Mehrsa Baradaran talking:
so blacks came as a labor, but they were also capital. I mean they were owned and they were sort of liquid property. Right? You could have a, I call the slave-backed securities. They were collateral for loans, they were used, they were bought and then they were, you could get credit on your slaves. So, this was, you know, this was property like we dealt with any kind of property. And they built tremendous fortunes for those who own the slaves. And so not only could you extract the labor, but you could also use it as, you know, anyone would accrue wealth, sort of intergenerational wealth, you would pass it on to your children and you would have this asset that would accrue.
Even after the Civil War you have a system set up, you know, through convict-leasing, through sharecropping, through the black codes, all sorts of you know Jim Crow-era laws. Pre-Jim Crow, through Jim Crow, to extract labor from blacks without giving them rights, and especially without giving them the ability to own capital, to own property.
Because if blacks are, you know, they own property and they own capital, then they become self-sufficient and become, you know, they can have self-determination in their communities and you can’t extract the labor. So, a lot of the law of the legal codes of the South and then the North were built on this idea of keeping blacks as labor.
Reconstruction is, you know, we freed the slaves and now, you know, they need to be integrated into the American capitalist society. And it was very much about, you know, land, really. I mean the premise was that you worked and there’s just been this huge injustice and now we’re going to give them land they can cultivate themselves and plant and be self-sufficient.
So, Reconstruction was, you know, there was a Freedmen’s Bureau, there was a job training, there was, you know, schools and all of that. And, and it was you know violently overthrown by the South. It was, you know, first through just you know lynch mobs and things like that and then through politics you know that white supremacists got control of the state houses and you know you would get lynched for being a Republican, for voting Republican in the South.
And the question of land was what really divided and radicalized the southern terrorist, I guess you’d call them, right? Who overthrew this new institution, so Reconstruction was meant to encompass a bunch of these different things. What ended up happening, Johnson vetoes it. Andrew Johnson, and the one thing that he doesn’t veto is the Freedman Savings Bank. That remains and this is the story that I start the book off with.
The Freeman Savings Bank was this philanthropic, charitable venture. It was supposed to be, you know, instead of getting land, we’ll give you a savings account. I mean they weren’t getting paid fair wages, but you work and save up your money and you’ll buy land yourself. And what happens is you’ve got this huge pool of capital and the freed slaves really were attracted to this bank because they assumed that it was backed by the full faith and credit of the federal government. And the reason assumed it was because the bank notes came with the flag draped all over them, and Abraham Lincoln signed it into law, the bank was created by Congress and the stated purpose of it was to safeguard the deposits of the Freedmen.
And, and so they brought in these deposits, and then it was this big pool of capital the owners were white, that managers and there was a broad railroad speculation happening. Henry Cook was the manager of the bank, of the deposits and he, his cousin, Jake Cook was a railroad speculator. And so, he put all the money, the deposits into railroad bonds. And they were all lost.
So, half the deposits were lost and as the bank is sort of you know fumbling, they bring in Frederick Douglas to save the bank and restore morale and get the freed slaves to keep their deposits in the bank. And Frederick Douglas lends the bank tens of thousand dollars of his own money. And he’s like, “No, something’s wrong here.” Right? And so, he tells Congress — he’s not a banker, right, Frederick Douglass — he tells Congress, “You’ve got to shut it down. So that we can save what deposits we can.”
Congress shuts it down. No one’s ever prosecuted. I mean there’s a huge financial theft, looting, really, of these savings funds and it never goes prosecuted.
Freedman’s Bank. It was hundreds of thousands of free slaves. I mean it was millions of dollars. In today’s money, I think is something like $1.5 billion dollars of money. And this is — imagine how hard it was to get that savings at the time and so you know it really sows distrust of institutions, of banks. But it also, you know, through the propaganda campaign, sows the seeds of banking in the black community
So it’s not — you know, within the decade, blacks are like, “Hey forget, forget the federal government. No one’s going to help us. We’re going to help ourselves.” And so, these other black banks start popping up during the Jim Crow era, usually you know linked to a church or fraternal society. Some, you know, social or cultural or religious organization the black community that is developed to meet the needs of the freed slaves. And so, a huge slew of black banks are created during this era and that shifts the focus of the community inwards.
And this is, the, you know, the height of black banking then is after that Great Migration. You know, 1910, 6 million blacks move from the South to the North, they move into the cities, and they’re segregated immediately. Right? So, they say, you know, welcome to New York. Go to Harlem and stay put. You know, through violence and then through zoning and through racial covenants and all sorts of stuff there.
And that is also another blossoming of black-owned banks, because, you know, these are vibrant communities, at least before the Great Depression, they’re making tons of money and so they need a place to put them. And so, there’s hundreds of black banks formed during this time. And the Great Depression wipes those all out.
