Loan Sharks: The Birth of Predatory Lending

(Paperback)

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Predatory lending: A problem rooted in the past that continues today.

Looking for an investment return that could exceed 500 percent annually; maybe even twice that much

Private, unregulated lending to high-risk borrowers is the answer, or at least it was in the United States for much of the period from the Civil War to the onset of the early decades of the twentieth century. Newspapers called the practice loan sharking because lenders employed the same ruthlessness as the great predators in the ocean. Slowly state and federal governments adopted laws and regulations curtailing the practice, but organized crime continued to operate much of the business. In the end, lending to high-margin investors contributed directly to the Wall Street crash of 1929.

Loan Sharks is the first history of predatory lending in the United States. It traces the origins of modern consumer lending to such older practices as salary buying and hidden interest charges. Yet, as Geisst shows, no-holds barred loan sharking is not a thing of the past. Many current lending practices employed today by credit card companies, payday lenders, and providers of consumer loans would have been easily recognizable at the end of the nineteenth century. Geisst demonstrates the still prevalent custom of lenders charging high interest rates, especially to risky borrowers, despite attempts to control the practice by individual states. Usury and loan sharking have not disappeared a century and a half after the predatory practices first raised public concern.

Reviews

Perhaps the world's oldest economic problem, predatory lending has roots as far back as the Old Testament and continues still today. As Geisst explains, loans have always been necessary for some sectors of society, namely those desperately in need. The truly destructive aspect of loan sharking is the extremely high, often unpayable interest rates. Geisst carefully and meticulously outlines the practice of loan sharking from the earliest days of the colonies to the Great Depression. Any reader interested in economic history will enjoy Geisst's attention to detail, along with his observations about the ties between predatory lending and major economic and social events. Loan Sharks is an interesting microhistory of this terrible aspect of banking, highlighting an issue often overlooked by politicians, despite its deep roots in American society.

--Seth Emery "Booklist"
Loan Sharks recounts the fascinating history of America's undeclared and ill-defined war on usury and loan sharking from the late nineteenth century through the Great Depression. Geisst gives us a well-documented intellectual history of the struggle with the nation's predatory lenders and their effects on American life, weaving our current and ongoing debate over consumer lending through a larger narrative of the history of American monetary policy and banking regulation.
--Brian M. McCall, Associate Dean and Orpha and Maurice Merrill Professor in Law, University of Oklahoma

In Loan Sharks, Charles Geisst takes us on a vivid, detailed historical tour of the "gangsters and bankers" that "had more in common than their desire for gain." Probing the moral, political, and financial repercussions of usury from the Civil War to the Great Depression, Geisst expertly reveals the extent to which the extortion of high loan interest from those in society least able to afford the burden exemplifies a rigged and sinister market place and must be thwarted as such. Those themes held as true then as they do today.
--Nomi Prins, author, All the Presidents' Bankers

Author Bio

Charles R. Geisst is a former investment banker who currently is the Ambassador Charles A. Gargano Professor of Finance at Manhattan College in Riverdale, New York. He is the author of nineteen other books, including, most recently, Collateral Damaged (2009) and Beggar Thy Neighbor: A History of Usury and Debt (2013).