The Color of Money: Black Banks and the Racial Wealth Gap

From The Real News:

JAISAL NOOR: Welcome to The Real News Network. I’m Jaisal Noor in Baltimore. White House Chief of Staff John Kelly was widely condemned for recently saying, “The lack of compromise led to the Civil War.”

JOHN KELLY: Now it’s different today but the lack of an ability to compromise led to the Civil War.

JAISAL NOOR: Many have pointed out that since its inception, America has compromised with white supremacy by enshrining slavery into the constitution and ensuring its growth, but what’s gotten far less attention are the compromises with white supremacy that occurred both before and after the Civil War, including the failure to deliver on promise reparations for African-Americans and the premature ending of southern reconstruction. Well, our guest today is uniquely positioned to discuss this. Mehrsa Baradaran is a Professor of Law at the University of Georgia School of Law and the author of The Color of Money and How the Other Half Banks, both published by Harvard University. Thank you so much for joining us.

MEHRSA BARADARAN: Thank you so much for having me. It’s a pleasure to be here.

JAISAL NOOR: After the Civil War, there were no reparations. There was no 40 acres or a mule given to African-Americans. Instead, Black banks were funded. As you mentioned in your book, the wealth of African-Americans at the time the Emancipation Proclamation was signed in 1863 was about half a percent of America’s wealth. Today, that number has barely budged, more than a century and a half later. Can you talk about the early history of Black banks and how they were a compromise really, because the country refused to fund reparations.

MEHRSA BARADARAN: Yeah. I mean, if there’s any failure of compromise here, it was a problem for Black America that there was too much compromise. We really had, The Civil War was, it came to a head because the south refused to give up their exploitative labor extraction from the Black population and so, the Civil War tries to sort of take that away and right as it ends, that compromise comes back on the table, right, where you have Andrew Johnson and the New Republican Party saying, “You know what, okay, you can keep the exploitative labor contracts,” which turned into sharecropping and the whole concept of reconstruction, was this idea that the freed slaves who had been working the land for hundreds of years would get some share in the land.

But the problem for the south is they couldn’t give the slaves the land because they needed them to grow cotton and once they were able to own land, they would grow what most people who own land do is subsistence crops to feed themselves and their families, and the southern, sort of white supremacy, could not abide by that. They needed those cotton profits, which could only be accrued through the share cropping arrangement.

The compromise was, as James Baldwin says, “The north and the south, freeing the slaves and then delivering back up to their masters.” Once reconstruction essentially fails at Johnson’s veto and all of the land reparations, ideas and education, all the reforms that were put on the table are just thrown away. The one thing that remains is the savings bank that I write about in the book. It’s a Freedmen’s Savings Bank. This is the start of the black banking sector and it was a compromise and it was a weak one.

Freed slaves were just supposed to get land. Land, obviously, that they more than had earned, beyond earning, have worked for so long. Instead of getting that land, the republicans gave them, the republican/democrat compromise gave them this savings account. The idea was okay, we won’t give you land but you can save your money and buy the land yourself, but the problem was, the bank wasn’t actually a commercial bank. There was no loans. It was just a big savings bank, piggy bank.

So they took all the money of the freed slaves and then it was essentially looted by its white management, so white, Jay Cooke and Henry Cooke who were infamous speculators. You think of this as your investment bankers, but worse. They were gamblers and they took this money. There were no black managers. They took the money and they exploited it, speculated it away on railroad bonds and they lost it. So that was the initial compromise of reconstruction was, and the one thing that survives reconstruction is the savings bank and it was a disaster for the freed slaves.

JAISAL NOOR: One of the many things that I find fascinating in your book is you chart the relationship of some of the most prominent Black leaders of their time and their relationship to Black banks. Can you talk about the relationship of Frederick Douglass? He was a famed orator. He was a fighter against slavery. He helped convince Lincoln to make the Civil War about slavery, because before, when Lincoln ran in 1860, he was willing to let slavery exist, even make it permanent in America, but the south didn’t want it to be limited. So talk about his relationship with Black banks.

