The Racial Wealth Gap? It All Comes Down to Black Banks

Data show that the median white family has 10 times more wealth than the average black family, a fact familiar to law professor Mehrsa Baradaran. In her book, “The Color of Money: Black Banks and the Racial Wealth Gap,” she examines how Black communities have been systemically shut out of the banking system. Michel Martin spoke with Baradaran about these issues–just before the pandemic.


CHRISTIANE AMANPOUR: Now, the data shows that the median white family has 10 times more wealth than the average black family. Our next guest, Mehrsa Baradaran, is a law professor at the University of California, Irvine. In her award-winning book “The Color of Money: Black Banks and the Racial Wealth Gap,” she examines how black communities have been systematically shut out of the banking system, a big brick in the wall of structural racism. Our Michel Martin has been examining these issues even before the current crises that are sweeping America. But this conversation just shows how prescient these warnings have been.

MICHEL MARTIN: Professor Mehrsa Baradaran, thank you so much for talking to us.


MARTIN: So, your latest book is called “The Color of Money: Black Banks and the Racial Wealth Gap.” It is specifically about the role of black banks. But your work is so much more than that. One of the things that you say in the book is that the wealth gap is where historic injustice breeds present suffering, that this was rooted not just in slavery, but in the history immediately following slavery. How does slavery, which ended in 1865, have present-day consequences?

BARADARAN: One of the things I try to do in the book is to look at the myths that we tell ourselves about sort of American capitalism and then kind of show the reality and show the gap between, right? So the myth is that, once slavery was ended, there was sort of capitalism and free markets and that, since then, there has been equality. And the reality is, on the economic front, the American markets were not open and capitalistic and free, right, specifically in the protection of black property, which was never there, exclusion from certain jobs and markets. So, after the Civil War and emancipation, instead of getting land, the free slaves did not get — right, did not get land. They got this savings bank. They put their money in the savings bank, trusting it, thinking that it was backed by the full faith and credit of the federal government, which it was not. It was advertised to be. And they lost half their wages. And this is in a time of heavy segregation and sharecropping, right? Sharecropping is an arrangement that is a debt arrangement. It was basically freed slaves going back to the plantation, some of which they had just sort of escaped from, and growing cotton, in the same way they did under slavery, except for they were no longer slaves. They were sharecroppers of the land. They were tenants. That was not a wealth-building mechanism. Meanwhile, a lot of white Southerners and Westerners and Easterners were able to get benefits from the Homestead Act. If you look at the 1934 era of New Deal measures, those are much more consequential to today. So, what the 1934 FHA and G.I. bills did is sort of cement that racial segregation into law and policy.

And what they did is go around drawing risk maps around the country. So this is before credit scoring or anything like that. And they said, look, if you live in this certain neighborhood, the risks are low, your property is going to gain value. And so we’re going to ensure your mortgage. And the way that they determined those neighborhoods is how white they were. So, if you live in a white neighborhood, and it continues and remains white, then you get your mortgage insured by the federal government. If you live in a black neighborhood or one that is what they called racially inharmonious, meaning there were other races living aside each other, then you were in a high-risk neighborhood, which meant that your mortgage was not going to be insured. So those maps are followed by banks and by private lenders well into 1950s, 1960s. And you have contracts, housing contracts, putting racial covenants in the contract. You have HOAs, you have got neighborhood associations really just enforcing the boundaries of their neighborhood and excluding black and brown people.

MARTIN: You make the argument that credit really creates wealth and that, if African-Americans are locked out of the credit system, it keeps them poor. Why is that?

BARADARAN: So, I want to distinguish between good credit and bad credit, right? So the good credit, the FHA loans, the G.I. Bills, the kind of stuff that is government-subsidized guaranteed low-risk credit, a 30-year fixed-rate mortgage, things like, that’s good credit, right? So now you can pay. If you have a little down payment, you can pay basically less than you’re paying in rent, and you’re building equity in a house. That’s a good mortgage credit that builds wealth, because then you’re taking that little equity, that down payment that you put down, and creating wealth, because your property’s going to increase if it’s in a certain neighborhood. Or a student loan that is low-cost, you can use to go to college and then hopefully make some money and use that good credit. Bad credit is the stuff we talk about, payday loans and installment credit and subprime credit, and high-interest, high-risk credit. So, what you have had is a — I call it a Jim Crow credit market that has developed on top of these segregatory patterns. And so what we have offered a lot of white communities since the New Deal to now is lower-cost credit, right? And then to black communities, it’s been installment credit, subprime credit that sort of blew up in those spaces and credit that is not wealth-building. So I want to distinguish credit, the two types of credit, so we’re not just talking about all access is good access, right? So, just payday lending is not good.

