Banking on Freedom, by Shennette Garrett-Scott (introduction)

BANKING ON

FR EEDOM Black Women in U.S. Finance Before the New Deal

Shennette Garrett-Scott

Introduction

“Shennette, you are going to make me a millionaire!” Daniel shouted, his smile cracking open something inside of me.1 It was 2002, the height of the subprime mortgage industry, and I worked as a loan processor for a mortgage banker in Dallas. Founded two years before I came on board, Daniel’s company was ready to burst out of a two-office suite in a storefront office complex. By the time I had clocked a year at the job, we had moved to the top two floors of a gleaming high-rise office building in North Dallas. I saw small fortunes made—and a few lost. Some loan officers went from living out of their cars or with relatives to earning more than $20,000 a month.

New crowns and veneers lit up smiles like tiny electric lights. Luxury cars and new motorcycles filled the parking lot. Some took out creative loans themselves, purchasing their own minimansions.

Fortune eluded me, however. I earned a base salary and made a small commission on any loans I closed over my quota. Loans that paid loan officers upwards of $4,000 each (sometimes tipping up into the five-figure range) paid me only fifty dollars apiece. I worked seventy-plus-hour weeks.

My family often came to the office with me in the evenings and on weekends.

I imagined that I was part of a team—that is, until the words that Daniel had meant as praise shattered my delusion. I was decidedly the overworked,

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underpaid cog in a machine that made the riches of others possible. The moment I realized this, I vowed to pursue my own dream: a PhD. What I did not realize until much later was that those high-interest, high loan-to-value loans we were peddling would destroy the dreams of the home buyers we believed we were helping. The very first firm I worked for innovated the kinds of loans that would eventually cripple the industry. Its commercials and direct-mail marketing materials featured a superstar athlete spokesperson. People gobbled up the thirty-year, fixed, 18 percent interest home refinance loans we promoted for 25 percent over the home’s value. When I was in graduate school, I learned that an FBI probe had uncovered the firm’s alleged mafia connections. Daniel, who had sworn I would make him a millionaire, had allegedly embezzled more than $350,000, which he gave to the Church of Scientology. These abuses joined thousands of others and contributed to the subprime mortgage market crash that began in 2007 and brought the entire U.S. financial system to its knees in 2008.

Pundits looking to root blame for the crisis and its ripple effects sought flesh and blood, often blaming the victims rather than the perpetrators.

“Subprime” became a way to describe not just risky financial products but also the individuals who utilized them, painting them as incapable, rationally and ethically, to perform as responsible actors in the modern economy and society. The crisis deeply implicated racial and gendered disparities. The subprime mortgage debacle in many ways became a black woman.

Even so, my own personal experience as a loan processor led me to understand that black women, especially unmarried ones with children, had been particularly susceptible. Slick, targeted marketing promised the American dream of homeownership, achievable through any number of creative financing options: 100 percent financing with no money down and, in some cases, with no requirement to prove your income or even how much money you had in the bank; adjustable-rate mortgage (ARM) loans with ridiculously low teaser rates; interest-only ARM loans, where borrowers could choose every month to pay only the interest on their mortgages at cents on the dollar. Very few of my black women clients utilized the most maniacally imaginative loans, but many did receive ARMs and loans with very low or no down payments.

