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

BLACK BANKS AND THE RACIAL WEALTH GAP

MEHRSA RARADARAN

THE COLOR OF MONEY

Black Banks and the Racial Wealth Gap

Mehrsa Baradaran

The Belknap Press of Harvard University Press Cambridge, Massachusetts London, England 2017

Copyright 2017 by the President and Fellows of Harvard College All rights reserved

Printed in the United States of America First printing

Library of Congress Cataloging-in-Publication Data Names: Baradaran, Mehrsa, 1978- author.

Title: The color of money : black banks and the racial wealth gap / Mehrsa Baradaran. Description: Cambridge, Massachusetts : The Belknap Press of Harvard University Press, 2017. | Includes bibliographical references and index. Identifiers: LCCN 2017011011 | ISBN 9780674970953 (cloth)

Subjects: LCSH: African AmericansEconomic conditions. | African American banksHistory. | Discrimination in bankingUnited StatesHistory. | African AmericansFinance. | WealthUnited StatesHistory.

Classification: LCC E185.8 .B24 2017 | DDC 330.9/008996073dc23 LC record available at https://lccn.loc.gov/2017011011

Jacket design by Tim Jones

Photograph: The Dunbar National Bank Building in Harlem, New York City circa 1925, by General Photographic Agency / Hulton Archive / Getty Images

To be a poor man is hard, but to be a poor race in a land of dollars is the very bottom of hardships.

W. E. B. Du Bois

THE COLOR OF MONEY

All too often when there is mass unemployment in the black community, its referred to as a social problem, and when there is mass unemployment in the white community, its referred to as a depression," said Martin Luther King in 1968. But there is no basic difference. The fact is, that the Negro faces a literal depression all over the U.S."1 Today, across every socioeconomic level, blacks have significantly less wealth than whites.2 Over a third of black fa mili es have either negative wealth or no assets at all.3 The 2008 financial crisis devoured more than half the wealth of the black community, proving once again the adage that when Wall Street catches a cold, Harlem gets pneumonia." To the extent that media and politicians focus on the racial divide, it is through its most urgent and salient features such as police shootings, burning cities, white supremacists, crime, and violence. Underneath it all is a deep and growing financial fault line between black and white. Though hard to detect, it is nonetheless the defining feature of Americas racial divide because it is intimately linked to so many other problems. The wealth gap is where historic injustice breeds present suffering.

This book tells the story of how the wealth gap was created, maintained, and perpetuated. To tell the story, this book lifts the hood on the engines that the black community has used to fight this gap for generationsblack banks. Banks are the drivers of wealth creation for any society, and banking policy is integrally tied up with politics and powerand yet scholars have all but ignored the black banking industrys unique role in black wealth development. What this history reveals is that black and white Americans have had a separate and unequal system of banking and credit. However, for over a century, black communities have been urged by black and white leaders to rely on these segregated black banks in order to reach individual and community prosperity. What comes into stark focus as we study these banks over time is the tangible barrier to prosperity presented by segregation, racism, and government credit policy. The effects of these forces on black banks demonstrate that successful banking and wealth accumulation would remain perpetually elusive in a segregated economy. Housing segregation, racism, and Jim Crow credit policies create an inescapable economic trap for black communities and their banks. Black banking has been an anemic response to racial inequality that has yielded virtually nothing in closing the wealth gap.

Despite these grim economic realities, each of the following leaders has championed black banking: Frederick Douglass, Booker T. Washington, President Lincoln, W. E. B. Du Bois, Marcus Garvey, Carter Woodson, Martin Luther King, Malcolm X, Jesse Jackson, the Black Panthers, President Johnson, President Nixon, Alan Greenspan, President Carter, President Reagan, President Clinton, and President Obama among others. On issues of race, there is likely little else that these leaders would have agreed on. Black-owned banks represented something different to each of them, but to all they held the promise that a successful black bank would lead to prosperity for blacks regardless of external circumstances.

Pushed outside the main arteries of American commerce, the black community turned inward and created its own institutions. The first black banks were formed less than a decade after slavery ended, in the hostile climate of racism and Jim Crow segregation. Most blacks could not save or borrow at white-owned banks, so they established their own. The creation of the black ghettos led to a surge in black banks in northern cities. As black bankers rose to the challenges of banking in a segregated economy, the community celebrated each hard-won success.

These banks were created to respond to racial hostility, but in spite of and because of this, they came to signify racial pride, black unity, and protest. For Booker T. Washington, black banking was salvation itself; he said it was by owning a home and bank account that the black man would eventually find his way to the enjoyment of all his rights.4 To Washington, money had no color and it was the only path toward racial equality.

Likewise, black banks galvanized the black community during the civil rights struggle. In 1968, Martin Luther King exhorted the black community to take your money out of the banks downtown and deposit your money in [a black-owned bank]. We want a bank-in movement.5 To black nationalists, black banking was a necessary step toward asserting independence from white society. Why should white people be running the banks of our community?" asked Malcolm X. Black banking became a symbol of resistance, black power, defiant self-determination, and active resistance to white racism.6

Black economic power and autonomy had a natural appeal in the face of segregation and racism, but also constitute a political diversion and a proxy for more meaningful reform. President Nixon threw his weight behind black banking so that he could oppose controversial desegregation programs and woo white moderates and conservatives unwilling to push any further on racial reforms. Presidential candidate Nixons civil rights platform was centered on black capitalism." He urged more black ownership, black pride... and yes, black power."7 The deceptively vague formula of black capitalism was a neutralizing racial detente amid an unprecedented and violent black insurgency and a hostile white backlash. Nixon co-opted the rhetoric of the radical black power movement to create a path through a political quagmire that would disarm black radicals and the white base on which his southern strategy relied. But what he meant by black capitalism was a cheap knockoff of white capitalism.

So politically successful was the promise of black capitalism that every administration since President Nixon has adopted it in one form or another. Presidents Carter, Reagan, Clinton, Bush, and Obama disagreed about many things, but they each sought to promote black banks and businesses through programs called community capitalism," enterprise zones," or minority enterprise." President Reagan called black business and black banking the key to black economic progress."8 Bill Clinton even created robust legislation to promote community empowerment" through bankingan infrastructure that Presidents Bush and Obama bolstered and maintained. President Trump has made promises along similar lines. Instead of meaningful financial support, the urban ghetto would get bankers.