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The Color of Money [Book Review]

The Color of Money by Mehrsa Baradaran discusses the history of Black banks. The author endeavors to show the problems of relying on Black banks to solve the economic problems within the Black community. She shows that throughout history this has been an often repeated idea. Local Black banks and Black people have been tasked with guiding the community out of poverty.


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Baradaran sets out to prove that this idea is problematic and unfair. That the responsibility for Black people raising themselves out of poverty is based on Black capitalism and Black banking. But other formerly marginalized communities such as Italians, Irish, and Jewish people have built themselves up in America with help and assistance from the government.

As an example, the author tells the story of Bank of America. It began as an Italian bank in San Francisco and grew into being one of the largest and most wealthy banks in the world. But they didn’t get there with just Italians investing in the bank. They grew as the Italian community grew and the Italian community was allowed to integrate into mainstream society by being included in the group referred to as White people.

Other groups have benefited from or built themselves up through help and assistance from the government. But Black people have been called upon to fix their problems themselves. In a sense absolving the government from solving the problems that have been caused by the government’s direct actions or inactivity.

When I first began reading, I found myself asking what’s the problem with having Black-owned banks? Until the author delved into explaining the rationale that often lays behind the promotion of Black-owned banks. This is that Black banks came about because Black people could not bank at regular banks. Black people, as a result of history, are comparatively poorer or have lower incomes, assets, and resources than other groups.

The Black bank is given the responsibility of collecting deposits from people that have less money. They are then expected to finance the development of Black communities based on those limited funds. There is an expectation for Black people via Black banks to rescue their community when they weren’t the ones that created its problems. And this after generations of being held back. After decades of being isolated and ostracized from regular banks. They’re now being expected to have the funds on hand to raise themselves out of these economic problems without direct assistance from the government.

The Color of Money goes back into slavery and describes the obvious problem of enslaved people working without pay. But it also explains various laws that had been implemented to ensure that Black people often could not do extra work on the side or otherwise earn money that they could put aside. And this was not just for enslaved people but also to limit the options and opportunities for the advancement of free Black people. Even in the North, where most free Black people lived, some laws prevented them from owning property and limited the kind of work that they could do.

As would later occur in the South, free Black people in the North were limited to domestic servant-type roles or otherwise working in service of others. But they were severely limited concerning purchasing property or pursuing professional and higher-paying type positions. Banks generally turned them away at a time when a lot of businesses required capital to launch and survive.

The American economy as a whole and its wealth were built on the foundation of slavery. It’s a foundation of exploitative labor. You can make a hell of a lot of money if you can have people work for you in various roles and not have to pay them. After the Civil War, Black people were forced into a second slavery that consisted of convict leasing, sharecropping, etc. Various forms of laws and policies were intended to keep Black people in a subordinate position where they could be exploited.

Following the Civil War, free Black people were to be given confiscated land by General Sherman under Field Order 15. This was seen as a means for Black people to begin their integration into general society. If they were to eventually become self-sufficient they needed a bit of help to start.

Up to this point, American society had taken from but done nothing for Black people. They hadn’t received educations and didn’t own anything. Many had never left the plantation where they’d been held in bondage. They probably only knew whatever work it was that they’d done on the plantation. Under those circumstances, you’re going to need a bit of a leg up to get yourself started.

But because this ran counter to the desires of the white supremacists, the moment President Andrew Johnson took power those orders were overturned. The land was returned to the Confederate soldiers. They should have been dealt with as traitors but instead were welcomed back into the fold. The formerly enslaved were for the most part left with nothing. When the Confederates resumed power it ushered in a movement across the South to legally re-enslave Black people in all but name.

What a lot of Black people would have done was establish farms around homesteads. Not just crops that they could sell for money but also crops that they could use to sustain themselves. But it was made virtually impossible for the newly freed to acquire land and at times land was taken from them.

This meant that in the South, they had no other real options for supporting themselves and their families. It’s like you cut them off from options to make money and support themselves independently. And then you create laws to force them back into having to work for their former owners.

I’ve been noticing something from a lot of these books that I’ve read that view Black history through the lens of economics. Much is made about Black people pulling themselves up by the bootstraps. And in the past, this included the formerly enslaved. There was an still exists a belief that the government should not have intervened to provide help or assistance.

But the reality is that throughout history the government has involved itself in assisting other individuals and businesses. This includes giving mainstream banks charters and assisting them in the economic market by providing grants. This was at the very same time that Black people, the newly freed, were being denied land because it was felt that enough had been done for them. The government was helping railroad companies expand through various subsidies which would make a lot of the railroad tycoons incredibly wealthy.

