Summary of The Color of Money

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The Color of Money book summary

Editorial Rating



  • Comprehensive
  • Analytical
  • Eye Opening


An unequal playing field explains why Black Americans have far less wealth, higher unemployment and lower rates of homeownership than white Americans do. As the United States re-examines its racial gaps, professor Mehrsa Baradaran’s bracing book explores America’s fraught history. She delves into the US government policies that discriminated against Black Americans and the reforms that promised much but delivered little. Baradaran’s scathing analysis highlights how economic inequity lies at the root of systemic racism.


  • Black Americans are on the wrong end of the wealth gap.
  • Banks that cater to Black customers face a near-impossible task.
  • America was founded on a belief in equality, yet it was also home to millions of slaves.
  • The first attempt at Black banking came in the form of the Freedmen’s Savings Bank and Trust.
  • Many other Black financial institutions would fail. 
  • Durham, North Carolina, provided the rare example of a thriving Black community.
  • From 1910 to 1970, many Black people fled the South for New York, Detroit, Chicago and other northern cities.
  • The New Deal’s transformative programs excluded African Americans.
  • The Great Society reforms failed to boost Black Americans’ fortunes.


Black Americans are on the wrong end of the wealth gap.

Despite decades of reforms, many Black Americans are broke. More than one-third of Black families possess no assets, and on average, they have just a fraction of the wealth of their white counterparts. The 2008 financial crisis hit Black Americans especially hard. They lack the cash cushion and intergenerational wealth that would see them through tough times.

“The wealth gap is where historic injustice breeds present suffering.” ”

Meanwhile, Black-owned banks, long held up as a panacea to wealth inequality, have found little success in a deeply segregated economy. Supporters of Black banks are legion: Frederick Douglass, Booker T. Washington, W.E.B. Du Bois, Marcus Garvey, Martin Luther King and Malcolm X were among the activists to sing the praises of Black financial institutions. Even leaders such as Richard Nixon, Ronald Reagan, Alan Greenspan and Bill Clinton have espoused Black banks as a key to unleashing the economic potential of Black neighborhoods. But that vision remains a dream deferred: The handful of Black banks established over the decades have been unable to overcome a history of subjugation and segregation.

Banks that cater to Black customers face a near-impossible task. 

Advocates of Black banks held out an alluring promise: These institutions could cater to underserved residents and businesses. The banks would have a ready-made clientele, and long-ignored Black depositors and borrowers would flock to these new institutions. Reality proved more complicated, however. With their meager wealth and volatile job prospects, Black depositors proved inherently unstable. And with Black consumers holding relatively little housing wealth, the mortgage business that sustained other banks wasn’t available to Black banks.

“In trying to protect themselves against the hazards of lending in the ghetto, Black bankers were inadvertently using the incomes of their customers to undercut the ghetto economy by investing in the outside community.” ”

To their many supporters over the decades, Black banks would help keep Black wealth in Black neighborhoods. In truth, Black banks were simply another conduit that vacuumed money out of Black communities and into the mainstream economy. Whether the bank in question was in Harlem or on the South Side of Chicago, the economics proved the same: Black customers typically made small deposits, which saddled Black banks with higher costs relative to their competitors. What’s more, the precarious economic realities of Black neighborhoods meant loans to Black consumers and entrepreneurs were riskier. This forced Black banks to hold higher loan loss reserves than other banks did. Faced with this reality, Black financial institutions invested disproportionately in low-yielding government securities. By placing their deposits with the federal government, Black banks redirected their communities’ money to Washington, DC.

America was founded on a belief in equality, yet it was also home to millions of slaves.

Captured Africans were not voters or people but property – enslaved persons were used as collateral for loans and at one point had a collective financial value of more than $1 billion. In the North, Black entrepreneurs could operate businesses, but they couldn’t sue white customers or competitors. Blacks also were barred from the banking system, so they turned to other African Americans for credit.

“For all the economic gains created by slavery, the slaves themselves could never profit.”

The end of the Civil War was envisioned as a fresh start for the newly freed enslaved people. The Freedmen’s Bureau Act of 1865 promised to provide them with 40 acres apiece at favorable terms. It didn’t happen. Andrew Johnson succeeded Abraham Lincoln as president and backtracked on Lincoln’s promises. And former Confederates violently made certain that Reconstruction came without reparations. The Reconstruction era ended with Black Americans nearly as marginalized as they had been in slavery: without assets, unable to vote, and barred from acquiring most skills or participating in many trades. The system all but forced Black individuals to grow cotton through the sharecropping system. Because they couldn’t own land, they couldn’t even support themselves through subsistence farming.

The first attempt at Black banking came in the form of the Freedmen’s Savings Bank and Trust.

Created by Lincoln in 1865, the institution aimed to bring Black people into the financial mainstream. The new bank was marketed as an arm of the federal government, and depositors flocked to it. In just a decade, 75,000 customers had deposited $75 million – the equivalent of $1.5 billion in today’s dollars. Its customers believed they were engaging in the sort of thrift that would lead them out of poverty and into landowning. But the Freedmen’s Savings Bank was controlled not by the federal government but by white bankers who saw it as a source of capital for speculative ventures.