MARTIN: You make the point that white immigrant groups have at points in their history faced the same kinds of restrictions that black people have, I mean, access to — they were locked out of lending institutions, they were segregated in certain neighborhoods at some point. But you say that they have had a very different trajectory. Tell me more about that. In fact, you cite the Bank of Italy as an example, which was formed when Italian immigrants faced discrimination and were ghettoized. What happened there? A very different history than that of most of the banks that arose to serve black people. What happened there, and why so different?

BARADARAN: If you look at the Bank of Italy’s example, it really just showed the disparate impact, the disparate sort of trajectories of the two different races. So, Italians and Irish, many other foreign-born Arabs, Mexican immigrants, all sorts of people were also non-white. Some are still non-white. But looking at Italians and Irish specifically kind of just shows how these markets and sort of whiteness work. So, pre-sort of New Deal, let’s say, Italians and Irish were also excluded in the way that blacks were, although, I mean, if you look at segregation patterns, it was never quite as stark. So, when you look at the black segregation patterns in certain spaces, blacks were much more segregated than Italians and Irish. But they were — Italians and Irish were excluded from a lot of these things. But post-FHA, post-sort of New Deal credit, Italians and Irish sort of get included in that American suburban credit market. So, they do get the G.I. Bill. They’re not restricted from certain colleges. They are able to buy in communities that are suburbs that are able to grow equity. And then so you look at Bank of Italy, Bank of Italy starts as a bank, just like a lot of the black banks that I highlight in the book, as a response to exclusion. So, when you have a black community or an Italian community excluded from the mainstream credit system, what happens a lot is that the entrepreneurs within the community establish their own bank. So, Bank of Italy establishes because Italians aren’t getting banked by other mainstream institutions. But once Italians do become part of this FHA and G.I. Bill credit, Bank of Italy is able to thrive and survive. And it’s in California. It’s in San Francisco. And there’s a lot of really great economic sort of tailwinds. And so Bank of Italy then becomes sort of Bank of California, and it is now Bank of America.

MARTIN: Wait a minute. Bank of America started as the Bank of Italy?

BARADARAN: And, I mean, Bank of America is a consortium of a bunch of different banks, but yes, it starts as Bank of Italy that becomes — turns into Bank of America. And, really, I mean, so do Italians, right? Italians are Americans, and as are all of us. But I think looking at the way that that bank works really shows how certain immigrant communities have been included, and others have not.

MARTIN: You also give a case study of the fact that African-Americans, even when they have attained some economic success, are often targeted for it.


MARTIN: And you give the example of the Tulsa riots. What I’m hearing from you and what I read in your book is that a lot of what we have sort of seen as police violence and other forms of oppression really are economic terrorism. It’s really intended as much to terrorize people in a physical sense as it is to kind of deprive them of the opportunity to gain equality through economic standing, which is something that other groups have been able to attain. Is there any place that contradicted that pattern? I mean, you do talk about Durham, North Carolina. Can you talk a little about that, and how was that different?

BARADARAN: Yes. Yes. Durham, I sort of contrast with Tulsa, in that Durham understood that they were in a very precarious situation. They were also very successful black businesses, but they purposefully did not build the tallest building in town. They built the — a smaller, more humble building, right? And so they kept that wealth more hidden and more sort of secondary to the white structure. When you’re a minority group in a majority environment, what — the survival dictates, apparently, what — the route that Durham went. But I will say, on that terrorism point and the riot point, I mean, the majority of U.S. history, when we talk about terrorism, we talk about riots and violence, it is white violence against blacks, OK, the paramilitary violence of the Klan, the riots in the North, and just — quite frankly, just particular domestic terrorism. Any time a black family moved into a white block, there are countless stories — and I tell a few of them — where a black doctor or some wealthy black person will move into a white community. Jesse Binga, a black banker in Chicago that I highlight, his house was bombed like 10 times, and he kept moving because he’s like, I’m an American citizen. I can live where I want. Dr. Ausean Sweet (ph) moved into a building, and a white mob gathered. And they started throwing bricks and setting a fire. And they — he was armed and brought his friends. And they kind of shot out in self-defense, which is their right sort of to protect his home. And he gets charged with murder, because someone in the crowd is killed by one of the bullets. And so you have actually a pattern of white violence against black homeowners. So, when we talk about capitalism, we have to talk about, whose property are protected by the laws, right? Max Weber talks about the monopoly of violence that a state holds. And so we have to talk about, whose property is the state protecting and whose property is it not protecting?

MARTIN: On the question of capitalism, and you to sort of make the point in the book that black capitalism has been sort of embraced across the political spectrum throughout time, I mean, from Frederick Douglass, to Richard Nixon, to Barack Obama, who were all obviously very different people. In theory, it should work, right? In theory, it should work. I mean, it goes back to one of the sort of the core principles of your book is that, without wealth, there is — political equality is very hard to attain. So why hasn’t it worked?