MEHRSA BARADARAN: Yeah, so Frederick Douglass is brought into the Freedmen’s Bank as it’s failing. He is the leader, the most prominent leader of the freed slaves at the time and a really activist leader and he is brought into the bank to, as slaves are losing their money, he’s brought in to shore up the trust of the bank, so to convince more of the freed men to keep their money in the bank because it’s being looted away and Frederick Douglass immediately gives $10,000 of his own money to the bank and knows immediately that it’s a disaster. That it’s failing.

So he tells congress that they need to shut down the bank and turn off its charter because otherwise more people will lose their money. Congress does do that, but Frederick Douglass has a very complicated relationship with the bank. He comes in, he understands that it’s been looted but he also sees this grand building in Washington D.C. He sees Black tellers who were former slaves who are now bank tellers.

He, himself, writes in his autobiography, “Look, I went from being slave boy to bank president,” so he understands that there’s this change in his people and that has brought about somewhat by banking and finance. He’s a reluctant sort of champion of Black banking. Reluctant in that he would’ve preferred, obviously, the land, but he also is a proponent of Black banking and he really tells the freed slaves that they need wealth before they can get any political power.

He says the way out of slavery is to get wealth and he has no idea about the obstacles that are about to be placed in the path of the free men in the acquisition of wealth, but he really says this is the most important thing, and starts a line of other Black leaders down this line. And black leaders during this era do not have a very easy role to play. I mean, you cannot be a radical black leader because there were some, and you’ll end up becoming lynched or killed or deported, as was Marcus Garvey.

So you can’t push it that far and you need the support of the white establishment and so you have these, you see these compromises of these leaders are making. Booker T. Washington is an example of that compromise that comes right after Frederick Douglass. He also pushes wealth acquisition and hard work, but for him it’s all about, just let us do our thing and we won’t ask for too much. He also pushes Black banking, a big booster of Black banks, but for him, it’s about segregation. Look, we don’t need integration, we don’t need the vote, let us earn our way into respectability and then political power.

I mean, he’s disastrously wrong, of course, because without political power, the Black community can’t even get economic fulfillment and so, he starts again. After the failure of the Freedmen’s Bank, this push toward Black banks and it’s part of Booker T. Washington’s idea of, “Look, cast down your buck, we can be segregated and take care of ourselves.” And so this idea gains momentum. Even W.E.B Du Bois who opposes this whole line of thought and he says, “No, we need integration. We need the vote.” Also supports Black-owned banks, because they don’t have integration and they don’t have the vote and it’s heavy Jim Crow. So, for people like Du Bois, there’s no other choice, so we have to have these banks.

JAISAL NOOR: And in your book, you note that many other immigrant groups had their banks, and they were integrated into American society. They were able to build wealth. You talk about how Bank of America, one of the biggest banks today, was originally the Bank of Italy. You know, Italians and other groups were able to kind of overcome the demonization that happened to every immigrant group when they came to America, and they became white and were able to build that prosperity. Why was this not available to African-Americans?

MEHRSA BARADARAN: Because African-Americans were never deemed white. Whiteness went in sync with economic power, and so insofar as you could be white, which is what the Irish and the Italians could do and the Germans and the Jews, after the new deal, got invited to be white. You know? And they got to take advantage of FHA mortgage loans and the GI bill. Those were huge bonanzas of credit and subsidies that went to create the American middle class, and they were strictly given out on racial lines.

By then, Italians and Irish were white, and they used their position of whiteness even to block Blacks from collective action power. Irish and Italians that were involved in the industry north and the unions were able to work their way into the union ranks and to make sure the Blacks were never involved in the unions. So Blacks lost their ability to even join forces in collective power.

