The Color of Money

by Mehrsa Baradaran

  And many in the black community were “moving on up." If Nix-oris stated aim was to increase the black middle class, he could have deemed the program a success. Between 1960 and 1980, the proportion of black workers in professional and technical positions jumped from 11 to 21 percent.129 But while wealthy blacks were heralded as heroes of progress, the black poor continued to stagnate. “In the economic sphere," remarked historian John Hope Franklin, “obviously the black middle class is increasing. But the black under-class is increasing too."130

  This vast disparity, coupled with the emphasis on black capitalism, stoked class tensions already present in the black community. On the one hand, the black community lauded its successful entrepreneurs as symbols of racial progress and as a counternarrative to claims of black inferiority. On the other hand, black intellectuals and activists continued to blame black businessmen for making profits out of a segregated economy that kept a majority of blacks impoverished.131 Socialist scholar Robert L. Allen derided black capitalism as “bourgeois nationalism" that would “line the pockets" of the black middle class and do nothing for the black masses.132 Dr. Ralph Abernathy, the new president of Southern Christian Leadership Council, said that he was not interested in making black people rich, but in lifting up the poor through community programs, public aid, and the nonprofit sector. “I do not believe in Black Capitalism," he said. “I believe in Black socialism."133 Another prominent socialist scholar, Manning Marable, called black business “snake oil" and black businessmen “the linchpin of underdevelopment and capital accumulation within the Black community." He denounced black leaders, Jesse Jackson in particular, for convincing the black community to “move from Civil Rights to Silver Rights and from aid to trade." Earl Ofari also denounced black businessmen for making profits off the backs of the poor in his book The Myth of Black Capitalism. However, these critics often overestimated the size, numbers, and profits of black businesses.134

  And just what was the state of black business profits in the late 1960s? Paltry. After hundreds of years, over 90 percent of black businesses had yet to expand out of the same personal service category they had always occupied—beauty parlors, mortuaries, tailor shops, and so on.135 The institutions regarded as the most successful were the black banks, according to surveys.136 The OMBE ended up measuring its success by emphasizing how many small businesses it had helped, but the businesses they were celebrating were tiny mom-and-pop service establishments.137 Abraham S. Venable, the highest-ranking black OMBE official, lamented that “many Negro businesses are a symbol of frustration and hopelessness rather than an example of achievement, success, and leadership."138

  To the extent there was a large and profitable business sector in the ghetto, it was criminal enterprise. Though difficult to measure, a 1967 presidential commission reported that annual intakes from gambling alone were anywhere from $7 to $50 billion.139 These numbers dwarfed legitimate business enterprises. Most of this business sector was Mafia-controlled, which made the Mafia the largest employer of blacks in the ghetto. Black Congressman William Clay described the black entrepreneur as a “hustler" forced to live on the margins of society, but doing so with white society’s consent. “Blacks have developed a network of crime completely acceptable to the white majority. That system of survival is clearly outside the law, clearly in violation of the law, but certainly with the tacit approval of the decision makers."140 Because white banks were not lending to blacks, black businessmen turned to the Mafia for venture capital funding. One estimate held that 25 percent of black business was financed by the Mafia.141

  Perhaps this was because despite the prodding by the administration, banks were still avoiding the ghetto. A survey of over 4,000 commercial banks revealed that their total investments in minority business in 1967 was less than $8,000 per bank—or one-twentieth of 1 percent of total bank assets. Less than a handful of white banks had made any significant investment in black business.142 Frustrated by the banking community’s pathetic record of lending to blacks, Federal Reserve Governor Sherman Maisel admonished bankers during a 1971 conference that by refusing to offer loans to businesses and individuals in the ghetto, the banking community had “helped create major social and economic problems of crime, decay, and segregation."143 Banking was a cautious and conservative industry at the time, and almost as a rule, bankers avoided lending in the ghetto because they perceived greater risks in such loans. Even when bank management expressed a commitment to lending to minorities, it was difficult to change bank culture because middle management and lower-ranking loan officers had discretion on individual loan decisions. Often these loan officers understood that their promotion and success depended on “keeping his desk neat and keeping his default rate as low as possible."144

  Banks were also one of the last industries to integrate their staff.145 Business Professor Armand Thieblot Jr. conducted a national survey of bank hiring in 1970, which showed that to the extent banks were employing blacks, it was as guards, messengers, or porters.146 Most banks admitted that they had not hired even black tellers because of “fears that Negro employees would be unacceptable to customers.”147

  The fact that blacks weren’t being employed at banks speaks volumes about the availability of banking services to black customers.148 But what did it say about the banking industry? It was not the case that the banking sector was dominated by groups that tended to be more discriminatory, like southerners or less-educated whites. The EEOC’s guess as to why banks dragged their feet longer than other industries was that “discrimination becomes more virulent as the jobs involved become more prestigious; that although some whites are now willing to help Negroes onto the economic ladder, they are willing to help them only onto the bottom rung.”149 The other reason, hinted at by Thieblot’s study, is that banks were more risk-averse than other industries and less likely to engage in experimental or radical policies, which apparently included hiring black tellers. Indeed, “only a very daring and adventurous personnel officer would have considered undertaking the risk of making his bank the only one in town to have Negro tellers.”150 And bankers were not the daring sort.