– crash in the early part of the 1900s
they say, you know, when Wall Street catches a cold, Harlem gets pneumonia. And essentially, it is that. Because these communities are segregated and there’s concentrated poverty. And so, when you have concentrated poverty and the shot goes through the system, it is felt much more acutely.
So, you know during the era of heavy crashes, black banks are, of course, failing much more so than white banks.
Because they’re, it’s not that technical but a little bit. So, the banks have liabilities that are deposits and they have assets that are loans and then they participate in this money multiplier effect. So, you know, in order to have a good healthy bank, you have really good assets, pretty good deposits. And so, the way black banks, the reason why they’re so much weaker than white banks is because of the concentrated poverty of the community. Their liabilities, their deposits are small and they’re volatile.
So, if someone is poor, they only have a couple hundred dollars to put in a bank. That is good for the person, they can save it. But for the bank, that’s costly. For a bank to be run with a bunch of small deposits, they have to hold a lot more in reserves. That means they can lend less, that means they’re more likely to be run. So, black banks are, you know, there’s more runs on black banks. There are more failures.
And then, on the asset side, you lend on a home. And so, the way that this, you know, to be profitable is, you want to lend a lot. Black banks can’t lend a lot because of that deposit weakness, but they also, when they do lend on a black property, black properties historically, even to today don’t rise in value because they are black properties. Right? People, once a neighborhood sort of flips into becoming a black neighborhood, those houses decline. So, the first few families that buy into a white neighborhood have to pay premium, the black families, and then their house declines.
And so, these banks are holding these loans that are frozen on their balance sheets and they’re underwater, essentially. So, they can never offload them. So, black banks become almost like a sieve through which the money leaves the community, so they can’t hold this money. And that was the premise of the whole system.
But, you know, as I say in the book: you can segregate people, you can’t segregate their money. And, so, you know, really becomes frustrating for these institutions, they cannot make a profit.
Booker T. Washington was like, “We will get wealthy and we get respectable and then we will get political power.” We don’t need to vote, you know, you don’t need to give us anything, just, you know, blacks are going to do this ourselves and then we will achieve the status and then you will accept us.
That never happened. So, he has kind of a naive sense, in a way, of doing this but he’s also the leader that’s chosen by these capitalists? Carnegie, Rockefeller, they fund his organization the Tuskegee Institute so I don’t think he is a cynical person. I think he actually — I have read his biography, his autobiography. Where he, I think does, is very optimistic and very naive about what it is. But also — he is the leader that the South could tolerate at the time. I am sure there were other leaders pushing for other stuff that never made it to a pulpit, right?
He’s the leader that gets selected to you know bring voice, but I think this whole theory that you know we will get economic power first and then political power, that remains through other leaders and the thing that I’m saying in this book is you can’t get economic power without political power. Because the way that wealth is created in America is through policy, is through credit, usually, that the government insures and passes out, through these laws. So, I think there is this misunderstanding.
this is especially becomes true post-New Deal. So, post-New Deal. In this century, the 20th Century, to the extent that any one in the middle class or blue collar class — right, whatever we’re calling that now — gained intergenerational wealth, it was through the FHA through the VA through the GI bill. Those institutions, those credit policies were created post-New Deal. They undergirded the American middle class. They ensured mortgages. You got student loans from it. All of this stuff. And it only went to whites.
After those New Deal-era things are created, white banks blossom. I mean the golden era of American banking is from 1934 to 1970. You had hundreds of thousands of new banks created to peddle these FHA mortgages. I mean there were, your loans were risk-free, because FHA was guaranteeing them. These suburbs were being built. There’s, you know, wide economic prosperity, except when one looks at the ghetto: where these loans didn’t go. So, you have two credit systems that diverged drastically during this time.
And it’s not just home loans, it’s not that the blacks in the ghetto, not only can they not buy in the ghetto because the redlined maps, the FHA says you may not lend to into the ghetto and get these this insurance, but they can’t move out because our racial covenants.
And, so you’re putting people, you know, locking them up. And I call it ghetto because it, you know, it’s not a black community. They didn’t choose that place; it was chosen for them. And then, within that community, there’s a different credit market. So, whites are now with the home loans, we have credit cards. Revolving credit, low-risk, low-interest essentially.