The Homestead Act effectively gave land to White frontiersmen and pioneers as it had been throughout much of America’s history. If you go back to the colonial days, a lot of White people ended up with land by simply staking their claim. Clearing the land, setting up homesteads, and remaining on the spot for a certain amount of time would be enough to claim ownership. In other circumstances, they would be allowed to purchase land at incredibly cheap rates.

The South was a huge part of America’s economic engine. Thus it was in America’s interest to allow or look the other way as the subjugation of Black people continued. All avenues that might lead to any kind of economic independence were effectively being cut off through political, economic, social, and terroristic means.

I don’t remember which book it was but I read about the Freedman’s Bank and how it collapsed due to embezzlement. But that book didn’t go too much into detail about what exactly occurred. The Color of Money delves a lot more deeply into the Freedmen’s Bank and what went wrong. It provides a very detailed but easy-to-understand explanation of the formation of the bank and the greed that led to its collapse.

What’s heartbreaking is that you had these people who just a few years prior had been enslaved. They’re working and often struggling to earn a living and some of them have served in the military. They earn some money and are told that the path to financial comfort requires living frugally, saving money, and using that money to purchase land and better themselves. This pushed them toward saving their money at the Freedmen’s Bank.

But the Freedmen’s Bank was set up to operate like a benevolent learning institution rather than a true bank aimed at investing and loaning out the money at a profit. A lot of the deposits remained on hand so while people were saving their money, the interest rates were abysmal. You earn pretty much nothing on most checking accounts and minuscule percentage points on savings accounts for this reason. But you would think that at least they had their money set aside so when they were ready, they’d be in a position to then purchase land.

Unfortunately, the bank’s managers were speculators and they weren’t the best at finance. It could have been due to racism. It could have been due to Black people being shut out of banking. The frontline workers at the Freedman’s Bank were Black but there were no Black senior bank managers. The Freedmen’s Bank was established by Congress and you had these notable people of the time involved in its creation as far as lending their name. Thus it was assumed that this was a very stable government-backed bank.

But there was no oversight and the money was just sitting idle. Greedy and unethical people were in positions of power watching over this money. And is to be expected they began stealing from the funds. This eventually led to the bank’s collapse and pretty much wiped out the savings of tens of thousands of Black customers.

I don’t think it’s right to steal from anyone but to steal from someone that’s in dire need is a particular breed of unsavory and unethical. Many of these people were just a few years out of slavery while facing uncertainty and pressure from the society around them. And you would seek to take advantage of them in such a moment? That’s terrible.

But compare that to the housing crisis of 2008 which affected America across the board, but especially Black and other marginalized communities. The Black community was especially targeted for predatory loans. And as with the financial collapse of 2008, no one was held accountable as it was deemed a widespread industry problem.

With the collapse of the Freedmen’s Bank, there were specific individuals in charge of overseeing the bank’s operations, and they were the ones that were stealing the money. So you don’t have to look too far to see who you should investigate and who should be held accountable. Yet, it sounds like there was little to no punishment at all.

Black banking heavily focuses on savings and loans which results in them not generating as much revenue as other banks and thus growing far more slowly. This then means depositors are not fully benefiting from interest earned on their money.

As is explained, several Black-owned banks were chartered in the late 1800s to the early 1900s. But they were especially negatively affected by the Great Depression which caused many to collapse. At that time, there was no FDIC so bank deposits were not insured by the government. Thus losses even to theft or robbery would have to be covered by the bank.

There’s an example of one bank owner in Chicago who was quite successful. He paid into a fund intended to cover the deposits and ensure the bank would be able to survive a downturn. But then when the Great Depression occurred, he expected to be able to draw on these funds. For whatever reason, likely due to his race and that of his customers, the promises of the clearinghouse were not held up and he was denied support which resulted in his bank collapsing. Yet, the White banks that were also a part of this collective did receive financing which allowed them to survive the Great Depression.

The author points out the different flaws and shortcomings of Black-owned banks. Her chief issue is that they operate on a small scale. I got the point that she was trying to make. These Black banks not operating as most other typical banks made it impossible for them to grow at the same rate.

But if these are the only options that you have, and the option is between this and nothing, in this case, I would take something late rather than nothing. An even better idea would be to have these specialty savings and loans Black banks but to also have commercial Black banks that operate in the same manner as mainstream banks. It shouldn’t be an either-or-type thing.

If you can’t get all of what you need it’s still a positive to encourage Black people to save and work towards owning homes. Yet, that doesn’t mean that you shouldn’t continue to push for options that are comparative to those offered by banks serving other communities.

