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When I titled this column, “Building Main Street, not Wall Street”, I did so for many reasons, not the least of which was the stranglehold that Wall Street banks have on communities across the county.  Wall Street banking practices can indeed have far-reaching consequences for small communities, often manifested through seemingly minor transactions that accumulate into significant detrimental impacts. From predatory lending to speculative investments, the actions of large financial institutions can undermine local economies, erode community wealth, and exacerbate socioeconomic disparities. In this exploration, we'll examine how Wall Street banking can destroy small communities, one 3.5% transaction at a time.

One of the most notorious examples of Wall Street's impact on small communities is the subprime mortgage crisis. Large banks, driven by profit motives, aggressively marketed high-risk mortgage products to low-income borrowers, often in marginalized communities. These subprime loans, characterized by high interest rates and hidden fees, lured unsuspecting homeowners into unsustainable debt. The subsequent wave of foreclosures devastated neighborhoods, causing property values to plummet, and leaving communities with abandoned homes and blight.

Wall Street banks may indirectly support predatory lending practices through investments in payday lending companies. These firms target financially vulnerable individuals with short-term, high-interest loans, trapping borrowers in cycles of debt. While payday loans may seem like small transactions on an individual level, their cumulative impact can be devastating for communities, draining resources from local economies, and perpetuating financial instability among residents.

Even seemingly minor banking transactions, such as ATM fees and overdraft charges, can contribute to wealth extraction from small communities. While these fees appear negligible on an individual basis, they impact low-income individuals who are more likely to live paycheck to paycheck. Over time, these fees accumulate, siphoning money out of local economies and into the coffers of Wall Street banks, further widening the wealth gap between financial elites and ordinary citizens.

Small businesses, which are the lifeblood of many communities, often bear the brunt of Wall Street banking practices through merchant processing fees. Every time a customer swipes a credit or debit card, a percentage of the transaction goes to the bank that issued the card and the payment processor. While these fees may seem small, they can eat into the already thin profit margins of small businesses, making it harder for them to thrive and contribute to the local economy.  A great example of this is when there are $50 transactions involving 3.5% processing/credit card fees, after about 28 transactions via credit cards, Wall Street has extracted that entire $50 out of the community forever. How do combat this, you use cash whenever possible. After 28 cash transactions with that same $50, the entire $50 is still circulating through the community in its entirety.

Wall Street banks engage in speculative investments, such as derivatives trading, which can have destabilizing effects on small communities. Derivatives are financial instruments whose value is derived from underlying assets, such as stocks, bonds, or commodities. While derivatives trading can generate substantial profits for banks, it also carries significant risks, including market volatility and systemic contagion. In the event of a financial crisis, small communities are often the first to suffer from job losses, foreclosures, and business closures resulting from Wall Street's speculative excesses.

Another way Wall Street banking can harm small communities is through asset stripping, where distressed assets, such as failing businesses or municipal bonds, are bought up at bargain prices and then stripped of their value for short-term gain. This predatory practice deprives communities of vital resources and infrastructure, further weakening their economic resilience and exacerbating social inequalities.

Wall Street banking is destroying small communities one 3.5% transaction at a time, through a combination of predatory lending, wealth extraction, and speculative investments. While individual banking transactions may seem insignificant, their cumulative impact can be devastating for local economies and residents. To mitigate these harms, small communities must work together, must utilize local banking avenues, and return to the use of cash whenever possible to build resilient, self-sustaining economies.

John Newby is a nationally recognized Columnist, Speaker, & Publisher. He consults with Chambers, Communities, Business & Media. His “Building Main Street, not Wall Street,” column appears in 60+ newspapers and media outlets. As founder of Truly-Local, he assists chambers, communities, media, and businesses in creating synergies that build vibrant communities. He can be reached at: John@Truly-Local.org.