Private Prisons Need New Financial Backers As Banks Take A Hard Pass
- In 2015, the two largest private-prisons made $3.5B in revenue
- 1 in 3 Black men compared with 1 in 6 Latino men will spend time in prison in their lifetime
The largest banks in the country have started reading between the lines and pulled their investments from the private prison industry. This move comes amid national outrage over the use of detention facilities at the border and the conditions inside. With the sudden shakeup from the banks and presidential candidates threatening to shut down shop, does this mean the end of private prisons?
Why This Matters: Banks have been funding private prisons for decades because there’s a good ROI on keeping them running, and they happily collect the interest accrued. Bank of America (BAC +0.52%) recently provided Caliburn, a detention facility operator with a $380 million loan and a $75 million credit line, but argued the company is not a prison. Meanwhile, shares of The GEO Group (GEO -0.63%) and CoreCivic (CXW -2.48%), the two largest private-prison operators dropped 17% last year but remain profitable.
SunTrust, JPMorgan Chase, Bank of America and Wells Fargo have publicly severed ties with private prison companies
Now four banks that were part of the revolving line of credit for both private prison companies have financially cut them off. SunTrust (STI +1.32%), JPMorgan Chase (JPM +0.42%), Bank of America and Wells Fargo (WFC +0.63%) have publicly severed ties. However, in the case of Bank of America they continue to operate in the gray area when it comes to Caliburn.
Everything from money transferring to telephones to data plans is operated by third-parties and can generate millions in revenue. What brings in this amount of money? Inmates and inmate labor. Incarceration statistics are puzzling with 1 in 3 Black men compared with 1 in 6 Latino men projected to spend time behind bars in their lifetime.
A little history on private prisons is they initially began as an offering to states as a cost-effective solution to public prisons. Turns out that was a lie, in fact, private prisons have been routinely scrutinized for lack of care and operational standards. Thanks to a bit of lobbying, private prisons have flourished across the country.
Situational Awareness: Private prisons operations are a lucrative business and they squeeze out every drop of federal, state, and private funding to operate while making those behind the scenes richer and richer. Thanks to the change in public perception of unjust imprisonment and desire for critical reform, this could be the end of private prisons and the prison business.