Often when I’ve read books about the Black community and Black economics there’s a discussion of education, employment opportunities, careers, entrepreneurship, and homeownership. There’s also some conversation about individual and family-based factors. You have the basics of personal finance which include the recommended steps to building personal wealth and a little bit about investing as well. But this was the first time I’d read a book that took a more high-level and commercial view of economics within the Black community.

I understand that banks take deposits and then use that money to provide financial services to generate revenue for the bank. These can be mortgages, small business loans, business loans, other types of investments, etc. Banks also have to keep a certain amount of money on hand in proportion to the money deposited. But The Color of Money provides a good explanation of how banks function. What makes a bank profitable and how do they typically increase profitability versus less efficient bank management.

There’s a lot of conversation about utilizing Black-owned banks. A few years ago there was a brief movement that called for the Black community to take their dollars out of these businesses that fail to value the lives of Black people. There should be a ramping up of trade and support of Black-owned businesses including Black-owned banks. I didn’t (and still don’t) think there’s anything wrong with that idea.

But as The Color of Money explains while this sounds like a good idea, it fails to take into consideration the full reality of Black people’s standing within America. At first, I was side-eyeing the author but came to understand her point in comparing how Black banks function versus how general banks function. Limitations are put in place which affects the degree to which they can be successful.

Think of credit unions or local savings and loans. They tend to not have the same features and resources as large international banks. For example, multiple branches, ATMs, online banking options, apps, etc. Yet, these offerings make banking a lot more convenient. Smaller banks tend to not offer the same features. My guess would be this is because they have less money to invest in creating these services and features.

That doesn’t come about by chance as these banks are set up in a way where they will make less money. There’s a lot of focus on savings but individuals have less money than large businesses to save. These banks have to function differently and have to keep more reserves on hand as individuals more frequently withdraw their money. Thus they’re unable to make the same types of loans that your larger banks might make, which then means that they make less money than larger banks. Over time the difference in revenue means that the smaller banks grow more slowly and rarely become larger more aggressive banks grow more rapidly.

This becomes an ongoing cycle that puts the smaller banks in a vulnerable position. Their revenues won’t multiply to the same degree as the revenues at large general banks. They won’t have the opportunity to take advantage of the kinds of deals that generate a greater return on investment. That lack of diversification makes them relatively unstable in comparison to the larger banks.

Part of the issue is that these banks are tied to the realities of the Black community. If Black people earn less and save less, they will manage their money differently than people that have more income available for saving and investing.

Imagine you have two banks, one which is Black and the other White. At the Black bank, customers earn on average $2.50 per year. But at the White bank customers earn $5 a year. Customers at the White bank should be able to save more money thus extending more credit to their bank. The bank in turn would be able to do more with that money. In comparison, the Black bank would have fewer investment options. This is because its customers are giving them less money to invest with.

If the Black community is disadvantaged, that flows along to the Black bank. The idea of Black people fixing the community sounds good but isn’t a proper solution. It’s like when people suggest Black people should go to college and have two-parent homes as a means of discussing poverty and employment issues. Those things can certainly help but fail to address the reality of going to college but still facing student loans, discriminatory hiring, wage discrimination, etc. And if you have a two-parent family but are still raising your children in poverty the accompanying problems don’t go away.

These suggestions are presented as solutions to dealing with the issues within the Black community. But they’re addressing the symptoms of the issues rather than the underlying disease. They serve to distract people and lull them into believing these problems are a product of some sort of pathology or failing within Black people. While the real culprits of discrimination and institutional racism go unaddressed. These suggestions are bandaids rather than thorough or complete cures for these very large and complex problems. They result in positive gains for a select few but because they’re addressing the symptoms they don’t result in meaningful change for the masses.

There’s a discussion of homeownership which is presented as one of the key factors on the path to wealth building. But consider redlining, White flight, racial covenants, and other tactics that came about when Black people would attempt to purchase real estate. Black people would be penned into particular areas, which would then come to be referred to as Black neighborhoods or Black ghettos when the inhabitants had lower incomes.

When Black people tried to move to other neighborhoods they might be met with violence and forced out. White people fled other neighborhoods as Black people moved in. As neighborhoods gained Black residents, property values would decline. Not because of any immediate change to the homes but rather based on Black people living in the community and it now being viewed as inferior.

Black homeowners or those who owned properties in Black neighborhoods would have difficulties trying to obtain loans to remodel or make repairs. Unless an individual had the necessary cash on hand, over time this would cause the home or structure to fall into disrepair. White people had more options as they often had an easier time obtaining loans to purchase properties. They could more easily obtain loans to renovate or remodel. And homes purchased in predominantly White neighborhoods would typically increase in value.

