing? They're keeping certain people... and this is a dark vision, but I think you zoom out and you see it in that way, they're keeping certain communities over-policed. There are certain communities that are over-policed. Those communities are the same ones where the ladders up are broken, where the schools are underfunded, community parks are underfunded, and the public institutions that are most heavily funded are the police force, right? And so you go to the suburbs and it's different now, so some urban areas have been gentrified, so you can switch that. And those are areas where the funds are actually going to other things that are life-enhancing, as opposed to criminalizing. And so I just think when we talk about these race problems, I want us to not think about them as a problem for the Black community to fix. Right? Yeah.

[MJ]: I rattled off and threw to you rather a bunch of questions. I'd just like to circle it back to the next one. So Black banks arguably can only succeed if they have the support arguably of white banks. The optics of that are going to be odd, because if white banks do it, it looks like they're segregating them. So is there a role for Black banks? Or do we have to let those 21 go and just make sure that we're more accommodating for Blacks by white bankers?

[MB]:  I think there is a role, absolutely, for all Black institutions. I mean, you talk to all... one of the things I found in the research is that Black banks, during the subprime crisis, did not lend subprime loans to their communities.

[MJ]: Interesting, yeah.

[MB]:  So these banks are not exploitative. So absolutely in Black businesses, Black, all sorts of... that trust, going back to your point about trust, I think there, Black banks are trust by their communities. And the reason why they're so few is because the capital isn't there. There aren't enough capital equity holders in Black communities that are supporting, or that can support, a robust Black black banking sector. So absolutely, they're vital. Go ahead.

[MJ]: I'm sorry. I didn't mean to interrupt you. Where did the Black banks in the CARES Act?

[MB]:  They hardly got... they were able to get PPP loans, but the businesses, if you look at the data, and an organization that I've worked with called Color of Change actually did this data on PPP funding and Black businesses, and showed that they were disproportionately deprived of funds. In other words, I think 3 percent of Black businesses that applied got the loans. And something like 3 percent of Latino businesses that applied got the loans. That is a remarkably low percentage. And part of that is the relationships with banks, the size of the businesses. They tend to be smaller, less connected, so that also could have been predicted.

[MJ]: Very good. Well, I've monopolized your time. I'm now going to go to some of the questions that have come in, and we've had a question here from Martin. "How do we get lobbyists for people to balance corporate lobbyists?"

[MB]: That's a really great question, Martin. So I mean, there are a few. There's one lobby arm on Wall Street called Americans for Financial Reform that does really good work. And they basically are in a defensive posture at this point in the last 10 years, and they basically just try to block bills that banks are pushing that are deregulatory. They're hardly staffed enough or well-funded enough to fight this stuff. So there are a few lobbies. But I will say this, politicians care about money but they care more about votes. And money equals votes, but it doesn't have to, right? It doesn't have to. And so I think voting and being very vocal about the kinds of politicians and the kinds of policies we will support with our vote matter.

And then fighting voting disenfranchisement. I mean, really like, you can, people do get voted out of office. I mean, look at Orange County. Katie Porter. I mean, Katie Porter is a true fighter of banks. I mean, they probably cannot stand her. And if you've seen her dress down any of these executives, I guarantee they cannot stand her, they hate her. But the citizens of Orange County gave her that platform. And then I'm sure she was not, I am almost 100 percent sure, no lobbyist, no financial lobbyists are paying Katie Porter, that she's not bought. And then there are other congressmen and women and Senators who are more aligned with the principles. So find those people, and then for the other people, vote them out. Be loud. Votes, at the end of the day, that's what they want.

[MJ]: Get out the vote too.

[MB]: Yeah, yeah.

[MJ]: All right. So these came in before. I'm going to read this one to you if I may. "Banking institutions applied and received much of the early COVID-19 CARES Act funds, and after public pressure are now providing applications for smaller businesses for said funds. With the history of banks and their plundering of marginalized communities in mind, what are your thoughts on better options for saving small businesses in the future?"

[MB]: Absolutely. I mean, yes. I mean, go around the banks. What we did was, here's the funds, here are the small businesses. And we could say, look, we want to save the smallest businesses. Those are the ones that can't survive this, right? So Shake Shack is an example of a public company that took out PPP loans. And they got the shame that they deserved. But the part of the reason why they shouldn't have taken out the loans is that they can go to the capital markets to get the money that they need, and they stayed open. So they actually didn't need it. Where there's a ton of small businesses who you close down for three months and you will not survive. And so the PPP, those were the businesses, and a lot of Black and brown businesses are small businesses, just by nature.

So we want to do that, here's the money, here's the businesses that should be the target. And we know that if we put that money through the banks, it's going to filter up. That's what banks do. They're going to choose their highest wealth customers. So get rid of that middleman and send it direct. And we know the small businesses are all registered at the SBA, so just send the money from the SBA to the small business. It's not that hard. I mean, if you're worried about fraud, which tends to be rare anyway, because you can go to prison for fraud. So you really --

[MJ]: Have to be a fraudster.

[MB]: Yeah, so really, you're talking about really unscrupulous people, which most small business people are not. But you can verify the documents, put the bill, you don't need a bank for that. So that was a solution that I think could have worked.

[MJ]: Okay. I was also asked to ask you, has the Federal Reserve Bank's political independence been further eroded over the last three years?

[MB]:  Interesting. Yes, I think that that's been fascinating. So one of the things that's happened is Chairman Powell and couple other Fed presidents have done a listening tour at communities across the country, which I think is long overdue. But the Fed has tended to be, especially under Greenspan, and certainly under Bernanke as well, been very much like, I'm just going to look at the numbers and do the technical stuff and not worry about politics or people. And the independents we've shielded them from that. But what happened during the financial crisis and pre is actually they weren't really that independent. What they did have is a lot of input from banks and not enough from communities.