The houses, once white happens, and through these FHA redline maps, Italians and Irish and their banks are able to integrate into the American economy where Blacks are left behind, purposefully so. I mean, the entire new deal package was a compromise with white supremacy. FDR cannot pass his New Deal, sort of democratic socialist reforms, without the southern Black in the Senate, and the southern Black in the Senate is not about to let Blacks become property owners, and economically autonomous. They needed them to stay as the labor force in the south, so they forced the new deal to have huge loopholes that exempt blacks from any protections.

JAISAL NOOR: What you’re talking about here is really one of the greatest stories that haven’t been told about the 20th century in America, the story of how the white middle class was created. It was through these FHA loans that allowed and public housing, which was available largely to white Americans. It allowed working class whites to build wealth, to get subsidized housing when there was a huge housing shortage during the Great Depression and World War II, get stable housing and then move to the suburbs, which today remain largely white and segregated. While, as you’ve noted, as white wealth was created, Black poverty and segregation was also created, specifically through government policy. As you note, Black banks were doomed to fail because they didn’t have access to the same capital that white America had. Can you talk a little bit about that as well?

MEHRSA BARADARAN: Yeah. I mean, to the extent that any American today is able to get, middle class America. I’m leaving out billionaires here and very, very poor and the bottom, but the large, even the middle, the American middle class is created through these New Deal programs. And these new deal programs were explicitly racial. So white people who were factory workers, blue collar, became middle class because they were able to own homes and go to colleges funded by federal programs. These programs were not available to Blacks explicitly. So, what that means is that your grandfather was able to get an FHA mortgage, and that creates intergenerational wealth. And because your grandfather got that FHA mortgage, your grandmother, usually the father, and then your father was able to benefit from that, which means increased access to colleges, better schools because the way our taxes work is the homeowner taxes go into the schools. So, it’s this whole cycle of privilege that starts with these New Deal programs that by the way, last well into the 1960s. Their effects are very much with us today.

So the story of the 20th century is, you know, W.E.B DuBois says this in the ’30s, but he’s much more, I think, prescient than he realized but it’s a story of the color line. And the color line is drawn by federal policy, and it’s through the FHA maps, the HOLC creates them in 1934. The FHA follows them and the maps are that we’re going to redline areas like Baltimore, like the inner city Detroit, like Harlem, like south Chicago. No mortgages are given in these areas, and the one indicator that trumps all other indicators is the race of the neighborhood. If the neighborhood has mixed race, which meant Blacks, they could not get mortgages. They were deemed to be highly risky, and so no banks would lend.

Even outside of the FHA programs, banks were using these maps. So, mortgages were not able to be given in the ghetto, and then outside of the ghetto, and I’m using the word ghetto purposefully here, because these were not Black communities that were self-selected into these areas. These were forced segregated communities. Outside of those areas, Blacks could not borrow or get loans there either because of the racial covenants. The racial covenants are put in by white homeowners associations because they know that once blacks move into their neighborhoods, their property values decline as well. So it’s very much an economic decision fueled by racism.

What this means for Black banks and for Black individuals in families and communities is that they cannot accrue wealth because wealth is fueled by mortgages. But for those who can get mortgages, that wealth is able to sort of spiral into more wealth. Once you have a home mortgage, you’re able to get a credit card, you pay less for everything. Meanwhile in the ghetto, if you’re renting, credit card issuers won’t come into the ghetto, so you’re paying installment credit for your TV, your hospital bills, your doctor. What installment credit does is it deprives communities of the little wealth that they have. Installment credit is very expensive. It’s onerous, so you know, you’ve got repo men and cops, everything just to buy a TV. And outside in the suburbs, it’s a completely different credit market that develops based on these new deal programs.

So, this is the divergence that I track that still remains with us today. This is why you see in lower income Black communities, more payday lenders. More check cashers. These are the areas where banks leave because they operate by different credit markets. What we’ve done is we’ve pooled the credit risk that should be borne by all and diversified, is just borne in the ghetto. Those areas where the redline is put around them and largely Black population within, pay more for everything. For housing, for credit, for all of it. And then outside, it’s credit that’s subsidized by the federal government, and it’s essentially very risk-free.