And blacks are still on installment credit, installment credit is incredibly costly. It comes with, you know, repo men and cops, so you’re getting your refrigerator and you’ve got to pay monthly and you’re paying way more for that refrigerator than someone who buys it on credit in the white suburbs will pay for it. Right? And then you have to deal with like, it getting collected and the hustle that’s going on around that. And so, this builds and the tension is — comes to a boiling point during, after the civil rights laws. And this is what’s — what’s a real sort of ironic was after 1964, 1965, and you know, these big monumental civil rights laws are passed, you have urban rioting, Congress meets to discuss what’s happening, and one of the things that they come up with is, well, that they realize as they’re looking at the rioting and the testimony, is that these protesters were going after the lenders. And they were saying things like, “Burn the books.” Right? They would go to their lenders, who were, they saw them as their exploiters. These were the oppressors, right? Everything I’m buying is through these loans and it was an oppressive debt. And so, they’re going at these stores.
The other thing they realized is they’re leaving out black businesses. So, they’re not, you know rioting and looting there. And so, the response, the legislative, sort of, policy response is: let’s just throw more black businesses into the ghetto, that’ll be the solution.
Let’s have black banks lend because black banks surely won’t exploit. Right? But the point is that there is a different credit market and it was created by federal policy.
the same circumstances that create the need for these banks which is segregation, racism, and concentrated poverty, that’s why we have black banks. Those same forces cripple these banks. Right? These banks cannot overcome these forces because banks, it’s a misunderstanding of what banks do for us to expect them to create this wealth.
Now, banks do create wealth. Right? But you need that money multiplier to work and this is what Hamilton understood early on, is banks and the government work together. And he calls, you know, banks allow silver and gold, which was that money at the time, to acquire life. Right? So, banks do, you know, augment money and he talks about that, and that is true, but it doesn’t work in a segregated economy.
And I contrast this with the Italians and so, I get this, well, why did it work for Italian banks and Jewish banks and German banks? And it only worked for them once they became white. You know Italians assimilated first, and then their banks came.
So, one example is the Bank of Italy. The Bank of Italy starts in San Francisco and it’s lending to talents who are also discriminated against and somewhat segregated, never to the extent of blacks, blacks were the most segregated population, historically. But they then get FHA loans and GI Bills, right? The Italians become white for the sake of credit, which is all that matters in my opinion, right?
They become white and the Bank of Italy branches all across California and Bank of Italy becomes Bank of America, the biggest sort of bank in the country. That starts out as an Italian bank. And so, you know, I use that as an example of, “Sure, you can do it. But first you need that credit and Bank of Italy expands through the FHA consumer credit market, which is enabled by this policy.” It’s only post-New Deal that any of these immigrant groups have a chance.
To me, the most interesting part of the research was what happened with the Nixon era. And so, Nixon is the one who adopts the black banking framework and institutionalizes it into the federal government. So, back to the riots, right? You’ve got riots, you’ve got real violence, and then you started to get a white backlash to civil rights where whites are now saying, “That’s enough. We’ve done enough. You’re on your own.”
And then there’s, you know, some communism abroad and so we’re fighting that. Nixon rides this white backlash into office and there are two proposals on the table, right? The civil rights leaders are saying integrate or give reparations. And a lot of the leaders are saying, “Give us reparations. Like, we will just do it ourselves.” And reparations is — I’m using broadly, to say either capital or some way to just infuse capital or credit into the black community.
you’ve got Martin Luther King and Carmichael and others saying: “This is white welfare that’s been happening, and we need to remedy this.” So, that there is that conversation happening.
And Nixon even backs an initial plan that would include, actually, federally funded financial institutions in the ghetto. And Nixon backs that as a candidate, and then, so he’s got to decide: what does he do? He’s not about to propose integration because he’s got the Southern strategy, and the South is, just, there’s no way.
Nixon links his civil rights agenda to the black power cause. He said, “Aspects of black power are very disturbing to us, because it means revolution, it means violence. But other aspects of black power are very constructive, because it means that black people, they want to stand on their own feet. That they want to have black banks, and not just go to white banks. They want to have black businesses and now just go to the white businesses.”
What he means is: You own the problem now. We’re going to do anything for you. So, when he means, like, black ownership, he means ownership of the poverty.
And so, he really comes into power with black capitalism as his, you know, institution, so he creates this government apparatus. And he’s half-hearted about this. I mean George Romney is his HUD adviser. I think this is a story that needs to be told about what happens to the GOP from George to Mitt.
Governor in Michigan and becomes Nixon’s HUD advisor, head of HUD. Housing and Urban Development.
And Johnson, right before leaving office, like days after Martin Luther King’s death has been trying to put in this housing bill. Right? To equalize housing and to allow for integration. 1968, his parting sort of gift gets this bill passed, so there’s this window, where we could really have, you know, equal housing and George Romney is pushing this. So, he tries to do this open communities thing in Warren, Michigan, where we’re going to put black projects in white communities, so we can integrate. We can have schools that are sharing resources, we can have community resources that are the same. And Nixon pushes him out. I mean Nixon, you see these memos, and he’s like, “Stop this guy. Right?” Like, just get him out.