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During federal investigations into the subprime crisis, witnesses described bank employees’ racially insensitive comments, including characterizations of subprime loans as “ghetto loans” and black borrowers as “mud people.”2 Race and gender were key indicators of which customers received high-cost mortgage loans, even when controlling for credit and neighborhood. Black women were two times more likely than white women and three to five times more likely than white men, depending on the part of the country, to receive a subprime mortgage.3 When the market crashed, millions of mortgage holders lost their homes to foreclosure. Given the already-precarious accumulated wealth of black communities, the effect on black families and neighborhoods had to be described in terms of magnitude. Generational. Cataclysmic. Because home equity makes up the greatest percentage of black wealth, by various estimates blacks lost between $71 billion and $93 billion through foreclosures and from higher fees and interest rates associated with subprime loans. Not surprisingly, black women were prominent among the hardest-hit victims. They figured disproportionately high in the number of foreclosures. Even highearning black women buyers, who might be expected to weather financial crises, were 80 percent more likely to lose their properties than whites. Foreclosures decimated predominantly black subdivisions and neighborhoods, from million-dollar subdivisions in places like Prince George’s County, Maryland, to modest working-class developments like Belair-Edison in Baltimore.4 The so-called subprime crisis of 2007–2008 was far from the first episode in which African Americans—especially black women—grappled with the perils and promises of the financial industry in an effort to improve their lives. In the antebellum years, free and enslaved women created secret societies with clever names like the Sisters of Usefulness and the Sisters of the Mysterious Ten. These societies pooled meager resources to care for the sick, bury the dead, and buy the most important thing of all: freedom—for themselves, a child, or an ailing relative. The dislocations of the Civil War forced them to rely on each other again, especially given the often-trifling charity of aid societies and Union officers whose priorities placed Bible lessons, cotton bales, and cookstoves above black women’s freedom dreams. After the Civil War, experiments to turn supposedly indolent women into industrious

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and thrifty workers privileged paychecks and passbooks as markers of their capacity for citizenship. Women continued to resist economic exploitation and limited opportunities to build wealth by creating their own financial institutions, but the problems of low wages, high-cost credit, and segregation dogged them at every turn. Disparities and exploitation in access, lending, and income have consistently underscored black women’s credit experiences to the present day.

Banking on Freedom considers the black women who created webs of formal and informal banking and savings institutions from the eve of the Civil War to the New Deal. These institutions included building and loan associations; credit unions; burial, mutual aid, and secret societies; formal banks; and insurance corporations. Black women played essential roles in blacks’ efforts to use finance to carve out possibilities within U.S. capitalism and society. As black women created, maintained, and used their own financial institutions and networks, they forged their own definitions of economic opportunity and citizenship. Those definitions refuted stereotypes about black women’s sexuality and intellect as well as assumptions about women’s ability to assume and manage economic risk. Black women also asserted their important financial roles in their families and communities, linking political demands, such as equal access to public accommodations, with other demands for reparative justice, such as access to credit, fair prices, and better housing.

Black women’s complicated entanglements with U.S. finance reveal how race and gender mutually reinforce each other as categories of exclusion and difference—and inclusion and participation—in U.S. capitalism. Black women responded to these challenges and opportunities in multifaceted ways. They molded wealth-building strategies, banking practices, and evaluations of creditworthiness around gendered economic practices—not only the individual ways women made and used their money but also the collective values attached to building institutions, opportunities, and security for others. Financial institutions and practices represented a terrain upon which black women worked out familial and community strategies to achieve economic and social justice under the Jim Crow system of racial apartheid— even as those same institutions and practices constrained their vision of what constituted justice.

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In many ways, black women’s experiences with finance were similar to those of ethnic immigrants during the same period. Both groups operated within circumscribed enclaves defined by those who were recognized as “white”—a designation that conferred power in the market. Both immigrants from overseas and blacks—many of them migrants—developed creative strategies for survival in a segregated marketplace. Market exclusion explains in part why many black and ethnic businesses remained small but often espoused politicized, group-help, and nationalist philosophies. While poor, working-class, and aspiring-class blacks; ethnic immigrants; and whites sometimes shared similar values and wealth-building strategies— even utilized the same institutions and practices—enterprising blacks faced particular challenges.5 Although ethnic immigrants certainly suffered discrimination, racism and white supremacy presented harsher challenges for blacks. Under Jim Crow, legal, cultural, and social proscriptions kept people who supposedly had even one drop of Negro blood in a subordinate status. At the same time, it legitimated the privileges and opportunities of people with white skin—a privilege and opportunity that ethnic immigrants would ultimately claim for themselves. For blacks, community-based financial institutions were a bulwark against Jim Crow, but they could not erase the color line. Whitened ethnics, by contrast, used the tools of finance—especially residential mortgages and consumer credit—to gain access to and wrest benefits from U.S. capitalism in ways that blacks simply could not.

