The Color of Money

by Mehrsa Baradaran

  123. From 1900 to 1920, there was chronic mob violence in which whites attacked blacks and ransacked or burned their homes. Massey and Denton, American Apartheid, 34. By the 1920s, segregation was enforced through banks, realtors, and neighborhood “improvement associations," whose main purpose was to organize collective action to keep out black homeowners and expel those who dared cross the color line.

  124. A 1919 Chicago study described the boundary making around black neighborhoods as “a kind of guerrilla warfare." Blacks were under constant threat from “rampaging bands of whites [who] roamed the streets for days, attacking blacks at will." Beryl Satter, Family Properties: Race, Real Estate, and the Exploitation of Black Urban America (New York: Henry Holt, 2010), 39; Massey and Denton, American Apartheid, 30.

  125. According to one black realtor, “The appearance of the first blacks in an all-white block triggered a response that caused the whites to treat them as invading enemy aliens." Travis, Autobiography of Black Chicago, 32. The Chicago Real Estate Board (CREB), the professional association of Chicago real estate brokers, convened a meeting in 1917 to organize a response to the “invasion of white residence districts by negroes." In 1924, the National Association of Real Estate Boards agreed not to sell to blacks outside of designated black areas. Rose Helper, Racial Policies and Practices of Real Estate Brokers (Minneapolis: University of Minnesota Press, 1969), 172-182; Arnold R. Hirsch, Making the Second Ghetto: Race and Housing in Chicago, 1940-1960 (Chicago: University of Chicago Press 1988), 31-33.

  126. “Whites do not want to buy [properties occupied by Negroes] and Negroes cannot afford to." Harris, Negro as Capitalist, 169. E. Franklin Frazier, Black Bourgeoisie (New York: Simon & Schuster, 1957).

  127. Kevin Boyle, Arc of Justice: A Saga of Race, Civil Rights, and Murder in the Jazz Age (New York: Henry Holt, 2004), 69, 247; Marable, Malcolm X.

  128. “Because there is a white fear of being inundated with lower-class black ‘hordes,’ it becomes necessary to prevent the entry of middle-class blacks." Raymond Franklin, Shadows of Race and Class, cited in Melvin L. Oliver and Thomas M. Shapiro, Black Wealth/White Wealth: A New Perspective on Racial Inequality (New York: Routledge, 1997), 40-41.

  129. Homer Hoyt, One Hundred Years of Land Values in Chicago: The Relationship of the Growth of Chicago to the Rise in Its Land Values, 1830-1933 (Chicago: University of Chicago Press, 1933), https://archive.org/details/onehundredyears o00hoytrich.

  130. W. Edward Orser, Blockbusting in Baltimore: The Edmondson Village Story (Lexington: University Press of Kentucky, 1997), x-xi, 4-7.

  131. “The Truth about the North," in Black Protest and the Great Migration, ed. Eric Arnesen (Bedford / St. Martin’s, 2002), 68.

  132. Richard Rothstein, “From Ferguson to Baltimore: The Fruits of Government-Sponsored Segregation," Economic Policy Institute, April 29, 2015, http://www.epi .org/blog/from-ferguson-to-baltimore-the-fruits-of-government-sponsored -segregation/.

  133. If a bank has to meet demands for deposit withdrawals that exceed what that they hold in reserves, they can either borrow from another bank to meet the needs or sell their assets to a bank or individual, often in a “fire sale." Fernando Duarte and Thomas M. Eisenbach, “Fire-Sale Spillovers and Systemic Risk,"

  Federal Reserve Bank of New York Staff Reports, October 2013, revised February 2015, 1.

  134. Harris, Negro as Capitalist, 163.

  135. Ibid.

  136. Harmon et al., Negro as a Business Man, 72. Lindsay blamed this problem on the lack of large black businesses, stating, “Commercial banks need the support of profitably operated business enterprises. And it must be admitted that up to this time a sufficiently large number of well-established businesses among Negroes are not found in many of the cities. Therefore, we do not find many Negro banks actually making money in this field."

  137. Modern banking is much more complex than this simple money multiplier reflects. Paul Sheard, “Repeat after Me: Banks Cannot and Do Not ‘Lend Out’ Reserves," Standard & Poor’s Rating Services, August 13, 2013, https://www .globalcreditportal.com/ratingsdirect/renderArtide.do?artideId=1177975&Sct ArtId= 176005&from=CM&nsl_code=LIME&sourceObjectId=8163576&source RevId= 1&fee_ind=N&exp_date=20230814-23:17:33.

