The Credit Crisis and the Mafia:

I’ve noted on a couple of occasions that the credit crisis in the United States has made credit card and other similar credit less available to consumers and small businesses, leading them to substitute to lenders like layaway, pawn shops, and payday lenders.

In Italy, the impact of the credit crisis has been somewhat more alarming–the inability to get bank credit has generated a rapid growth in the market share of the mafia:

At a time when businesses most need loans as they struggle with falling sales, rising debt and impending bankruptcy, banks have tightened their lending to them.

Italian banks, which for years had been widely criticized for lending sparingly to small and medium-size businesses, now have “absolutely closed the purse strings,” said Gian Maria Fara, the president of Eurispes, a private research institute.

That is great news for loan sharks. Confesercenti, the national shopkeepers association, estimates that 180,000 businesses recently have turned to them in desperation. Although some shady lenders are freelancers turning profits on others’ hard luck, very often the neighborhood tough offering fat rolls of cash is connected to the Mafia, the group said.

“Office workers, middle-class people, owners of fruit stands, flower stalls are all becoming their victims. . . . We have never seen this happen,” said Lino Busa, a top Confesercenti official. “It is as common as it is hidden.”

Many experts say organized crime is already the biggest business in Italy. Now, Fara said, the untaxed underground economy is growing even larger. “Certainly I am worried,” he said. “The banking system doesn’t work, and the private one that is operating is often managed by organized crime.”

In the United States we have a buffer of lending institutions in between formal bank loans and illegal loan-sharks, such as payday lenders and others. I don’t know for certain, but my impression is that these fringe lending institutions are less-available in Italy (or Europe generally), where there are much stricter paternalistic limits on consumer lending, than here. Although the history of loan-sharking in America is sketchy (or at least I’ve never found a good source on it–please recommend it if you know of one), my sense is that mafia-controlled loan-sharking was much more prominent in the United States in the early 20th Century than it is today. Over time in the United States the light regulation of consumer credit enabled a range of lending institutions to develop, thereby reducing consumer demand for illegal loan-sharks.