At the end of the Civil War, there were close to $200,000 in military banks of unclaimed funds from Black soldiers who had died during the war. John W. Alvord encouraged Congress to create a bank in conjunction with the Freedmen’s Bureau. After some negotiations, President Lincoln signed into law the Freedman’s Savings Bank and Trust Company on March 3, 1865. This was to be one of the only banks chartered by Congress.
But there was one huge difference between this government-created, Black-only bank and the white-owned banks of the time (which Black Americans were barred from using).
The Freedman’s Savings bank was a glorified piggy bank, only allowing freed slaves to save money and ultimately purchase land, while the white-owned banks provided opportunities for their members to grow wealth and receive loans.
Over the next 9 years, over 75 million dollars moved through the Freedman’s Savings Bank and Trust Company, until ultimately going bankrupt in June 1874.
But how? How does a savings bank lose all its money?
Through a series of bad decisions, poor oversight, and zero accountability.
→ In 1867, the principal trustee, John Alvord, asked Henry Cooke to be the new finance chairman. Cooke’s brother, Jay, owned an investment bank and with that knowledge, Avlord figured he would be a fine candidate for the job.
→ Over time the practices of those in charge of the bank changed from safe to speculative banking. A vague clause in the bank’s charter allowed them to start investing in questionable endeavors. So much that Henry started financing investments for his brother’s bank. (Going so far as to offload bad investments and debts from Jay’s bank to the Freedman’s Savings bank.)
IMPORTANT NOTE: Black members of the bank could not get a loan, but Henry was dealing out unsecured loans to his brother’s bank.
→ By 1870 Henry Cooke had lobbied Congress to allow them to change the charter from a savings bank into an investment bank. With this change, a group of managers (all white) formed together to start investing in questionable—meaning high risk and super shady—real estate, basically looting the Freedman’s Savings bank via bad investments over the course of a year.
→ The Panic of 1873 began to unravel the scheme. There were multiple runs on the bank by the depositors and, had it truly been a savings bank, they would have been ok. But poor investments made by the Cooke brothers had lost $2 million in deposits. Black money had been used to pay off white debts.
→ In March of 1874, the trustees realized they were in trouble and, trying to right a sinking ship, hired Frederick Douglass as the bank president. He realized quickly that the bank was in trouble and informed Congress that he could not in good conscience allow any more deposits. By June of 1874, Congress allowed the trustees to end operations. And at the end of the month, they shut the doors leaving 61,000 depositors without access to over $3 million in funds.
→ To make it worse, no one of significance (the Cooke brothers or the group of managers) was ever held accountable for what happened. In 1880, Henry Cooke testified to Congress and blamed the market for the lost deposits, taking zero credit for his part of the mess.
While people of all skin tones lost money during the Panic of 1873, it’s important to recognize the extra disadvantages faced by the Black community.
Imagine living during that time as a freed slave. You only have one banking option, and even then services to you are limited. You can store your money, but you can’t grow it and you can’t secure a loan. Your bank then uses your money to cover another bank’s bad investments and eventually lobbies congress to change the rules so they can do even more shady investing with your funds. Even if you do find out, where are you going to go? Which bank will you move to? Who will make sure the bad business practices of a group of men (all white) won’t ruin your financial stability?
Answers: No where. None. No one.
Once again, the system has failed you, white people in power have taken advantage of you, and the government who set up the system and put those people in power isn’t stepping up to help you. Rather than correct the problem they created, they shield the men who stole what was not theirs in the first place.
What “truth” do you learn about financial systems from this experience?
What belief about government is reinforced here?
What will you teach your children about banking and investing?
How will that impact your desire to participate in capitalism and wealth building?
Now overlay the experience of slavery (being owned) and the land debacle of Field Order 15 (1865)...
What bigger story are you seeing in terms of freedom, “all men created equal”, and your ability to pursue life, liberty, and happiness?
What is the real truth white people, leaders, laws, and systems are teaching you through action?
As I sit with the weight of this—with the acknowledgment that from the very beginnings of America white perspectives have shaped all systems in ways that overlook and/or negatively impact communities of color—I am angry. Sad. Disappointed. Enraged at a system and the leaders of that system who couldn’t see the harm they were causing through their own biases and dismissals of the Black experience.
I am also impressed by my brothers and sisters of color. If anyone knows how to hold onto hope, it’s the Black community.
(White people couldn’t even handle paying taxes without representation before we were destroying property and going to war with our “mother country”.)
But the reality when it comes to money and racism is this—Black people shouldn’t have to hold onto hope anymore. As white members of our communities, we are the ones who need to step up, face our biases, adjust our programming, and make sure our laws and systems support ALL people, not just the ones who look like us.
And if you can’t see it yet, look deeper.
Ask questions.
Join Lynne in her 6-month journey, On the Matter of Race.
As my wife likes to say, you don’t have to be ready. You only have to be willing.
RESOURCES
The Color of Money: Black Banks and the Racial Wealth Gap | by Mehrsa Baradaran
The Freedman’s Savings and Trust Company and African American Genealogical Research | National Archives