The limitations imposed by capitalism, sexism, and white supremacy, however, posed a real and ever-present threat, thwarting even the bestintentioned possibilities. Capitalism itself was a double-edged sword, built on the exploitation of others’ labor and shaped by the racial exclusionary logics of Jim Crow. Jim Crow was a system of laws and customs that blocked blacks’ ambition and progress through segregation and discrimination, denial of education and civil rights, economic repression, and violence.6 Emerging in the late nineteenth century, Jim Crow segregation had, by the early twentieth century, opened up niche markets marked by racial difference. Black entrepreneurs capitalized on the separate black economy but were simultaneously limited in their access to and ability to compete in wider markets.7 Pseudoscientific theories of racial and gender differences

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undergirded Jim Crow and sexism, fueling assumptions about blacks’ and women’s spending habits, capacity to assume and manage risk, and ability to save and invest. These theories reinforced actuarial and business practices that blocked blacks’ ability to purchase life insurance, get credit, and make investments, especially in real estate.8 They also blocked blacks’ access to professional networks and education that would have helped them stay competitive in the U.S. financial industry.

Between 1888 and 1930, black Americans opened and controlled more than one hundred banks, which served an almost exclusively black clientele.

They organized thousands of insurance companies and associations. Banking on Freedom examines this period of African American financial innovation through the story of the St. Luke Bank in Richmond, Virginia, opened by the members of the Independent Order of St. Luke (IOSL) in 1903. Maggie Lena Walker, the first black woman to organize and lead a bank, served as president of the St. Luke Bank for more than three decades.9 As Gertrude Marlowe, Elsa Barkley Brown, and Angel Kwolek-Folland have documented, Walker, the IOSL, and the St. Luke Bank provided women with jobs and opportunities in the financial industry. The IOSL was the largest white-collar employer for black women in the early twentieth century. By the early 1920s, bank customers had paid in full more than 650 mortgage loans, and the St. Luke Bank provided credit and loans to small and large businesses as well as individuals. Banking on Freedom recognizes the St. Luke Bank as not only a financial but also a political institution for the black communities it served, especially regarding issues such as jobs, housing, and community development.10 The St. Luke and other black banks operated as successful economic and political institutions, in part because whites favorably perceived them. Conservatives, moderates, and even extremists could support segregated economic achievement because they believed it kept black political ambitions in check by championing achievement in other areas. In addition, business seemed to be a reasonable, civil, and beneficent solution to the ubiquitous “Negro problem” while effectively eliminating black competition. However, black banks became targets of state surveillance and policing in the years before and after World War I.

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Every cent saved, every nickel loaned, and every dollar invested through women-controlled institutions like the St. Luke Bank presented possibilities. As black women built, ran, and patronized the St. Luke Bank, they helped construct and alternately deconstruct discourses about race, risk, and rights. However, negative discourses devalued black women’s morality, intellect, and fitness for citizenship in the context of Jim Crow, industrialization, and imperialism, and they discouraged women from taking financial risks and practicing economic autonomy, which were often constructed as markers of masculine privilege and male rights.

