Picture this: It's 1950, and the Smiths, a white family from New York, want to buy a new home in the suburbs for what would be about
$62,000 in today's money. Now meet the Johnsons. They're a Black family who also dreams of buying a new home in this neighborhood. The Smiths apply for a bank
loan and are quickly approved. The loan was backed by the
federal government to boot. The Johnsons apply for a
similar loan, but are rejected, because banks will only
lend to white Americans. While the Smiths begin moving in, the Johnsons can't find a realtor who will show them homes in
the Smiths' neighborhood, even if they wanted to pay in cash. The Johnsons then try their luck in a predominantly Black neighborhood. They're denied a loan again, because the federal government refuses to back Black buyers anywhere. Flash forward to the year 2000. The Smiths have paid off their home that's now appreciated
in value up to $149,000. The Johnsons, on the other hand, had to rent for the past two generations. While the Smiths built wealth and passed it down to their grandkids, the Johnsons never saw
a return on their rent. This is not an isolated incident. Scenarios like this have
been plaguing Black Americans for generations, and
it's only getting worse. Today, Black families
have a median net worth of $17,150. Compare that to white families, who have a worth nearly 10
times as much, at $171,000. On average, every additional
dollar a white family earns grows to about $5.19 in wealth. Black families see a negative
return of about 69 cents, which means they lose wealth over time. And the racial wealth gap is
widening in the United States. That's not to say that other countries aren't dealing with their own version of a racial wealth gap. But American capitalism
is built on a system that perpetuates the racial wealth gap. And it will keep doing just that until serious and systemic
policy change happens. Here's the thing about wealth: You need to start out with
some in order for it to grow. Secured banking and low-cost credit are two of the most basic
means of building wealth. Here's how that works: Banks take in deposits. They keep that money safe and accessible to their depositors. Then they loan that money out and charge interest on it,
therefore making a profit. People can make money by
depositing money into a bank, getting a loan from the bank, using that loan to build equity through buying property
or starting a business, and then building their
wealth from those endeavors. But Black Americans have been denied fair access to banking to build wealth since emancipation in 1863. Near the end of the American Civil War, President Abraham Lincoln
agreed to establish a settlement that would include 40
acres of land and a mule for each newly emancipated family. After Lincoln's assassination, President Andrew Johnson
thought formerly enslaved people should work to buy their own land instead. Remember the thing about
needing some wealth in order for it to grow? Well, President Johnson
took all that away, denying them the capital they needed to start building wealth. So instead of 40 acres and a mule, the Freedman's Savings
Bank was established. Here's why that was a problem. A bank must secure deposits and offer loans to the depositor
in order to build wealth. And the Freedman's Bank was
explicitly not a lending bank. It was made to hold people's deposits and not multiply it through
the yields of a loan. Still the bank was so successful that in 10 years, it handled $75 million. That's $1.5 billion in today's money. That much money proved too tempting for its white finance chairman, who secretly invested deposits
in high-risk enterprises. The bank had been heavily advertised to be a low-risk savings
bank, not an investment bank. This lie was the newest example of Black capital being used
to benefit white people. The risky loans eventually
failed, and in 1874, the Freedman's Bank closed its doors, wiping out $3 million of
hard-earned Black savings with it. W.E.B Du Bois said at the time, that another decade of slavery wouldn't have damaged Black wealth as much as the Freedman's
Bank collapse did. For decades after the disaster, African Americans distrusted
the banking system. The few banks that would
take their deposits wouldn't loan money to them, effectively using African American money to build more white wealth. So, whilst white people bought homes and started businesses and
watched their wealth grow, Black people's capital was once again exploited and lay stagnant. But then, at the turn of the century, Black Americans decided
to build their own wealth, and this time, do it on their own terms, by establishing Black banks. From 1900 to 1930, about 130
Black-owned banks were formed. But these banks could only succeed as much as segregation allowed them to. Black depositors generally
had lower balances, and withdrew money more frequently than their white counterparts. This meant that Black banks
had less capital on hand, which made it harder to lend. Without enough lending, economic mobility in Black communities was stunted. Black banks were very
separate, very unequal, and most didn't survive
the Great Depression. Through the rest of the century, one of the most common ways Americans held and grew wealth was by owning property. As a result, it's no surprise
homeowners' median net worth is now 80 times bigger than renters'. Hefty government subsidies
have played a huge part in creating a once strong middle class, but Black Americans have
largely been left out. One of the best examples of this comes from President Franklin Roosevelt's New Deal program, designed
to build back American wealth after the Great Depression. It was 1934, and the Federal
Housing Administration had just been created