  An alternative explanation is that banking is an enterprise built on trust, making it a business imperative for banks to portray sophistication, prudence, and acumen. The image of soundness, stability, and sophistication plays a greater role in banking than any other enterprise. Banks might have wanted to avoid placing blacks in prominent positions because of the prevalence of implicit and explicit bias. Even the most open-minded Americans would have preferred a white teller counting their deposits. If implicit racism meant that whites viewed blacks as having inferior skills and morals, it also meant that they did not trust them enough to be their bankers. This is perhaps why a New York City bank “was running what was obviously a ‘Jim Crow’ operation, using its Negro employees almost exclusively in its black branches in Harlem and Washington Park.” The disheartening fact was that this was the only black bank manager in Thieblot’s survey.151 Even in Baltimore’s heavily concentrated black community, “Baltimore’s banks had no Negro officers.”152

  This was especially unfortunate, because even though racial covenants were now unenforceable and the FHA was guaranteeing loans in black areas, bankers made most lending decisions based on “relational lending," meaning that they met with potential borrowers and made lending decisions based on personal interactions. Even though blacks were no longer being formally discriminated against in the lending market, most lending decisions were being made informally, which meant that discrimination was likely happening during one-on-one meetings, making it impossible to detect. The community bankers who were the key decision makers were integrated into their communities and often made deals on the golf course or at the country club. The most successful bankers were those at the center of a community’s social structure—who had relationships with businesses and potential lenders. Black businessmen were at an obvious disadvantage when banking was conducted through “gentlemen’s agreemen
ts."

  If white banks were still discriminating in lending and hiring, the obvious solution would be to have more black banks. And many were created during this era. The National Business League said that the number of black banks increased from twenty-four to seventy between 1969 and 1974 alone.153 Despite the boom, it was still a tiny industry—with total assets of $259 million and deposits of $230 million, which represented 0.049 percent of total bank assets and 0.053 percent of total deposits.154 The NBL credited the OMBE with playing an “important role" in this increase, but the surge in black banks likely had as much to do with the general environment of racial resistance coupled with the emphasis on black business as with the OMBE’s deposit program. Economist Courtney Blackman noted in 1971 that the surge in black banks was a result of “the heightened sense of humiliation among blacks in recent years" and “is directly traceable to this emotional upheaval."155 Black banks were created as another manifestation of the protest against “white exploiters" that had led to the ghetto uprisings. Many of the black banks created during this time were formed by groups of community activists or individuals motivated to respond to the civil rights struggle.

  The two largest banks created in the 1960s demonstrated the motivation for “freedom" and “unity" prevailing during this era, and they were so named. In 1964, baseball legend Jackie Robinson led a group of black and white investors to form the Freedom National Bank (FNB) in Harlem, which would become one of the largest black-owned banks of the era.156 After he left baseball, Jackie Robinson became convinced that “there were two keys to the advancement of blacks in America—the ballot and the buck."157 He became involved in both the civil rights movement and the Republican Party—that is, until Nixon was elected and he became convinced that “the GOP didn’t give a damn about my vote or the votes—or welfare—of my people."158 For Robinson, the first breach had been the selection of Goldwater in 1964, which he believed was an embrace of the racist southern wing of the party. Robinson had hoped that Nelson Rockefeller would get the nomination in 1968 and endorsed him at the convention, but he was dismayed when the Republican Party chose Nixon and his southern strategy.

  Freedom Bank sold shares to the entire Harlem community, and Robinson emphasized that the bank’s mission was to build the community and not just to make profits. Harlem’s churches and small businesses invested in the bank, “not with the idea that they’d reap any benefit," according to a bank spokesman, “but rather that Freedom would be a financial resource for people in the minority community to get loans." Robinson recounted hearing about a white banker who said that “he had never known a Negro in whom he had confidence for more than a $300 loan." Yet blacks kept faithfully depositing their money in white banks despite the mistreatment. CORE leader Clarence Funnye explained, “Before Freedom National, you went into a white bank with the distinct impression you went with what you had in your hand, begging the powers that be and generally you were turned down. With Freedom the community looks less like a colony, less of an area of exploitation."159 Harlem embraced the bank and called it “our bank."

  Robinson explained that blacks in Harlem had had negative experiences with banks since John D. Rockefeller’s Dunbar Bank, which was ostensibly biracial, but in reality had only hired a few token black clerks and maintained a white management. Because of Robinson’s political support of Governor Nelson Rockefeller, a rumor started in Harlem that the bank was actually Nelson Rockefeller’s bank and that he was up to the same sort of bait-and-switch as Dunbar’s founder. Robinson explained, “Maybe I should have wished that was true. It wasn’t."160 The bank struggled to remain profitable in its first years of operation. By 1971, FNB had a loan portfolio consisting of 57 percent in real estate loans, with 30 percent of those loans in default. The bank posted losses of $704,530.161

  Running the bank was not a proud or happy experience for Robinson. In fact, in his autobiography he expressed “mixed emotions” about the bank, which he said was “approaching the brink of disaster” due to its loan losses. Robinson was very worried about the large amount of money they were writing off as bad loans. Robinson even tried to engage with the bank regulators, who he believed were handling his bank with “kid gloves.” He knew they were writing down thousands of dollars of loans, yet they kept telling him everything was fine. Robinson said the “Comptroller’s office was patting us on the back when they should have been hitting us over the head with a club,” and he told them that he thought his bank was not “being judged by the same standards that would have applied if ours were a white bank.” Robinson said he had many sleepless nights over the bank’s failing books and even suffered “a very serious health crisis” on account of the stress.162 In fact, Robinson died of a heart attack in 1972, at the age of fifty-three, shortly after the bank’s most serious troubles and before the bank was able to turn a profit.