From the perspective of black women themselves, financial institutions presented a means to both accommodate and challenge capitalist accumulation, sexism, and white supremacy. For example, under Walker’s leadership, the St. Luke Bank accommodated rigid lines of residential segregation by granting mortgages to blacks only in limited areas of the city. However, Walker challenged Jim Crow by mobilizing black homeowners to pay poll taxes and support black candidates for public office, especially black women homeowners after the passage of the Nineteenth Amendment. Black women used the St. Luke Bank as a site for developing a political culture. As Glenda Gilmore has recognized, the intertwined and mutually reinforcing gender and racial norms of Jim Crow ironically permitted black women to redefine the political; they transformed the teller cage and boardroom into sites of activism and resistance.11 The club, church, field, factory floor, and private home were not the only spaces for women to work out meanings of respectability, identity, and power. Connections forged among black women at the St. Luke Bank allowed them to draw from fraternal ritual and bureaucratic structure to create practical and workable solutions for assessing creditworthiness and mitigating risks. The money they lent was often a last resort to protect hardwon assets like homes and commercial spaces or to maintain hard-foughtfor efforts like completing education or migrating north. St. Luke women also held both leadership and rank-and-file positions in multiple other organizations. They were thus able to mobilize support for movements concerning economic rights and empowerment such as streetcar boycotts and women’s suffrage. These connections spilled well beyond the confines of

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what we might imagine as “legitimate” financial institutions and “formal” politics. Christmas savings accounts, loan amounts as small as five dollars, and affordable rents represent the kinds of banking practices that had realworld—I daresay, liberatory—potential.

Like many prominent black women who challenged Jim Crow racial and gender stereotypes, the women connected to the St. Luke relied on strategies of racial uplift and politics of respectability. They framed their activities as economic self-help, and they viewed their role in extending credit to working black women as almost a duty of their leadership in the black community. Uplift and respectability were, however, to borrow Erin Chapman’s characterization, “deeply class-based, ultimately self-defeating strateg[ies] . . . to combat white supremacy.”12 Even so, black women’s financial strategies and choices cannot be understood apart from the imperatives of uplift and respectability. Capitalism and respectability complicated the exercise, intention, and direction of black women’s financial strategies.

For example, encouraging wives to be endorsers for their husbands’ loans acknowledged women’s economic importance to their families, but it also committed them to repaying debts that they could not afford if the husband reneged.

Banking on Freedom recovers black women in the histories of U.S. finance and political economy because their stories illustrate how race and gender shaped modern capitalism. Black intellectuals like W. E. B. Du Bois, C. L. R. James, and Eric Williams positioned enslaved people and race formation at the center of their historical explanations of the rise and development of capitalism, and they interrogated race in their analyses of configurations of global capitalism.13 Scholars have extended their analyses of twentieth-century racial capitalism to examine mortgage redlining, consumer credit access, actuarial criminology, and social impact bonds.

These works recognize racial exclusion in the development of finance, and they point to the role of race in destabilizing wealth building in black communities.14 Too often, however, historians of capitalism miss opportunities to emphasize gender. The problem is not merely one of locating women. It is the challenge of articulating the ways in which gender shapes and is shaped by economic practices and concepts. Admittedly, the number of black

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women working in financial institutions dwarfs the number working in agricultural labor and domestic service. By the 1920s, St. Luke women stood at the vanguard of an emerging black white-collar class. Yet the St. Luke was not an exclusive domain for the elite and aspiring classes. Thousands of washerwomen, tobacco factory workers, domestics, teachers, businesswomen, and others held stock certificates, passbooks, and promissory notes that sustained and made the St. Luke an essential community—and national—institution.

While Jim Crow placed some limitations on the St. Luke Bank, it relied on gendered economic practices to push back and shape the bank’s practices and values around their needs and desires.

In the mid-1850s, Mary Ann Prout, a free black woman in Baltimore, organized the St. Luke Society in the Bethel African Methodist Episcopal Church. She intended the St. Luke to be a society created by women for women and children. St. Luke women collected dues and raised money to provide for funerals, to support schools and other community- and churchrelated institutions, and to care for the vulnerable and needy. As thousands of African Americans poured into Baltimore to escape the dislocations of the Civil War, Prout formally organized the Grand United Order of St. Luke in 1867 to expand the order and, in part, to capitalize on a new market. It was also the first time she allowed men to join the order. A Virginia faction broke off in 1869 and formed the Independent Order of the Sons and Daughters of St. Luke (IOSL). In the 1880s, the IOSL experimented with offering modest life insurance policies, but it struggled to create viable and affordable long-term financial products in which black communities were willing to trust and invest.