  138. Michael McLeay et al., “Money Creation in the Modern Economy," Bank of England Quarterly Bulletin (2014 Q1): 3, http://www.bankofengland.co.uk /publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoney creation.pdf.

  139. Abram Harris noted that “the white bank is the final resting place of the funds lent by the Negro bank." Harris, Negro as Capitalist, 167.

  140. Ibid., chap. 7.

  141. Massey and Denton, American Apartheid, 126-140.

  142. Economist Robert Gordon explains that blacks had lower life expectancy and often died of diseases because Jim Crow laws did not allow for sewage and water treatment in black areas. Infant mortality rates for blacks were double that for whites. Robert Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (Princeton, NJ: Princeton University Press, 2016), chaps. 7 and 16.

  143. W. E. B. Du Bois, “A Negro Nation within a Nation," in African American Political Thought, 1890-1930, ed. Cary D. Wintz (New York: Taylor & Francis, 1996), 159-160.

  144. Gunnar Myrdal, An American Dilemma: The Negro Problem and Modern Democracy (New York: Harper & Bros., 2007), 205.

  145. Du Bois, “Negro Nation within a Nation," 162.

  146. Ibid.

  147. Ibid., 165.

  148. Du Bois, “As the Crow Flies," Amsterdam News, October 10, 1942.

  149. Earl Ofari, The Myth of Black Capitalism (New York: Monthly Review Press, 1970); Harris, Negro as Capitalist; Frazier, Black Bourgeoisie.

  150. Harris, Negro as Capitalist, 175.

  151. Ibid.

  152. Woodson, Mis-Education of the Negro, 46. Other black leaders were similarly “appalled by Harris’ opposition to black enterprise, although few addressed the substance of his criticism." “Richard R. Wright and the National Negro Bankers Association," 76.

  153. Woodson, Mis-Education of the Negro, 33.

  154. Ibid., 83.

  155. Black banker Lindsay Harmon explained that “the Negro merchant must face a racial handicap in having most whites refusing to patronize him because of his color while failing at the same time to get the trade of his own people who may be a little jealous of his progress or high position or who cannot overcome thinking that the white merchant can give him the most for the least money." Harmon et al., Negro as a Business Man, 40.

  156. Woodson, Mis-Education of the Negro, 110.

  157. Quoted in Weems, Business in Black and White, 22. The Commerce Department calculated the “Purchasing Power of Negroes" in 1935 to be $2 billion dollars.

  158. Woodson admonished blacks to “begin immediately to pool their earnings and organize industries to participate in supplying social and economic demands." Woodson, Mis-Education of the Negro, 108.

  159. W. E. B. Du Bois, The Souls of Black Folk (New York: Dover, 1994), 128.

  Chapter 4 The New Deal for White America

  1. Historian Ira Katznelson explains that “the wide array of significant and far-reaching public policies that were shaped and administered during the New Deal and the Fair Deal era of the 1930s and 1940s were crafted and administered in a deeply discriminatory fashion." Ira Katznelson, When Affirmative Action Was White (New York: Norton, 2005), 17, 51. See also Ira Katznelson, Fear Itself: The New Deal and the Origins of Our Time (New York: Liveright Publishing, 2013).

  2. Katznelson, When Affirmative Action Was White, 17-20. Manning Marable, Malcolm X: A Life of Reinvention (New York: Viking Press, 2011), 168. Mike Royko, Boss: Richard J. Daley of Chicago (New York: Penguin, 1988), chap. 7.

  3. Katznelson, Fear Itself; Katznelson, When Affirmative Action Was White, 8-9; Robert Caro, Master of the Senate (New York: Random House, 2009), 215.

  4. Katznelson, When Affirmative Action Was White, 60.

  5. C
aro, Master of the Senate, 93.

  6. Katznelson, When Affirmative Action Was White, 48.

  7. Ibid., 37.

  8. “Fully 65 percent of African Americans fell outside the reach of the new program; between 70 and 80 percent in different parts of the South." Ibid., 43.

  9. Paul Frymer, Black and Blue: African Americans, the Labor Movement, and the Decline of the Democratic Party (Princeton, NJ: Princeton University Press, 2011), 112; Dempsey Travis, An Autobiography of Black Chicago (Evanston, IL: Agate, 2014), 36.

  10. Katznelson, Fear Itself.

  11. Charles Calomiris and Stephen Haber, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit (Princeton, NJ: Princeton University Press,

  2014) explains that southern populists created a system that was economically inefficient, but was geared toward offering credit to the South as well as maintaining small banking.

