The story does not begin with trusts, but with credit cards, and with Governor William “Wild Bill” Janklow, a US marine and son of a Nuremberg prosecutor, who became governor in 1979 and led South Dakota for a total of 16 years. He died almost eight years ago, leaving behind an apparently bottomless store of anecdotes: about how he once brought a rifle to the scene of a hostage crisis; how his car got blown off the road when he was rushing to the scene of a tornado.
In the late 70s, South Dakota’s economy was mired in deep depression, and Janklow was prepared to do almost anything to bring in a bit of business. He sensed an opportunity in undercutting the regulations imposed by other states. At the time, national interest rates were set unusually high by the Federal Reserve, meaning that credit card companies were having to pay more to borrow funds than they could earn by lending them out, and were therefore losing money every time someone bought something. Citibank had invested heavily in credit cards, and was therefore at significant risk of going bankrupt.
The bank was searching for a way to escape this bind, and found it in Janklow. “We were in the poorhouse when Citibank called us,” the governor recalled in a later interview. “They were in bigger problems than we were. We could make it last. They couldn’t make it last. I was slowly bleeding to death; they were gushing to death.”
At the bank’s suggestion, in 1981, the governor abolished laws that at the time – in South Dakota, as in every other state in the union – set an upper limit to the interest rates lenders could charge. These “anti-usury” rules were a legacy of the New Deal era. They protected consumers from loan sharks, but they also prevented Citibank making a profit from credit cards. So, when Citibank promised Janklow 400 jobs if he abolished them, he had the necessary law passed in a single day. “The economy was, at that time, dead,” Janklow remembered. “I was desperately looking for an opportunity for jobs for South Dakotans.”
When Citibank based its credit card business in Sioux Falls, it could charge borrowers any interest rate it liked, and credit cards could become profitable. Thanks to Janklow, Citibank and other major companies came to South Dakota to dodge the restrictions imposed by the other 49 states. And so followed the explosion in consumer finance that has transformed the US and the world. Thanks to Janklow, South Dakota has a financial services industry, and the US has a trillion-dollar credit card debt.