Police in Uvalde, Texas, have falsely blamed a teacher for not properly shutting a door through which Salvador Ramos entered the school with an assault rifle, killing 19 children and two teachers. In fact, the teacher shut the door, but did not realize it could only be locked from the outside; it also turns out the door to the classroom the shooter entered was unlocked.

Still, while the national spotlight is on law enforcement, there’s another financial story unfolding just as nefarious—if not more so. Indeed, if we follow the money, the assault rifle and the door share a common denominator: private banks and their thirst for municipal bonds in Texas—something the state’s Republicans have used to force banks to keep the credit flowing to gun manufacturers.

Bonds Are Mostly for Education

In its quarterly report on municipal bond issuance in the United States, the Securities Industry and Financial Markets Association (SIFMA) shows that bonds for education edged out every other category to become the top type of issuance. Three of every ten bonds issued on the municipal bond market have to do with education, just above the capacious category of “general purpose,” and double those issued for transportation, utilities, housing, health care, and electricity.

This by itself is astounding. When local governments take out loans, they do it mostly for educational purposes. Conversely, to educate, the U.S. relies heavily on debt, and more heavily than any other municipal provision.

But there are several other implications. First, this is a big market, and investors are making big profits lending to educational institutions—which are then largely untaxed in most jurisdictions. Circling around the investor is a whole business ecosystem: lawyers, consultants, ratings agencies, insurance companies, and depository companies pocketing fees. Biggest of all are the private banks that go between the investors and educational institutions, charging very high fees for the service.

Sticking to Their Guns

What does this have to do with the shooting in Uvalde? Here’s how it works. First, Texas has the second-largest municipal bond market in the country, losing out only to California, with $50.2 billion worth of municipal bond deals happening there every year. The Municipal Securities Rulemaking Board (MSRB) has a great map showing the size of each state’s market. There’s a lot of business to be done in Texas, which gets the bankers’ mouths watering.

Second, if almost 30 percent of municipal bonds in the U.S. are for education, and Texas has the second-largest municipal bond market, we can infer that a good chunk of that market in Texas is for education bonds.

We also know that Texas is a gun-crazy state and its governor, Greg Abbott, is firmly in the gun industry’s pocket. So, in principle, if the banks cared about gun control and preventing school shootings, this particular opportunity wouldn’t tempt them. They’d say to themselves, “We know there’s money to be made in Texas municipal bonds, but we want fewer school shootings, so we’ll stick to our guns and not do business there.” In fact, some banks did make these kinds of statements after the Parkland school shooting. Bank of America said it wouldn’t finance Remington if it kept producing assault rifles for sale on the mass market. Jamie Dimon, CEO of JPMorgan, was fond of decrying mass shootings publicly too.

The same financial industry that makes money on loan deals for school districts also makes money doing deals for the gun industry.

If banks actually did conduct a thorough boycott of the gun industry, it would matter. Even profitable industries need access to bank credit sooner or later—to pay for a new factory or a big supplier expense, or to paper over a bad turn in sales, and so on. If gun companies were locked out of credit sources, they would be forced to cut back on sales or even go out of business entirely. If there were fewer gun sales, there would certainly be fewer shootings on the margin. And in fact this did happen at least to some degree. In 2019, Guns Down America put out a scorecard called Is Your Bank Loaded? rating how strong certain banks are when it comes to the gun industry. The best bank on the list is Citi, which got a B. While most others got Cs and Fs, it could have been worse, and Citi is one of the biggest banks in the world. If this had been sustained for years, it might have seriously bitten into the gun business.

However, Texas fought back by passing a law in 2021 that blocks banks from doing business with state and local governments if the bank “discriminates” against the gun industry. The law favors banks that do business with gun firms—and it worked. Citi, the second-largest municipal bond issuer in the U.S., is now ninth in Texas, and still falling. The New York Times recently reported that part of this law requires banks to make official statements declaring that they don’t discriminate against guns. Banks had to get on their knees and apologize, kissing the gun industry’s ring, to get in good with Texas’s municipal bond market.

First, JPMorgan sent a letter saying they do business with gun firms. Then so did Citi, issuing a statement that it did not “have a practice, policy, guidance, or directive that discriminates against a firearm entity or firearm trade association.” The Times puts it plainly: “The stakes are high for big banks. If a bank states that it is in compliance with the law and is found to be otherwise, it could face criminal prosecution. It could also be shut out of the state’s giant municipal bond market … Texas generated $315 million in fees last year alone for financial firms.”

Loaded

Texas has thus created a truly appalling set of financial incentives. Just a few years ago, the Uvalde school district spent $69,000 on security upgrades—from a state grant, but no doubt many similar upgrades are financed through debt. The same financial industry that makes money on loan deals for school districts also makes money doing deals for the gun industry. They make money lending to school districts to install security upgrades that manifestly do little or nothing to prevent mass shootings, and then make more money lending to the companies that make AR-15s, the weapon of choice for mass murderers of children.

It’s not just the same money—since the banks are the common denominator here, these flows are dependent on each other. If schools didn’t need private credit markets for facilities, banks might be considerably more willing to stop financing the gun industry, which after all is not very big. Conversely, if school districts like Uvalde just got public financing for their facilities, then banks couldn’t chase after the profits to be had in Texas school bonds. Given the size of Texas’s municipal bond market, and the proportion of bonds that go to education, then public credit for public schools might go some way toward neutralizing that law punishing banks for limiting credit to the gun industry. If there weren’t so many bond deals in Texas, Citi wouldn’t throw its principles away and give up its pursuit of gun control.

If Uvalde didn’t need to pay for that door with private credit, the assault rifle company might not have gotten the financing to make and sell the assault rifle to Ramos. But everyone’s got to be loaded in the U.S., and the shootings keep happening.