Homeownership generates wealth in part through the value of the home rising. This combined with the mortgage being paid down increases the homeowner’s equity. The house becomes an asset once the homeowner has more equity than debt, especially after the mortgage is paid off. This wasn’t guaranteed with Black homeowners as their property values might inexplicably decrease. Thus they’d be investing in an asset that’s decreasing in value over time whereas the equity and wealth of White homeowners would be increasing over time.

Consider gentrification in historically Black neighborhoods like Harlem. When mostly Black people lived in Harlem it was viewed as a ghetto undeserving of investment or renovation. But when Bill Clinton set up his office there and White people began moving in suddenly the community was worthy of investment. The location of the neighborhood hasn’t changed and some residents have moved as a result of being priced out. But as new White residents moved in the economic sentiments about the neighborhood changed.

For the proposed Black banking system to have its intended effect, everyone involved at every step of the process has to also be operating within the Black banking system. And that is very unlikely. The point that the author was trying to put across is that despite the verbal promotion of Black banking, it’s often just that: Talk.

On the surface, it’s supposed to be about keeping Black dollars in circulation within the Black community. But because of the way that society is set up to be segregated, it’s next to impossible for your money as a Black person to not flow out of the community. Once a White person or anyone else is brought into the system who is not operating within the Black banking system, whatever revenue was generated as the money moved along will make its way back into the general banking system.

You could be going out of your way to utilize Black banks but typically the people holding real estate or other things that you might want to purchase are operating within the general banking system. Your money is going to eventually end up in one of those banks. And because those banks were/are typically only lending to White people your money would be helping to fund the White community.

History going back to at least Reconstruction shows the compounding of the effects of Black people experiencing difficulty obtaining or being blocked from property ownership. Because of slavery, White people had a headstart on acquiring property. By the early 1900s, the White community owned the vast majority of available property. Black people who managed to acquire property through whatever means would most likely be purchasing from a White person. Thus even back then, Black dollars would have to leave the community as most Black people were not the ones with property to sell.

The Color of Money goes on to explain how further division came about and the wealth gap widened. White people received a leg up from the government in the form of the GI Bill, New Deal programs, etc. which expanded the White middle class. But Black people were largely excluded from these progressive programs and reforms. I discussed and covered quite a bit of that during my review of The Color of Law. But because it’s not the major focus of The Color of Money it’s a lot more condensed.

A key difference here which was quite an astute observation was how other formerly marginal marginalized groups such as Italians, Irish, Jews, and other immigrants had not been fully welcomed into mainstream society. Young men from these marginalized and immigrant groups served in the war. When they came back, they were able to take advantage of these programs. And it was around this period when they began to reap the full privileges of being White.

More recent immigrants are pointed to as having come to America and lifted themselves by the bootstraps to enter the middle class. But the reality is that much like other facets of the White community, they were able to benefit from government programs and initiatives. They were allowed to attend college, pursue better jobs, and purchase homes. All of which contributed to the building up of their communities and families as they became more firmly entrenched in the middle class.

In contrast, Black people were also working hard. Yet, different machinations excluded them from participation in many of these programs. Some were able to move into the middle class. But Black people as a mass were not able to take advantage of these programs and lift themselves into the middle class. They did not receive the same leg up as these other formerly disadvantaged groups.

The system of Jim Crow denied Black people their voting rights. A lot of these things were basic rights that most at least outside of the South could get behind. But support began to dwindle once those goals were achieved and Black people started talking about equality in the sense of day-to-day living and opportunities.

Those calls for change received less support because they meant White people would possibly have to give up some things. Maybe having to live next to Black people and attend the same schools. If we start talking about an equal shot at employment, attending particular schools, and housing where someone else winning, achieving, or acquiring this resource might mean that you cannot or there would be less for you, it was a problem.

The Color of Money explains that Black capitalism and even Black banking aren’t the issues. But rather that these things should have been done in conjunction with federal support. Especially in terms of taking corrective action to achieve equality after centuries of discrimination and unfair treatment. Plans should have been implemented to provide restitution to correct those past injustices. Instead, this policy of self-help was adopted while other communities had received assistance.

Laws were created to say that you couldn’t legally discriminate against Black people. But there were no real corrective actions taken to address the discrimination that had already occurred. Black people were largely excluded from the first iteration of programs like the GI Bill, New Deal programs, etc. But programs could have been created to address poverty, unequal employment opportunities, inadequate access to housing, etc. that were plaguing the Black community. Instead of the government intervening and correcting those problems, focus and responsibility were placed on the Black community needing to fix its own problems.