And then the political process, I think they do feel that. I think the Fed... some people say, oh, the Fed is so hyper-independent, that they don't care. They do care. They're humans. They can be removed. I mean, Trump removed Janet Yellen, which was crazy unprecedented. I don't think that gets enough attention. No president had come in and just changed the Fed head just like that. And he just didn't like her and got rid of her and put in Jerome Powell. But I think Jerome Powell is a... he's been susceptible to that public anger and distrust. So I think it has eroded the public's appetite for hyper-Fed independence. And I think that is deservedly so, because they were never independent. They were just independent from certain groups, and they should be paying attention to municipal bond creators as much as repo markets. And they were very unidirectional in the voices that they were hearing.

[MJ]: Yeah. I know. I read that last April, I think you're right, he was down in Mississippi and he actually went down there to look and see what was happening. It was kind of encouraging.

[MB]: It really was, yep.

[MJ]: Okay. “I am particularly interested in which advocates for very small businesses who may not belong to trade associations and the like, influence the development and implementation of the legislation. And also what lessons the supporters of the legislation feel they have learned.”

[MB]: From the CARES Act?

[MJ]: We're going to assume it’s from the CARES act too.

[MB]: Yes, yes. I think when policymakers came back, they did try, they did learn that... and they probably knew this but they kind of did patch up some of the leaky holes here. The idea that these big companies were taking the funds and then laying off workers and things like that. They made the quid pro quo a little bit more demanding. They came back this time and cut some bigger companies out. I think the Fed again creating this small, medium-size business facility is them listening, and having an iterative process. So I do worry that the appetite for reform has shifted. One of the things I was saying during the congressional hearing, because we actually had the congressional hearing over Zoom, so the congressmen were Zooming in from their different places.

And usually when you're sitting in the chamber, you can tell who's a Democrat and who's a Republican by where they sit. But during Zoom, they're not identified as such. But all the Republicans started their comments by saying, it's crazy that we're not at the Capitol. We shouldn't be doing this anymore. This is over. Blah blah blah. So what I worry about is that people are in this frame of mind that that virus is over, that the crisis has passed. And that is just not the case. I mean, looking at some of the spikes in some of the places that are back to normal, we are still in a crisis, and I hope that the appetite for reform hasn't shifted.

[MJ]: Well, that's actually a very neat segue to what must be the last question, because we're almost on time. And that is, so in summary, what are the key lessons we have learned from CARES, the CARES Act and COVID-19? And in terms of banking for all. So we hope, whatever it is you want to hope with, this doesn't happen again. But if the... what are the lessons we've learned?

[MB]: Okay. So I'll do the lessons of COVID and then the lessons of the response to COVID. The lessons of COVID are that crises... I have an adage in the book, right, when Wall Street gets a cold or the flu, Harlem gets pneumonia. We talked about this before. Crises are not equalizers. They create, they divide, in that those who have wealth, you saw this very clearly during this crisis, protected themselves, could protect themselves. They had the ability to be home. I have been working from home since March, without any financial suffering for us. We had that ability. Some of the New Yorkers that I know went to their summer homes and just kind of camped out. They had enough wealth, even if they did lose a job, which most didn't, they could sort of withstand it, they didn't have to be out there on the front lines. Whereas poor communities they're more likely to be service workers, less likely to have the healthcare needs, more likely to be in crowded situations where they're more exposed to this.

So the crisis only drew those gaps further. And then when you're on the margin, a small sort of wind can tip you over into foreclosures. And so I think that other shoe has yet to drop is evictions and kids going hungry because they're out of school, and the effects of just prolonged crisis on further, sort of, sharpening the edges of poverty. And then as far as the response goes, I think you saw immediately. This was so long ago, but the weekend after the economy just kind of tanked and you saw all of these employment numbers just spike, the Fed issued like a $3 trillion program for repo markets, commercial paper, banking sort of just liquidity into markets. Overnight they just kind of every program that they created in the year of 2008 to 2009, they unleashed in a weekend. With the same monetary power behind it.

And so that I think was the first time where you're like, oh this is... the banks are going to come out of this just fine. And the how long did it... maybe... how long did it take for Congress to get up to speed, and to help people? So I just think we know how to save, we know at least how to try to save, big companies and big banks. It's easy. There are buttons to push, there are liquidity funds to issue. But then when we try to give liquidity to people, the mechanisms aren't there. So part of it is that. It's just the institutional ability to just like send a trillion dollars to repo, versus a million to people through a thousand dollar check. That infrastructure isn't there. So I think that is a problem that has been present and was heightened during this crisis.

[MJ]: Post office and debit cards.

[MB]: Among many things.

[MJ]: Many.

[MB]: Yes.

[MJ]: Many things.

[MB]: And reparations, yes.

[MJ]: Well, according to my watch we are on time. So I want to thank you, Mehrsa. To that long list that I introduced you with, I would like to add brilliant, insightful, passionate, and we are so glad that you landed with us here in Orange County.

[MB]:  I so appreciate that.

[MJ]: Dean Richardson, Song, thank you very much for making all of this happen and for all of those who facilitated and those of you who sat in and listened to what for me was just a glorious conversation. So thank you very much.

[MB]: Thank you so much, Michelle.

[Narrator]: Thank you for joining us for UCI Law Talks, produced by the University of California, Irvine School of Law.