JAISAL NOOR: So, we know these redlining maps and extensions of that were government policy. But banks themselves are really an extension of the government. Can you talk about that as well, because that’s something that’s not commonly understood or discussed.

MEHRSA BARADARAN: Yeah. Banks are, this is my area, and this is why I came to Black banking. The first book goes into this in detail but banks and governments are very much partners. Look at what happens in 2008. The banks fail. Usually when businesses fail, they go bankrupts. But banks, because of the way that banks operate, we can’t let them go bankrupt. Why? Because they use other people’s money. They use our deposits and our investments to make money, and because they’re linked to the federal government through this monetary policy angle.

Banks essentially, Louis Brandeis says in 1934, they look like public utilities. Right? They’re not private entities. Look at where the credit is coming from. Their supply of credit comes through federal reserve policy decisions. The federal reserve is a government agency. That money is the monetary supply that is fueled by the federal government. All of the credit infrastructure on which banks rely to lend is federal policy. The loans, FHA loan guarantees, FDIC insurance is the way that keeps all of our deposits in these banks, and a whole bunch of other federal programs that shore up the banking industry. I don’t even call it a federal subsidy. It’s like calling the wheels to your car a bonus feature. Banks and governments need each other to operate. So, banks are very much public entities.

JAISAL NOOR: Going back to the historical thread we were following, you spend a lot of time in your book talking about the Civil Rights Movement and the demands for self-determination. Of course, this is happening a century after the Civil War has ended. Material conditions for African-Americans have barely improved in some and in many ways. The government has failed African-Americans. It’s sent out policy that’s destructive to African-Americans. There’s attacks on Black communities. There’s the rise of the KKK.

So, it’s totally understandable and reasonable that African-Americans would want more control and more self-determination but this idea of Black capitalism and Black banks was resurrected by none other than Richard Nixon, as you detail in your book, and sort of co-opted. Talk about the next compromise that happened, starting with the Nixon administration, but this idea of Black capitalism we’ve seen that’s continued to this day.

MEHRSA BARADARAN: Yeah. What’s happening within the ghettos is that in tandem with the Civil Rights Movement, The Civil Rights Movement, as we remember it is very much about the Birmingham bus boycott and the Selma bridge. The southern Jim Crow and the clan and Bull Connor and all this stuff. But really, there’s a lot happening across the nation.

What’s happening up north is even more important, I think, than what happens down south, because what happens down south is what we see. What happens up north is what hasn’t been covered as much. And what’s happening is these people in these communities that suffer from what I call the “Jim Crow Credit Market,” who pay more for everything, start to get very frustrated. And they understand that these Civil Rights laws that are passed, and these are monumental reforms, a wonderful sort of advancement, although all they do actually is just give Blacks the rights that they were always entitled to. Right? The Civil Rights Act and the Voting Rights Act. Blacks were always supposed to have the right to vote, or since the 15th Amendment. So yes, these things are great, but the north is essentially saying, “Hey, let’s not celebrate quite yet.” For us, it’s not about the white water fountains and the Black water fountains. We can’t even get buses to come into our neighborhoods to take us to work. We pay more for these things than everyone else, right? We’re stuck in this trap of poverty and violence and crime and all of those things that come with poverty.

What happens is these protests and riots up in the north and Congress starts, they called it the urban crisis. It’s nation-wide. Days after the civil rights laws are passed, Harlem Watts and Detroit sort of, and Baltimore really kind of just erupt in violence. These legislators are like, what’s going on? We just passed these Civil Rights reforms. And they come and they meet to talk about it, and the thing that they’re realizing is that the rioters, the protesters, are targeting these lenders. These aren’t just random acts of protest. They’re actually going for these lenders, and they’re saying burn the books. Because these are their oppressors in the north. Their oppressors are not necessarily the clan, although the clan does have a presence in the north but it’s these lenders. It’s these exploiters, as they call them.