to insure home loans. With the FHA guarantee that
mortgages would be covered even if homeowners couldn't pay, banks could make out loans
without fear of losing money. This was one of the biggest wealth-building measures of the century. Historians have gone so far as to call it "white affirmative action." Purposefully and critically,
it left out Black Americans. The federal government didn't just insure mortgages anywhere. They published risk maps where the least desirable, riskiest areas were colored in red. Risk was completely determined by race. The more Black residents in a
neighborhood, the more risky. This practice, called redlining, meant that residents of
mostly Black neighborhoods were denied housing loans, and therefore the
opportunity to buy property. Black families like the Johnsons were also shut out of
mostly white neighborhoods, for fear that their purchase would flip the neighborhood to "risky." Even though housing
discrimination was outlawed by the Fair Housing Act of 1968, Black people today still face
unequal barriers to housing by way of denied home loans
and undervalued properties. Black Americans still face exploitative financial conditions, whereas white Americans have a better chance to build wealth. In this system, reasonable loans
and low-cost credit options are made available to white communities, whereas predatory and
higher-risk loans and credit is offered to Black communities. Take the subprime mortgage
loans of the 1990s. Subprime loans were intended for borrowers who had less than prime
credit, assets or income. These loans had high interest rates that got very expensive, very fast. They were also discriminately
being sold to Black borrowers, even though many
qualified for prime loans. Between 1993 and 1998,
high-cost subprime loans were five times more likely in Black neighborhoods than white ones. And when the housing
market crashed in 2008, Black Americans lost more
than half of their wealth. Sound familiar? A home in a mostly Black neighborhood is still undervalued
by $48,000 on average, compared to an almost identical home in a mostly white neighborhood. That's $156 billion in lost equity across all Black-owned homes in the U.S. When it comes to banking,
expensive penalties for having low balances
or withdrawing frequently means that nearly half
of the Black population is unbanked or underbanked. Leaving them prime targets for check cashers and payday lenders. As it turns out, it's
really expensive being poor. Exploitation of Black capital, breaching contracts,
redlining, Jim Crow laws, have undoubtedly created
a racial wealth gap. These tactics have done much worse than impact Black wallets. A pattern of poverty and violence emerges when you look at the history of the places where recent police killings and uprisings have happened. The Minneapolis neighborhood
where George Floyd was killed. The Staten Island neighborhood
where Eric Garner was killed. The Baltimore neighborhood
where Freddie Gray was killed. All these areas were
once deemed "hazardous," and redlined in risk-assessment maps. The federal government intended to keep these redlined neighborhoods poor and heavily policed, widening the wealth gap even further. So where do we go from here? Let's start by thinking
about equality under the law as a legal contract. And then let's acknowledge that that contract has been breached. When contracts are breached, settlements need to be made. Academics, activists and
even some politicians agree, and are calling for reparation. Beginning in 1989, Democrats
started introducing bills to study reparations, which would include a formal apology from the government and compensation to descendants. Reparations are not
unheard of to Americans, and they can come in many forms. In 1988, the government paid $20,000 to every living survivor of
the Japanese internment camps. And Native Americans
have seen reparations, albeit to a much lesser extent, as well. Reparations for descendants of slavery could look like
compensations for wages lost, or discriminatory practice. It could be a more holistic approach that would see a bolstering
of community growth. Since so much discrimination
has occurred around housing, one solution could be creating a down payment assistance fund - real money that could appreciate
through home ownership. The government could also
fully fund child care, allowing more Black parents
to stay in the workforce. Evidence shows this would
create economic benefits to the state and federal
governments in turn. Win-win. Wiping out student loan
debts and cash bail systems, or creating business grants for startups: These could all be forms of reparations. And it doesn't have to
stop with the government. Some private banks and universities with a history of enslaving Black people have set up college scholarship funds to start chipping away
at their wrongdoing. And in 2016, rapper and
activist Killer Mike called on people to #BankBlack after protests to protect
Black lives gained momentum. This time, the hope behind
the success of Black banks was to provide the variety
of deposits it needed in order to reduce overheads
and lend more generously. Wealthy depositors flooded banks with much needed capital that year. And it didn't stop there. Companies like Netflix,
PayPal and Costco joined in. If policy change follows in other sectors like job creation and education, Black banks today could begin
serving their communities in a mutually beneficial
and profitable way. All of this to say that
if the promise of equality cannot be made good, and
true reforms targeting the many ways that Black
Americans have been treated like second-class citizens
are not forthcoming, then there will be no end
to demands for justice and no possibility of lasting peace.