Maggie Lena Walker took over the reins of the IOSL in 1899 as right worthy grand secretary-treasurer. She shifted the centerpiece of the order away from social reform and service work and toward offering financial services, refined the IOSL’s financial products, and expanded the order in various parts of the country. In 1903, she organized the St. Luke Penny Savings Bank.

In the early years of the twentieth century, the St. Luke Bank experimented with small-scale consumer lending, much like other banks that catered to working-class depositors in the period. The bank rejected emerging scientific assumptions about black deviance and degeneracy; instead, it relied on the IOSL’s bureaucratic structure and institutional values to evaluate

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individuals’ risk and creditworthiness. The St. Luke Bank faced mounting regulatory and extralegal harassment in the 1910s and 1920s, which forced it to adopt industry standards and practices. However, it never completely abandoned its unique practices and values. And in the years following World War I, the Great Migration created new challenges to meeting the complex needs of black women in both northern and southern cities.

Banking on Freedom reveals the ways that black women’s saving, spending, and lending practices challenge understandings of success and security, notions of risk, and the possibilities of citizenship in the U.S. economy and society. The first chapter, “ ‘I Am Yet Waitin’: African American Women and Free Labor Banking Experiments in the Emancipation-Era South, 1860s–1900,” highlights savings experiments created for freedpeople by white northern reformers and Union military leaders during and after the Civil War. Freedmen’s funds, military and free labor banks, and the Freedman’s Bank represented federal versions of racial paternalism and economic exploitation that undermined much of the economic autonomy that free black and formerly enslaved women struggled to carve out in the transformation to free labor. These experiments interfered with long-standing networks created and utilized by black women, individually and collectively, to manage their economic futures. Black women who utilized the free labor banks and the Freedman’s Bank resisted appeals that privileged male breadwinners as the proper savers and providers, a model that actively undercut and ignored the circumstances, needs, and challenges facing women depositors.

Chapter 2, “ ‘Who Is So Helpless as the Negro Woman?’: The Independent Order of St. Luke and the Quest for Economic Security, 1856–1902,” chronicles the growth of the IOSL from the mid-nineteenth century through the opening of the St. Luke Bank in 1903. In its early years, the IOSL responded to the challenges that tested black women and their families in freedom. They continued their long tradition of economic provision and activism, community building, and communal enterprise that had been begun by enslaved and free black women. The IOSL would succeed in creating and maintaining important financial institutions, such as a bank and an insurance company. In the decades after emancipation, however, the IOSL’s success was hardly a foregone conclusion. It struggled to create viable

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and affordable long-term investment and related financial products in which black communities were willing to trust and invest.

Chapter 3, “ ‘Let Us Have a Bank’: St. Luke Penny Savings Bank, Economic Activism, and State Regulation, 1903 to World War I,” explores the organization and operations of the bank from its opening in 1903 to the late 1910s. The bank’s opening proved to be more successful than its president, Maggie Lena Walker, could have imagined in large part due to the workingclass black women who invested in the bank as stockholders, depositors, and executives. Walker fought tenaciously to align her vision of economic empowerment for women with the bank’s success, but the bank’s first decade reflects the tension between its ideals and reality. With the bank’s success came increased threats to its future, particularly extralegal harassment from the white business community and aggressive state oversight. It succeeded where others failed, in part because of the visionary leadership of Walker and in part because of the hard work of women in the IOSL who kept the organization grounded in meeting the social and economic needs of working black women.

Chapter 4, “Rituals of Risk and Respectability: Gendered Economic Practices, Credit, and Debt to World War I,” explores the bank’s lending practices through the late 1910s. The young St. Luke Bank found opportunities and challenges in the emerging market for small, short-term lending.