And so, Congress meets and they say, “Okay, well, it looks like these are these white establishments. What we’re going to do is we’re going to throw in Black businesses into the ghetto.” Because, and this comes from Richard Nixon. Richard Nixon is unwilling to push anything on the civil rights agenda. He is very clear. He says, “I have nothing to gain by working with these Black leaders.” His whole platform relies on the southern strategy, which is that he has to get southern racist white supremacists onto the Republican ticket, and he does this very successfully. And part of what we already talk about is his law and order dog whistling that he does. But the other part that we don’t talk about that I try to highlight in the book is this “Black capitalism.

Black capitalism essentially means to Nixon, look, yes, for centuries, whites have been getting all of these state subsidies. But for Blacks, once Blacks are saying, “Hey, we want a cut too, we want the same deal,” he says, “Okay, go to the free markets. Best of luck.” So, no programs, no welfare, no even poverty reforms. It’s all about capitalism, and what he means is you just start your own businesses in the city, right? Even as we have this different credit market, he’s saying, “Okay, we’ll put Black businesses in it.” He doesn’t even mean it that much. This is when affirmative action comes out, so he says, “Okay, we’ll just throw a few contracts here and there, and give a few loans to black businesses.” But it’s never robust. He doesn’t care about it. And really, it’s about his commerce department had Maurice Stans. There are some people in the administration who think this is a real program and they try to push these reforms, and he kind of shoots it down and says, “Look, just come up with some good success stories. That’s all people need. It’s about hope in business. It’s not really actually meant to benefit.”

Then this whole, the program just sort of morphs out of control after this era, is now encompasses all sorts of minority programs and female-owned businesses, and it started very much as a response to wealth and equality, and the discontent that segregation was wrought. And now it’s very much about, we’ll have Black businesses and Native American businesses and women businesses, and this will help with us in diversity and representation. It’s not longer about the wealth gap.

JAISAL NOOR: You also chart how the ideas and policies you talked about under Nixon are continued through today, the Obama administration, the Trump administration, even, and a lot of local, on a local level as well, in cities that are controlled by Democrats. Can you talk about that as well?

MEHRSA BARADARAN: Yeah. After Nixon, it is so, this Black capitalism idea is so politically successful that Ford, Carter, Reagan, Clinton, Obama, Trump, all kind of tout these minority businesses. But it changes over time. At first, it’s very much about Black businesses. The whole program was meant to address segregation, and it was meant as a response to Black civil rights protests, and then Ronald Reagan kind of waters it down. For Ronald Reagan, his whole civil rights agenda, for him, civil rights is about cutting taxes and bolstering the free market. He says, “Look, I’m fighting for civil rights. What I’m going to do is lower your taxes.” Then Carter and other, Clinton and others, once the Supreme Court says, look, this is this total amnesia. The Supreme Court decides in 1978 on the affirmative action program. He said they uphold affirmative action in this case, the Bakke case, but they say it’s only for diversity. Right? Affirmative action is only allowed in education if just to benefit all students. Essentially what we’re saying is, “Oh, white students would benefit from a sprinkling and smattering of other diverse faces.” So, that becomes the justification for affirmative action.

And then in 1989, the Richmond case, the Supreme Court says, “You can’t favor any Black business, because that’s unfair to white businesses.” So, the program that Nixon drafts in the first place just falls apart at that era. Then we come up with this sort of colorblind myth, right? The only sentence of Martin Luther King’s entire span of civil rights mobilization is you shouldn’t judge people by the color of their skin, by the content of their character, which is this myth of colorblindness. By the way, Martin Luther King never believed that, right? Martin Luther King was very much about reparations and bringing Blacks up to the place where whites had been through active programs.