  12. Louis Hyman, Debtor Nation: The History of America in Red Ink (Princeton, NJ: Princeton University Press, 2011), 51.

  13. Gail Radford, Modern Housing in America: Policy Struggles in the New Deal Era (Chicago: University of Chicago Press, 2008), chap. 4. Ickes complained “that most of the projects that came before [the PWA] were conceived more for the speculative benefit of their promoters than for the advantage of the people who need modern housing at a low price." Hyman, Debtor Nation, 51-52.

  14. Hyman, Debtor Nation, 52-53.

  15. Robert Caro, The Power Broker: Robert Moses and the Fall of New York (New York: Vintage, 2012), chap. 27.

  16. Kenneth T. Jackson, Crabgrass Frontier: The Suburbanization of the United States (New York: Oxford University Press, 1985), 198, 202.

  17. W. E. B. Du Bois, The Souls of Black Folk (New York: Dover, 1994), 3.

  18. New home construction doubled from 1936 to 1941. In 1936, the FHA had lent a half billion dollars in guaranteed mortgages. By 1939, they had already issued $4 billion in mortgages and home improvement loans. Housing starts were

  332,000 in 1936 and 619,000 in 1941. Melvin L. Oliver and Thomas M. Shapiro, Black Wealth/White Wealth: A New Perspective on Racial Inequality (New York: Routledge, 2006), 17. Jackson, CrabgrassFrontier, 205.

  19. The federal guarantee revolutionized mortgages because the fund insured 90 percent of individual home mortgages. According to Julian Zimmerman, FHA commissioner in the 1950s, when the scheme was first proposed, “it was such an innovation that many considered it radical and unworkable.” According to Zimmerman, “it was the last hope of private enterprise. The alternative was socialization of the housing industry.” FHA, The FHA Story in Summary, 1934-1959 (Washington, DC: U.S. Government Printing Office, 1959), 4; cited in Hyman, Debtor Nation, 53.

  20. According to Louis Hyman, the FHA program “completely reversed . . . the conventional justification for government intrusions.” FHA money was “not the dole” and “not taxpayer money.” Hyman, Debtor Nation, 55.

  21. Ibid., 71; this family income of $2,500 per year in 1938 was equivalent to a yearly income of $42,753.35 in 2017. Bureau of Labor Statistics, Consumer Price Index Inflation Calculator, https://www.bls.gov/data/inflation_calculator.htm.

  22. First, prior to their passage, a borrower would need a down payment of anywhere from 40 to 70 percent of the home price to purchase a home. After these loans, a down payment of 10 percent was enough because the government would now essentially insure up to 90 percent of the collateral. Second, by extending the repayment period to thirty years and insisting that all loans be fully amortized, they reduced monthly payments and dramatically reduced defaults. Third, they created uniform housing standards that all new houses had to meet, which favored new, homogeneous homes. And fourth, by eliminating high default risks, the programs brought mortgage interest down from 15 percent to 2-3 percent, making it possible for families of moderate means to become homeowners. Jackson, Crabgrass Frontier, 204-205. Hyman, Debtor Nation, 56-57.

  23. Oliver and Shapiro, Black Wealth/White Wealth, 17.

  24. Dalton Conley, Being Black, Living in the Red: Race, Wealth, and Social Policy in America (Berkeley: University of California Press, 2010), 37; citing Douglas Massey and Nancy Denton, American Apartheid: Segregation and Making of the Underclass (Cambridge, MA: Harvard University Press, 1993), 54.

  25. Conley, Being Black, 37.

  26. Oliver and Shapiro, Black Wealth/White Wealth, 18; Jackson, Crabgrass Frontier, 208; FHA, Underwriting Manual (Washington, DC: U.S. Government Printing Office, 1936), part 2, para. 233. http://epress.trincoll.edu/ontheline2015/wp -content/uploads/sites/16/2015/03/1936FHA-Underwriting.pdf.

  27. Beryl Satter, Family Properties: Race, Real Estate and the Exploitation of Black Urban America (New York: Henry Holt, 2010), 43; citing Arnold R. Hirsch, “Choosing Segregation: Federal Housing Policy between Shelley and Brown,” in From Tenements to the Taylor Homes: In Search of an Urban Housing Policy in Twentieth-Century America, ed. John F. Bauman, Roger Biles, and Kristin M. Szylvia (University Park: Pennsylvania State University Press, 2000), 211-212. Shelley v. Kraemer, 334 U.S. 1 (1948).

  28. Jackson, Crabgrass Frontier, 209. Though the FHA generally refused mortgages for blacks in white neighborhoods, it was sometimes willing to approve of loans in all-black neighborhoods. The catch? The neighborhood could not be “blighted,” and most black neighborhoods were deemed blighted due to their aging homes and overcrowded living quarters, so they were excluded anyway.