BARADARAN: So, Nixon really staked his administration on black capitalism. And I focus on it a lot in the book, because that’s kind of the world we live in, right, this theory that, look, what black communities need is more capitalism and more entrepreneurship. His opponent during that election in 1968 is Hubert Humphrey, who says, you can’t have black capitalism without capital, right? And that’s essentially the point I’m trying to make in the book. That’s the point Frederick Douglass makes. So, Frederick Douglas believes in capitalism, but he says, you can’t have freedom, you can’t have capitalism without land, right, because, if you don’t have land, you actually don’t have freedom. And that’s essentially what happened. Frederick Douglass was proved right in the post-Civil War era is what — because slaves didn’t have land, they lost the vote, they lost access to political systems, they lost equality and freedom. We can keep talking about entrepreneurship and Opportunity Zones and things like that, but we have to look at the structures of how capitalism works and the laws of capitalism are. Capital just grows unto itself, right? If you don’t have capital, you — it’s really hard to get capital, if the structure of capitalism is just going to keep sort of perpetuating certain things toward capital, right? So, I think, looking at homes today, right, looking at the way that property increases in value or decreases in value, when you still see that wealthy black people, their properties aren’t increasing in value if they live in a predominantly black neighborhood, that’s capitalism, right? That’s the market coding the racial preferences of market participants, right? And so, insofar as the market is coded with racism, capitalism is not going to work. But I also want to make the point that we actually have never really had true capitalism in America. I think that’s one of the biggest myths is, we have had a lot of subsidies for white families. The FHA — the New Deal, G.I. Bills, FHA, that was not capitalism. That was the government coming in, making maps of certain neighborhoods, and guaranteeing mortgages in white neighborhoods and not guaranteeing them in black neighborhoods. So if you’re going to look for where capitalism has been, it’s been in the black neighborhoods. They have had no government subsidies, whereas white neighborhoods have had government subsidies. Looking at the tax code, right, we have a tax code that benefits the middle-class through our mortgage interest deductions, college saving bill. So, I just want us to think hard about what we mean when we talk about capitalism.

MARTIN: So, give us some ideas, some of your ideas, for how you would correct this.

BARADARAN: It — really, it’s simple. I mean, we know how to create wealth for families. We did it through the FHA. We did it through the New Deal. So I have suggested a new Homestead Act that takes some of the benefits of the last Homestead Act, and without some of the bad parts, and looks at how cities evolve, and in looking at sort of revitalization that is not gentrification, right? So what you have in a lot of spaces right now is the stripping of black spaces, whereas whites are coming back in, right? So, the FHA whites left to go to the white suburbs and were able to gain from that, and now you have the reverse trend, and so a lot of black families are getting just dispossessed of their homes and being resegregated into different areas. So disrupting those patterns and allowing people to have equity as their properties are revitalized. I think looking really hard at what reparations looks like. Every society that has taken from — when you look at the Holocaust, you look at South Africa, you look at the Japanese internment, we have done reparations. We, as Americans, have done reparations. Other countries that have done significant harm to a minority, in breach of the social contract that we promise — our Constitution promised equal protection under the law in the 13th, 14th and 15th Amendment, and those promises were violated. So what does damages look like, right? What — how do we make that right? You can call it reparations. You can call it damages. You can call you want to, but what you have to acknowledge is the harm, and then go to step two and three is, how do we actualize some remedies?

MARTIN: Talk briefly, if you would, about postal banking. That’s one of the ideas that you have become known for. What is postal banking, and why is that something that you think would help?

BARADARAN: Yes, so postal banking is actually an idea that is beyond just for the racial wealth gap, but for any communities that are sort of in banking deserts now, what you have seen in the banking sector is this conglomeration and homogenization of banks. And they have — Bank of America, going back to that example, has sort of gobbled up a bunch of different banks in this 10-year merger wave that it’s done, is — what it does is, it closes up banks in areas that are less profitable. So we’re talking about rural areas in the South, in the West, in the middle of the country, white, black areas that are just low-income that are just not profitable for a bank. So, what happens in these areas is, people have to drive 30 miles to an ATM and a 7/Eleven and pay $7.50, right? Or they can go to Walmart or a payday lender or a check casher to get their financial transactions. And so the idea with the postal bank is to actually have the post office, which, by its original mission, is in every community, just allow for simple banking. So this is a debit card, so you can participate in nationwide commerce and a checking account, so you can pay your bills online, and not have to operate in cash. It’s just a simple idea, I think, that would benefit a ton of communities, not just black and brown committees, but certainly also to that. I don’t think that’s a solution to the vast racial wealth gap. I think we need bigger guns for that. But this is a solution to a problem of poor families spending 10 percent of their income on financial transactions that the rest of us don’t pay for because we have bank accounts.

MARTIN: Professor Mehrsa Baradaran, thank you so much for talking with us today.

BARADARAN: Thank you so much for having me. I really appreciate it. It’s an honor.