Anyway, so this becomes the ideology of affirmative action as soon as Black capitalism programs becomes community enterprise or minority enterprise, and Clinton takes this up big time, and this is his agenda for poverty, is micro-credit and Black banks and these things called CDFIs, Community Development Financial Institutions. There’s a lot of very good people, a lot of people still today that do this work and it’s excellent work, and I don’t think there’s anything wrong with these community organizations. They’re way better than the other ones. But it’s a very watered down response to what it started as.

This is where you get this amnesia, where the court says, “Look, affirmative action and Black capitalism is about diversity.” Thurgood Marshall writes this really great dissent in that case saying, “You’ve forgotten. What you’re saying is that the government can no longer act to take care of past discrimination.” So, you’re saying for centuries, Blacks have been exempted, not allowed to contribute and gain from the economy, right? Blacks, through Jim Crow, through segregation and through various means of discrimination, Blacks have not been able to enjoy the fruits of capitalism.” And the government essentially throws up its hands and says, “There’s nothing we’re going to do about that, and now it’s all about free market and you have to do it yourself and you can’t be benefited by the color of your skin because that’s discriminatory toward white.”

So, it really gets convoluted, even to today. I mean, Trump last week calls October 24th, whatever last week was, Minority Enterprise Week. You know? This was the least controversial thing that this very controversial president does and essentially, what does he promise minority businesses is tax cuts, or the, not even tax cuts for small businesses, but the death tax, which is the estate tax, which applies to people who have a state of more than five million dollars on their death. It’s fair to say that this doesn’t affect a lot of Black communities. You know? But this is what we’re giving to Black communities. Even Obama, I think this was his whole push, was Black capitalism in what we call in different words now is community enterprise, blah blah blah.

JAISAL NOOR: So, we’re at this moment now, some 150 years later, where we’re again having these conversations about white supremacy. We’re talking about the Civil War. You know? We’re talking about FHA loans that weren’t available to African-Americans, to the white wealth creating for white America that was denied to Black America. The poverty and segregation that was inflicted upon Black America. In your analysis, where do we go from here?

MEHRSA BARADARAN: You know, I think, so on the one hand, it’s really depressing that we should be having these really high-level conversations about how to close the wealth gap and what we’re saying in 2017 is that the clan is not good and Nazis are not good. So, I think in a way, we’ve moved backwards. But in another way, that could be seen as a positive development, is that this colorblind post-race myth that Nixon and Reagan and Clinton peddled, that’s fallen apart. We are not a colorblind society. We have never been. We are not post-race. We have never been.

So, the lie is, I think, coming to the surface now, where you have a president whose agenda is based on white supremacy and his constituents are very vocal about that. You know? The difference being that now people are talking about it, where before, of course we were premised on white supremacy. It just, we were softer about it and we didn’t say, we used different words to say the same things. And now we’re just calling it what it is. And I think that if we can capitalize on that, if we can say, “Look, this is white supremacy.” Then maybe we can move forward and say, “Okay, we all are opposed to this. The majority of us do not want to be part of a system that does this.” You know? And that Trump, the whole motivating force of the Republican party essentially started with and continues to be opposed to Black rights and opposed to autonomy and part of it is about this lie about capitalism, which I try to get to in the book, is that we lie to ourselves that we have this capitalist economy, but we don’t. Our economy is very much a public private enterprise. The government has very much subsidized white wealth. They just haven’t done it with Black wealth. A lot of times you see this opposition to any programs that benefit minorities as anti-capitalist, but it’s a lie.

JAISAL NOOR: All right. We want to thank you so much for joining us, Mehrsa Baradaran. Her new book is the Color of Money and her most other recent book is How the Other Half Banks. Thank you so much for joining us on this-

MEHRSA BARADARAN: Thank you so much for having me.

JAISAL NOOR: … extended conversation and you can watch this full interview at We’re going to break it up into a few parts. Just go to for the full interview. Thank you so much for watching.

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