  29. As Beryl Satter explains, “it is not surprising then, that the late 1940s saw an upsurge of violence against the black families that moved into white neighborhoods." Satter, Family Properties, 45.

  30. David L. Kirp, John P. Dwyer, and Larry A. Rosenthal, Our Town: Race, Housing, and the Soul of Suburbia (New Brunswick, NJ: Rutgers University Press, 1995); Conley, Being Black, 37. For example, the FHA lent sixty times more mortgages to the white Nassau County, New York, suburbs than to Bronx County from 1934 to 1960. Massey and Denton, American Apartheid, 54.

  31. Paterson and Camden, New Jersey, were two such cities.

  32. Oliver and Shapiro, Black Wealth/White Wealth, 18.

  33. Charles Abrams, Forbidden Neighbors (New York: Harper, 1955), 229.

  34. “The Second Great Migration," in In Motion: The African-American Migration Experience, comp. and ed., Howard Dodson and Sylviane A. Diouf (Washington, DC: National Geographic, 2004). By the end of the migration, 80 percent of blacks resided in cities. Population density in central Harlem in 1970 was 103,000 people per square mile, according to the New York Department of City Planning. New York University Furman Center, State of New York City’s Housing and Neighborhoods in 2014 (New York: New York University School of Law & Wagner School of Public Service, 2014), https://wagner.nyu.edu/files/faculty/publications /NYUFurm anCenter_SOC2014_HighRes.pdf.

  35. Mandi Issacs Jackson, “Harlem’s Rent Strike and Rat War: Representation, Housing Access and Tenant Resistance in New York, 1958-1964," American Studies 47(1) (2006): 53-79.

  36. Marable, Malcolm X, 108.

  37. Black migrants were derided as “backwards rural people" who could not possibly be expected to maneuver through the complexity of home ownership. As expressed by one real estate speculator, “How are you going to educate dumb animals?" Satter, Family Properties, 75; citing Favil Berns interview, June 10, 2001, 48.

  38. Travis, Autobiography of Black Chicago, 157-159.

  39. See Satter, Family Properties.

  40. Travis, Autobiography of Black Chicago, 128-129.

  41. According to Satter, the contract sellers “used the home as ‘bait’ to defraud the Negro out of a substantial sum of money and then push the [buyer] out into the street [in order to] defraud another party." Satter, Family Properties, 5.

  42. Ibid., 242-244, 248-249.

  43. Ibid., 6. Travis, Autobiography of Black Chicago, 157.

  44. Satter, Family Properties, 137, citing John W. Baird interview, February 13, 2004; Baird and Warner, Inc., 1855-1980: Celebrating 125 Years in Real Estate (Chicago: B
aird and Warner, 1980).

  45. Du Bois, Souls of Black Folk, 8.

  46. Hyman, Debtor Nation, 141-144. And the difference was not between suburban living and city living. Whites paid lower interest in both areas and blacks paid higher interest in both.

  47. In sum, the main barrier to black mortgages in the 1950s, according to a representative of the National Association of Home Builders, was “the lack of adequate financing" caused by “deep-rooted prejudice." White insurance companies had provided much of the initial investment funds for the FHA markets, but black insurance companies did not have adequate capital. By 1945, the thirty-five members of the National Negro Insurance Association (NNIA) had only $1.5 million in capital—they held a total of 424 mortgages. The Mechanics and Farmers affiliate North Carolina Mutual Life Insurance Company accounted for 55 percent of these funds. In contrast, the top twelve white insurance companies alone held $633 million in mortgages. Hyman, Debtor Nation, 142.

  48. White families had an average of $2,428 and blacks held $122. Ibid., 138.

  49. Ibid., 139.

  50. E. Franklin Frazier, Black Bourgeoisie (New York: Simon & Schuster, 1997), 25.

  51. Ibid. For Urban League critique, see James Foree, “League Gets Alarming Data on Credit Victims," Daily Defender, September 16, 1959, A7.

  52. “Black suburbanites did not borrow more extravagantly in absolute numbers, but relative to their incomes, they carried nearly double the debt burden of white households." The black middle class was five times as likely to borrow as whites, and 81 percent of black households bought using credit, compared to 40 percent of whites. Hyman, Debtor Nation, 140.

  53. Ibid., 32.

  54. Ibid., chaps. 1-2. Hyman explained that in the postwar credit economy, the “lines of race would definitively cross lines of class." Alan Greenspan, “Remarks at the Economic Development Conference of the Greenlining Institute, San Francisco, CaliforniaOctober 11, 1997," https://www.federalreserve.gov/boarddocs/speeches /1997/19971011.htm.