While saving remained paramount, the bank also worked to increase blacks’ wealth, especially through home, business, and property ownership. The bank negotiated a place for itself both within the world of quotidian credit and in contradistinction to it. Mitigating risk was crucial, but race, gender, and class shaped what constituted risk. One of the bank’s most important missions acknowledged women’s important economic roles in their families and communities, and so the bank strove to increase women’s financial literacy and make borrowing a respectable activity. To these ends, mutuality and obligation proved to be useful and protean resources to negotiate risk, link respectability and profit, and promote individual benefit and collective good. Obligation, though, held inherent tensions, tensions that were revealed in the tactics that borrowers relied on to press their cases for loans, the limitations that respectability placed on women borrowers, and the bank’s efforts to collect from delinquent debtors.

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Finally, chapter 5, “ ‘A Good, Strong, Hustling Woman’: Financing the New Negro in the New Era, 1920–1929,” turns our attention to the women working in the IOSL and the world of black finance in New Negro cities like Harlem before the 1929 stock market crash. The young women working in the IOSL appreciated the advantages of working in the financial industry but struggled under the weight of the work and expectations that some found old-fashioned. Women and men moving to and living in cities both north and south stretched the capacity of black banks alone to address their needs in new contexts. Anxieties about black women’s bodies in urban spaces necessitated cultural, economic, and political responses to rebut public discourses painting black women as both victims and sources of social problems, as in need of both financial protections and also new economic opportunities. In financial institutions that women led and controlled, they experimented with innovative ways to raise capital but struggled with inexperience and the intractable problems of racial and sexual discrimination.

Thus, black financial institutions became highly contested spaces—and conduits of resistance.

The story of the St. Luke Bank in Richmond, Virginia: the first and only bank run by black women.

“Garrett-Scott’s extensively researched and documented study is the first history of U.S. finance that puts African American women at the center. Banking on Freedom makes a tremendously monumental contribution to African American banking history, and it substantially enriches our understanding of U.S. finance and capitalism.”

Juliet E. K. Walker, author of The History of Black Business in America: Capitalism, Race, Entrepreneurship

Robin D. G. Kelley, author of the Hammer and Hoe: Alabama Communists During the Great Depression

N. D. B. Connolly, author of A World More Concrete: Real Estate and the Remaking of Jim Crow South Florida

“Recovering the important and active role black women have played in the development of modern American capitalism, Banking on Freedom is a paradigm-shifting work that stands to make a monumental contribution to the field and is certain to inspire future generations of scholars.”

Tiffany Gill, author of Beauty Shop Politics: African American Women’s Activism in the Beauty Industry

“Garrett-Scott reclaims the stories of black women who—as bank founders and clerks, investors, aspiring homeowners, loan seekers, and, yes, as those denied loans—asserted their own economic ethos. A compelling account of black women’s ideas about money, savings, lending, obligation, and economic well-being.”

Elsa Barkley Brown, University of Maryland

“A beautifully written, comprehensive, and highly original study of black women’s savvy business acumen in the aftermath of slavery through the early twentieth century. Garrett-Scott should be commended for boldly modeling just how gender and race shape capitalism and finance in ways few scholars have addressed.”

Daina Ramey Berry, author of The Price for Their Pound of Flesh: The Value of the Enslaved, from Womb to the Grave, in the Building of a Nation

studies at the University of Mississippi.

ISBN: 978-0-231-18390-1 COLUMBIA STUDIES IN THE HISTORY OF U.S. CAPITALISM

Columbia University Press / New York

cup.columbia.edu

Printed in the U.S.A.

Shennette Garrett-Scott is assistant professor of history and African American

Cover image: Courtesy of the National Park Service, Maggie L. Walker National Historic Site

“Moving fluidly from the change purse to the bank vault, Banking on Freedom offers the first full accounting of the financial sector, womanhood, and Afro-America simultaneously transformed. Rich and brilliant.”

Cover design: Lisa Hamm

“Garrett-Scott’s compelling and highly original account demonstrates that, for black people, banks were more than financial institutions. In the hands of black women, capital accumulation, credit, and insurance became community-building practices, mutual aid, strategies for collective survival, and sources of contestation.”