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May 13 2015

American Banker - Lessons from Baltimore: 'Middle-Class Folks Don't Riot'

Theories abound as to what caused the recent Baltimore urban riot, and the vast majority of them focus attention on the obvious problems of police, policing, racism, profiling and possible abuse. But looking at these issues is like treating a cough as if it is the actual cold. Social commentators and politicians are addressing the effects of a problem, not the cause. They are reacting to a problem instead of responding to it.

The problem of Baltimore and every other urban riot in America — including Ferguson, Mo., and the Rodney King riots in South Central Los Angeles — is the lack of a market economy.

Assuming that race, policing and profiling are systemic and nationwide in scope, wouldn't we see riots in middle-class black and brown communities? But we don't. We don't because middle-class folks don't want riot or strife. They want to work hard and go shopping and spend time with their families. This sense of aspiration is wiped clean in poor urban communities where predatory lenders thrive and a 500 credit score might be considered high.

The reality is, nearly 100% of all urban riots in America have occurred where the market economy either failed or didn't exist to begin with. The poverty of these vastly underserved communities, combined with the strangling sense of lost hope among its young people, provide the perfect ignitable embers to spark both emotional and physical blazes.

To help understand why this unrest is largely confined to poor black neighborhoods, let's go back 150 years. On March 3, 1865, President Lincoln signed legislation establishing the Freedman's Bank, whose mission was to teach freed slaves about money and free enterprise. President Lincoln thought the bank so important that he placed it right within his reach, locating it across the street from the White House at what is now Treasury Annex.

Unfortunately, the dream was short-lived. Lincoln was killed five weeks later and the bank received no support from his successor, Andrew Johnson. Frederick Douglass invested $10,000 of his own money (an amount equal to $20 million today) to try to keep the bank afloat, but the bank ultimately failed in 1874, wiping out the savings of more than half of the 73,000 depositors, all former slaves.

It was said at the time that the failure of the Freedman's Bank did more to set freed slaves and America back than 10 more years of slavery would have. Today, more than 140 years later, scores of African-Americans are still suffering from a lack of access to basic financial services and a basic understanding of the free-enterprise system.

Our goal as a society should be to bring economic opportunity to these neighborhoods. That starts with financial education and ends with making free enterprise work for all.

To help disaffected adults, Operation Hope teams with banks to offer financial education within bank branches. Our counselors serve as private bankers to the working poor, underserved, job seeking, and struggling middle class. The goal: to turn these 500-credit-score communities into 700-credit-score communities. After 23 years of doing this work, I am convinced that, outside of God or love, nothing changes your life more than raising your credit score.

Operation Hope is also working with youth, offering financial education and entrepreneurial training in schools. Gang violence and urban riots happen in communities where unemployment is rampant and young black men have too much time on their hands. As my friend, the civil rights advocate Van Jones once said, "nothing stops a bullet like a job."

But we as a society need to do so much more, and banks in particular are well-positioned to help bring economic opportunity to Sandtown-Winchester in Baltimore and other neighborhoods like it. No one expects to banks to start blanketing these neighborhoods with branches — at least not yet — but nonprofits and community groups need banks and bankers to help spread the message of economic empowerment. If we raise the collective credit scores of these neighborhoods, the rioting will stop. Unscrupulous check cashers, payday lenders, and title lenders will be put out of business, replaced by banks and credit unions.

Baltimore is a real, heartbreaking tragedy for the America of 2015, but it doesn't have to be all bad news. The fact is you cannot have a rainbow without a storm first. Let's go.

John Hope Bryant is the founder and CEO of Operation Hope.