And he tries to get him to resign several times and so once he’s out, no other HUD administrator has had an integration plan since Romney. So, that’s off the table.
Then we have reparations, that’s off the table. And so, what they give is black capitalism and what this essentially means is they create the Office of Minority Business Enterprise, all these little agencies, and really what it turns out is they just want stories of successful businesses.
And in within the black community, there’s also this business revival as well.
– And that’s also rooted in the mythology, I mean Horatio Alger, but also the mythology of the around, surrounding Booker T. Washington’s ideas too.
one critic at this times, Andrew Brimmer, Andrew Brimmer is the first black Federal Reserve chairperson. He’s an economist, very smart guy, Harvard educated, son of a sharecropper. And he calls black capitalism “snake oil” he says this is a hoax, don’t fall for it. You, know he’s not heeded. Nobody has heard of Andrew Brimmer, probably because he’s just not, doesn’t become this black leader. Right? But he’s an economist. He knows how banks work. And he tries to spell it out: this is not going to work. Right?
And Nixon’s half-hearted about it anyway. But by the time.
He writes in Ebony. You know, he goes to the black community. He also tells Congress. He tries really hard to do this. But it’s sort of out of their hands by this point. By the end of the decade, no one wants to push civil rights any longer. And then so this black capitalism framework lasts, and it is, you know, the SBA loans, it’s, affirmative action comes out of black capitalism and Nixon, money to the black banks, this whole structure that he creates.
And then something odd happens to it. It becomes about — it starts as a remedy to poverty, to this unequal system to segregation. It starts as a response to these ghetto riots. And it becomes about diversity. So, it quickly gets watered down into this colorblind, you know, myth that we’ve been living. We rewrote quickly the history of Martin Luther King and the one, sort of, sentence we took out of the speech was, “I have a dream that you can’t judge me by the color of my skin.”
So now you have John Roberts in 2004 saying the way to stop discriminating based on race is to stop discriminating based on race. In other words, don’t worry about people’s race. Like, we don’t care anymore. We don’t see it. So, then this black capitalism framework turns into minority businesses, and female-owned businesses, and now we’ve got this infrastructure and it still lives on. Right?
Clinton bolsters this. Obama bolsters this. Trump! His new deal with black America: credit to black businesses. So, it’s the same framework: no integration, no reparations, you know, a nice soft response about Martin Luther King. Every president has done this, including Trump. “Oh, Martin Luther King’s a great guy. Frederick Douglass, he’s starting to be noticed more and more, blah blah blah.”
So, you know, pat the old leaders on the head, and do this black business framework. And so, we have this infrastructure now and black banks get you know technical assistance from their regulators. And, and really what started out as a response to economic inequality and poverty has become this, “We need representation and we need, you know, black banks and women banks and Asian banks.” And not to say that we don’t, we certainly do. But it got, the message got watered down. And the way we talk about it now is not the way it was talked about initially.
something like a third of black families are negative wealth, so no wealth at all. Whites on average, 13 times the amount of wealth. I mean some have even 20 times, I’m being conservative here.
The most staggering statistic is after the Emancipation Proclamation is signed, blacks own .5 percent of the nation’s wealth. This is obvious, right? They were capital and they can’t own it now. Today it’s like 1.5, 2 percent. So there really hasn’t been that much progress. But that makes sense if you understand how other people make wealth.
And the way any of us have wealth is through property. Property ownership that is appreciated and then we can then build that into stock ownership. And yes, income, but income also is related to wealth. So, I think it’s stems from wealth if you grow up in a wealthy community, you can go to a good school, you can go to a good college you can make a good income. If you grow up in a community where the schools are crap, you have no social capital, you don’t know people who know people who have jobs. Right?
All of that stuff is interrelated: crime, debt collection, prison, bail. All of that stuff gets entangled in this lack of wealth. Blacks are four times more likely to get sued for debt, right? They’re more likely than whites to get pushed into this awful bankruptcy regime that is not the more debtor friendly one. There’s all of these statistics and I’m trying to get at the root of it. The root of it is they they’ve never had this buffer of wealth. This buffer of wealth, and we don’t think about it because it is that. It’s a buffer, you don’t face it. But at the end of the day, like, you go to your mom’s house, you can get, get ten thousand dollars from a relative.
And the thing with being in a community of poor people from generations of poor people is you don’t have that. You don’t even have that person that you can call for a couple thousand dollars to get you out of a bind. So where do you go? You get a payday loan. And what does that do? That deprives the wealth that you already — whatever little wealth you had, right?
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Mehrsa Baradaran is the author of the new book, “The Color of Money: Black Banks and the Racial Wealth Gap.” She’s a professor of law at the University of Georgia.
— source theintercept.com 2017-11-02