  In his autobiography, which he finished just weeks before his death, he wrote honestly about the struggles of being a black banker, an experience which he said was “painful to relate.” This was a man who served in a segregated military, single-handedly integrated Major League Baseball, and was a civil rights activist within the GOP and he believed his most challenging struggle was running a black bank. Robinson said that black banks were in a “delicate position” because, on the one hand, the white banking community “coddled them” and “patted them on the back” instead of dealing with them like any other business. “Our doors could have closed because of this kind of paternalism,” he said. He believed that until they could grow and mature on their own, they would always be “subservient” to the white industry. But on the other hand, black bankers faced pressure from the black community. There too, “we had to be different because we were a black bank.” He said that they had to be “a lot less rigid than white banks,” but without being too “loose in policies.”163 In other words, because Harlem saw Freedom as “our bank,” Harlem did not treat it like any other business. This conflict was as old as black banking, but Robinson was very troubled by his position.

  Robinson sought the help of businessman Robert B. Boyd to help make the bank profitable, and after Robinson’s death Boyd would continue to run the bank. According to Boyd, the bank’s problems resulted from the previous management being overly concerned with the bank’s social and altruistic mission. “The focus before was social. Now it’s on profit. I’m completely comfortable with social motivation, but monies allotted for social purposes can only come after a profit. Then it is a business decision." To that end, Boyd restricted residential real estate investments and emphasized commercial loans. He aimed to develop a small-business infrastructure in Harlem by guiding small business loan applicants through the loan process. The bank teetered on the edge of profitability and, as the Times reported in 1974, its constant struggle was to find a way “to balance fiscal prudence and profitability against its founders’ goal of helping small businesses and home-buyers in black neighborhoods by offering low-cost loans."164 They would continue to struggle until they failed in 1990.

  Similarly motivated by a social mission was the Unity Bank and Trust Company, the second biracial bank, which was founded in 1968 to serve the black population of Roxbury, a black district in Boston. Donald E. Sneed, the bank’s first president, described the bank as a demonstration of “constructive black power." “The Bank with a Purpose," as the founders called it, operated longer hours and offered free financial counseling services and community education programs to their low-income customers. Like FNB, the founders saw their goal not just as supporting existing black businesses, but helping to create black business from the ground up. The bank was also trying to fight lending discrimination. “Slum residents are eliminated [from the lending market] solely on the basis of where they live," said Vice President Bernard Fulp. “This drives those who can least afford it to finance companies and loan sharks who charge unreasonable interest."165

  Unity was trying to break the ghetto debt cycle by offering lower-interest loans and opening
its doors to marginalized black borrowers. The bank’s ambitious mission included providing student loans, “so the kids in this community can go to college, home improvement loans to make the houses here livable, and business loans so small businesses can be bought by black people." The bank was off to a solid start as many in the community helped with its start-up capital. The Commonwealth of Massachusetts even deposited $360,000 in the bank, becoming its single largest depositor.

  Other foundations, including the United Front Foundation, Brandeis University, Andover Theological School, Northeastern University, and Boston College, all maintained deposit accounts and MIT was a stockholder. Still, 65 percent of the 40,000 accounts were from the inner-city Roxbury and Dorchester neighborhoods.

  Even with the entire community’s support, Unity struggled to remain profitable. The bank leaders approached this struggle as a point of pride. “There are factions of both the black and white community that are watching to see whether we are going to pass the supreme test of survival." The bank’s Vice President Fulp struck a zealous tone: “we intend to remain here with a quasi-crusading role." Fulp admitted that “black institutions historically have had inferiority complexes," but he cautioned, “this complex can’t be allowed to immobilize us." “Every time someone comes in here I can’t think ‘We mustn’t take this risk because we are a new black bank.’ " But the risks were real. The same forces of discrimination and poverty that had led to the creation of these banks would continue to be their main obstacle.

  There were other banks created in this pivotal era with the same ethos as the Unity and Freedom banks. The civil rights movement, the black capitalism program, and the increasing cultural emphasis on black business fueled this second historic boom in black banking. This time, white leaders joined the chorus to herald the enterprise as a self-help solution to poverty. For the first time, whites were paying attention to and celebrating black banks. The potential and promise that stronger black banks meant stronger black communities without requiring change or sacrifice from the broader community was too seductive to be scrutinized. But there were a few dissenters—they were those focusing on the numbers instead of the politics.