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Around the turn of the 20th century, Irish street gangs ran wild in New York City. Extortion was one of the primary means of making money for these gangs. Every year, each gang would throw an elaborate ball (as in social dance). Each gang would try to outdo the other gangs. Naturally, these celebrations made a lot of noise or 'racket.' From that, the term became synonymous with extortion and other similar crimes.
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