The American government, political, social, and other racial structures disadvantaged and created these problems within the Black community. But when there were calls for those problems to be fixed, they were regarded as problems of the Black community and thus problems for Black people to handle. Instead of the government accepting accountability for creating the conditions that resulted in poverty within the Black community, Black people were blamed for being poor.

I’m not a fan of politics because, for the most part, politicians are full of it. But I find political strategy and policy development to be interesting. The Color of Money touches on the transition from the Johnson administration into the Nixon administration. This is especially relevant because Johnson’s War on Poverty gave way to the concept of Black capitalism which took shape under Nixon and was a corrupted version of some ideological points from the Black Power Movement. Nixon aimed to do absolutely nothing for the Black community while defunding a lot of the programs and initiatives that were supposed to address poverty.

This is one of the most informative points of The Color of Money because it explains the transition from the rhetoric of the first half of the 1900s to that of the second half of the century. There’s a lot of focus on Dr. Martin Luther King, Jr.’s “I Have a Dream” speech. But his later calls for the transformation of society through economic improvement and alleviating poverty are less mentioned. Laws can be created but without policies to fix the real problems and eradicate economic issues, there won’t be much transformative change. They used different words but Dr. King, Malcolm X, and the Black Power Movement all called for an economic reset for the Black community.

So much focus is placed on Jim Crow and segregation as far as social, civil, and voting rights. But there’s little attention paid to the reality of why the system of segregation was created. The true goal of segregation was the continued deprivation, discrimination, and oppression of Black people.

Johnson’s programs and initiatives were supposed to be government-funded but instead, Nixon shifted towards this concept of Black capitalism as a solution. It was expected that Black businesses would generate revenue to build themselves up and where needed, private enterprise could provide some support. It absolved the government from having to play an active role in addressing problems within the Black community. Instead, the government would focus on sharing feel-good standout stories of success within the Black community while ignoring the more prevalent stories of people being affected by poverty.

The bite was taken out of Black activism by making it seem as though the solution to all of the Black community’s problems was capitalism. A select few were allowed to join the middle class and moved into better-paying jobs. A few others experienced some degree of success through entrepreneurship. This gave rise to a greater focus on making money and being entrepreneurial versus fighting for the government to help fix the problems that it caused.

Even after the Civil Rights Movement Black people still found themselves effectively shut out of mainstream banking. You could save your money at mainstream banks but would have a hard time obtaining a home mortgage or loans to start or support a business.

A lot of business and banking in particular is conducted based on personal relationships. Imagine particular colleges, golf courses, country clubs, social organizations, etc. Deals are made and negotiated in these environments but Black people remain largely locked out of those social settings. Without access how would you build social relationships with White bankers, investors, or other business people?

Pointing out the flaws and faults in executed strategies is important so we can do better moving forward. The argument is made here that they could have and should have done more. That is true but I try not to judge the civil rights activists too harshly because it’s easy to say looking back at the past and at least they tried to do something. But now having read a few of these books about Black economics shows how the system was set up for Black People to fail and remain at the bottom. Even when there’s a period of change and progress, it’s typically followed by some form of retrenchment.

The Color of Money goes on to discuss how various administrations have dealt with banking and economics in general and in contrast to the Black community from the 60s to the financial crash of 2008. Because Black communities were viewed as being risky banks typically would not loan money or at least not at fair or favorable rates. Black people when they could get credit would end up paying more for it.

And because of the added expenses associated with businesses operating in Black areas the cost would be passed along to the consumer. Thus Black people would find themselves making less but having to spend more than their White counterparts. This means less savings and less wealth as well over time.

For decades few banks were willing to invest in these communities to help them progress in a meaningful way. There was a lot of lip service and PR soundbites. But having exhausted all of the other markets these communities began to look like new revenue opportunities. But instead of being mutually beneficial to both the communities and the banks, the relationships are often predatory. Black people would pay higher interest rates and find themselves targeted for services that would generate a lot of fees.

The charters and programs that have been set up for Black banks place constraints on them which prevents them from growing efficiently. They end up investing a lot of their funds in government securities rather than the type and scale of money-producing investments of other banks. Those investments in government securities and bonds are then used to invest in and improve other communities. These Black and often lower-income communities and having their money taken and farmed out to communities that are better advantaged.

After reading The Color of Money I had more questions than answers. Yet, I still came away wondering if there is any way to successfully operate a Black bank while avoiding these issues? Because it doesn’t sound like the problem is having Black banks that serve the specific needs of Black communities. Instead, actions are taken to prevent Black banks from reaching the size and scale where they’d be able to participate in the same types of investment opportunities as larger banks. How might things fare if Black banks were truly given the same opportunities as other banks?

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