Banking law expert Mehrsa Baradaran says reparations are necessary to remedy historic injustice, but public banking can make banking and credit more egalitarian for everybody.
By Rickey Gard Diamond, Ms. Magazine
(Editor’s note: This story originally appeared in Ms. Magazine on July 8, 2020. It is being republished here with permission.)
Wall Street’s appetite for profitable (if bogus) subprime mortgages in the years leading up to 2008’s financial crash hurt no one more than it did Black families.
That crisis wiped out 53 percent of all U.S. Black wealth. By 2009, 35 percent of our Black families had zero wealth or negative debt.
Today, Pew data finds that white families have thirteen times the wealth of Black ones—a gap that persists at every educational level. Black household’s average net wealth is $11,000, compared to a white household average of $141,900.
How did this happen?
A weird “reverse redlining” had made Black families the special target for more costly mortgages. In the 1980s and 90s, ghettos had been market-incentivized, renamed as “enterprise zones,” sought out for the higher profits costlier for Black folks who could have qualified for lower cost loans. This predation cost their neighborhoods the further loss of community capital that had been starved in the first place; Chicago closed fifty public schools in 2013 alone, most in Black and Brown neighborhoods.
By 2016, the pain grew great enough that rapper Killer Mike kicked off February’s Black History Month by advising: “Take your money. … Don’t allow a dollar of your money to leave your community again until these dogs that ask for your vote, ask for your money, come begging for you to get back into their economic system.”
He and other celebrities put their money into Atlanta’s Black-owned Citizens Trust Bank, and soon more celebrities like Alicia Keys and Queen Latifah made it a national movement: #BankBlack, resulting in an upsurge in deposits.
Yet UCI law professor Mehrsa Baradaran, based at the University of California-Irvine School of Law, says if history is any guide, Black capital and Black banks alone will not be enough to end Black poverty. In a recent interview with Ms., Baradaran answered questions raised by her timely book, “The Color of Money.“
“The tragic thing is that a lot of these numbers still hold. Black financial advisors don’t tell their HNWI (High Net Worth Individuals) to invest in Black housing, the way the while middle class did, with FHA loans, the way the Italians and the Irish became white once they were able to live in Levittown. But that’s mythical; it’s not real.”
Baradaran came to this country as a young girl from Iran—her family, refugees. She quips that the Ayatollah was making Iran great again, shutting down news outlets and jailing critics.
Her immigrant experience roots her banking research. That, and her law career, which began at a New York firm that helped organize the bailouts of 2008. Of the norm there, she says:
“AIG and Goldman Sachs had to be bailed out, they had to be bailed out. I got radicalized on Wall Street. I grew up poor in America even though my dad was a doctor back home. The poor people I knew were incredibly resourceful and smart. I’ve seen the myths we tell about poor people, about people who work much harder than others.”
She also noted their talk about powerful women focused on oversight—such as Brooksley Born, Sheila Bair and Elizabeth Warren—in this period was “dripping with misogyny, and [yet] every one of those women was right!”
Professor Baradaran makes clear that Killer Mike’s angry call out is far from the first time that “Black capitalism” was expected to save the Black community. Banking’s secret recipe, their magic, is their ability to multiply money. They do this by extending credit, as only banks are able to do, creating new cash on their books as loans. That last word “loans” is the tricky part.
“The Color of Money” reveals how white wealth was grown with much help from the federal government, while Black capital remained segregated, expected to stand on its own.
After the Great Depression, housing credit markets were newly backed by federally backed loans for veterans, through FHA and Fannie Mae and Freddie Mac. Cheap loans, coupled with rising real estate prices, made white generational wealth possible and grew white banks larger.
Throughout the 1960s, Black people were often denied these loans and so turned to their smaller Black banks. But unlike loans for white suburbia, loans for Black homes lost money. Inner city property values were damaged by public policies of redlining and urban renewal (nicknamed “Negro Removal” by novelist James Baldwin), both worsened by white flight. Because Black jobs were less secure and lower paid, Black bank deposits were also more volatile, requiring banks’ more conservative lending.
Nixon in 1971 redefined “Black capital” as a “minority business enterprise,” and Carter, Reagan and Clinton followed Nixon’s lead, rooted in libertarian market ideology. Free markets (not government-guaranteed loans) were the answer to poverty. Yet minority banking status forced Black banks into a smaller racial corner: They couldn’t invite private investments from larger white capitalists or be found fraudulent.
Reagan added “welfare queens” into this mix, and both political parties morphed the War on Poverty into the War on Crime.
By 2000, social safety nets were shredded, and almost 800,000 Black men were in prison. Ex-felons couldn’t find jobs, and many lost their right to vote.
“Now we pay to over-police Black neighborhoods; we’d rather criminalize Black people than fix the inequalities,” Baradaran says.
“Obama’s Secretary of Treasury, Jack Lew, gave an interview about the racial wealth gap in 2016 where [I] was invited as an attendee. He suggested that Black people could save money by not buying so many lattes or all those magazines. And this is one of the good guys! I think there is still so much of this blaming people for their own exploitation.”
In reality, she writes, Black people save an average of 11 percent of their annual income while whites save only 10 percent. But small banks cannot survive in this so-called free-market banking environment, Baradaran believes.
It’s one of the reasons she favors establishment of public banks—like the one in North Dakota and the one newly underway in California. She serves on the advisory board of The Public Banking Institute and says that reparations are necessary to remedy historic injustice, but public banking can make banking and credit more egalitarian—for everybody.
Unlike “state” banks that are private banks chartered by state law, The Bank of North Dakota is owned by the state, capitalized with tax revenue and state funds. It operates as a public utility for shared public goals that finance small businesses, farming and affordable student loans. Its money stays rooted in a way similar to what Killer Mike had called for.
“I’m a huge supporter of postal banks,” Baradaran adds. “They could serve the unbanked in the rural west, or the south’s inner cities, where it’s hard to get a state public bank. And because we’re beginning to see a real conversation start about the purposes of our central bank, The Federal Reserve, I’m hopeful we can rethink its role in relationship to small and medium businesses and other services for the public, not just for banks. I want Quantitative Easing* for the people!” (*In case you’ve forgotten, QE is the Fed’s money spigot, now a firehose to rescue Wall Street gambles.)
In 1863, Baradaran writes, the Black community owned a total of 0.5 percent of the total wealth in the United States—not surprising, since slaves were forbidden to own anything, and few freed blacks in the North had accumulated wealth. “But what’s staggering is that more than 150 years later, the number has barely budged—Blacks still own only about 1 percent of the wealth in the United States.”
A mother of three, Mehrsa told Ms.: “The way I was raised, everyone’s kid is your kid. If other people’s kids are being harmed, we all—whether we have our own kids or not—have a duty to protect those kids. Women can make a lot of change.”
Real change would empower our public money to bank on Black Lives.
This story is part of the SoJo Exchange from the Solutions Journalism Network, a nonprofit organization dedicated to rigorous reporting about responses to social problems.