Savings and trust The rise and betrayal of the Freedman's Bank

Towards the end of the Civil War, as Black Union soldiers began to (finally) receive fair pay, officials worried that freed African Americans lacked a safe place to store their money. Government functionaries, politicians, and altruistic clergy created the Freedman's Savings and Trust, intending to teach Black people the importance of thrift and investing. Modeled on nonprofit banks for the white working class, Freedman's carried the reassurance of federal oversight and protection, yet within two years, it shifted from supporting Black investors to exploiting them. Converted to a commercial bank, it denied Black depositors loans, while white trustees freely borrowed from it. The predictable result was a monumental crash, with Black clients losing almost all their painstakingly accumulated wealth. Edwards illuminates the cynicism, fiscal naiveté, and racial arrogance that led to the disaster, pointing out that Black distrust of financial institutions stems from this event. "Not even ten additional years of slavery could have done as much to throttle the thrift of the freedmen as the mismanagement and bankruptcy of the savings bank chartered by the nation for their special aid." Sobering and informative.

America's racial wealth gap can be traced to the collapse of the Freedman's Savings and Trust Company in 1874, according to this ingenious work of financial sleuthing. Historian Hill Edwards (Unfree Markets) shows that the bank--which canvassed the post-war South to encourage freed people to deposit their money, and at its height held more than $75 million in deposits ($1.9 trillion in today's dollars)--underwent an "ideological change" within two years of its 1865 founding, when it moved in 1867 from New York to Washington D.C., and Henry D. Cooke, brother of industrialist Jay Cooke, joined the Board of Trustees. Cooke immediately set about "raid" Black depositors' money to make illegal loans to bank trustees and risky, influence-peddling investments, including extravagant loans to politicians. By 1870, whiffs of the bank's insolvency and corruption had reached the public. In a captivating narrative that reads like a slow-burn legal thriller, Hill Edwards proves how, in a particularly perfidious last-minute effort to salvage the faith of Black depositors, the bank's white trustees elected a "completely unprepared" Frederick Douglass to serve as president just three months before the bank's collapse, permanently scarring the orator's legacy. The result is a revelatory connecting-of-the-dots between the failure of Reconstruction and the birth of the Gilded Age. (Oct.)