“Not only did Blacks lose confidence in the United States government; they lost faith in banks in general.” ”

One of the people calling the shots was Henry Cooke, a free-spending investor who used the bank’s deposits to speculate in railroad bonds. Cooke’s initial bets on railroads proved fruitful, so the Freedmen’s Bank added branches and embarked on an advertising campaign to attract more money. But in an economic crash in 1873, railroad investments cratered, and the Freedmen’s Savings Bank suffered. The bank closed in 1874, and more than 61,000 customers lost nearly $3 million. But the damage went beyond money. Many African Americans came to distrust the federal government, and many believed they had been deliberately defrauded.

Many other Black financial institutions would fail.

The growth of Black-owned businesses after the Civil War seemed to pave the way for successful banks. Just 4,000 African Americans operated enterprises in 1867, but by 1930, some 70,000 Black-owned businesses existed in the United States. However, these enterprises were primarily small and unsophisticated. While mainstream banks did business with railroads and factories, Black banks were limited to a clientele of barbers, blacksmiths, housekeepers and restaurant owners. What’s more, high capital ratios have long hamstrung Black banks, which hinders their lending capacity and their profitability.

“Black bank deposits differed from those in white banks – they were smaller and more frequently withdrawn, which made them more risky.” ”

In Richmond, Virginia, the True Reformers Bank was one of the first Black banks of the late 19th century. It was formed after whites lynched a prosperous Black shopkeeper; the victim’s killers had learned of his wealth from his white banker. For a time, the True Reformers Bank was successful and solvent, but it collapsed in 1910. In Savannah, Georgia, the Wage Earners Savings Bank failed, in large part because loans were made based on personal relationships rather than stringent underwriting. In Birmingham, Alabama, a Black bank survived for 25 years but succumbed in 1915. The high failure rate for Black banks would continue into the 21st century.

Durham, North Carolina, provided the rare example of a thriving Black community.

Durham’s Black business district was designed to be self-sufficient, and in 1907 the Mechanics and Farmers Bank launched to serve the financial needs of the community. The bank survived for decades, persevering through robberies and the Great Depression. One important ingredient was the overall prosperity of Durham’s economy. The tobacco and textile boom meant the white population did well, so there was little reason for resentment and racial animosity.

“The well-being of a community and the economic health of its banks are usually correlated, and Durham’s Black financial sector reflected general business health.” ”

The story was much different in Tulsa, Oklahoma. The African American community there was so successful that it was known as “Black Wall Street.” A race riot in May 1921 saw a white mob burn thousands of homes and kill hundreds of Black people. Jealousy of the success of Black businesspeople, including some who had successfully speculated in oil, precipitated the bloodshed. Tulsa’s successful Black capitalists showed off their wealth with ornate mansions. In Durham, prosperous Black individuals made sure to conceal their wealth. For instance, when a Black-owned insurance company constructed a building in Durham, it took pains to make sure the tower was not as tall as those of white-owned buildings.

From 1910 to 1970, many Black people fled the South for New York, Detroit, Chicago and other northern cities.

The Great Migration appealed to Black Americans seeking wealth and freedom. The promise ultimately proved empty, but the population shifts created opportunities for Black banks. In Chicago, for instance, the Binga State Bank grew quickly. Jesse Binga was an opportunistic businessperson who cashed in on white flight. He bought homes from white families and then resold them to Black buyers. During the 1920s, the Binga State Bank’s deposits soared past $1 million. But the stock market crash of 1929 quickly brought his bank to the brink. White lenders declined to extend credit, and in 1930 the Binga State Bank closed. Its customers lost their deposits.

“Once in the banking system, money flows toward more money.” ”

Black Americans who moved north found a different form of discrimination. Segregation was strictly enforced, and the arrival of Black migrants to a neighborhood invariably led white homeowners to sell. This depressed home values, meaning that properties in Black neighborhoods weren’t appreciating. For the past century, Black banks have run up against an immutable reality: These institutions aren’t wealth creators but simply platforms by which money from Black depositors moves into the general economy. White flight underscored the challenges faced by Black banks. During the Great Migration, home sales to Black buyers almost always involved white sellers. This prevented Black banks from tapping into a self-sustaining banking system: The proceeds from a sale went to a white bank, while the Black bank held the mortgage on a property that wasn’t gaining value.

The New Deal’s transformative programs excluded African Americans.

The economic reforms enacted during the Great Depression paved the way for poor white people to move into the middle class, but they offered little to African Americans. The powerful Southern bloc in Congress made certain that laws mandating minimum wages and Social Security didn’t apply to domestic workers and farmhands, the most common jobs among Black Americans in the South. Meanwhile, New Deal creations such as the Federal National Mortgage Association and the Federal Housing Administration expanded homeownership opportunities for white individuals while excluding Black people. In another insult, Public Works Administration grants funded roads and bridges that sliced through northern Black communities, a legacy that harmed these areas for decades.

“The prosperity fueled by the abundant flow of mortgage credit stopped firmly at the red lines around the Black ghettos.” ”

As the Great Migration accelerated after World War II, Black arrivals to Northern cities increasingly crammed into crowded ghettos. These neighborhoods featured subpar housing and poor schools, and blight and crime became epidemic. In another inequity wrought by the New Deal, the Federal Deposit Insurance Corporation (FDIC) imposed capital requirements that essentially locked Black institutions out of eligibility for bank charters.

The Great Society reforms failed to boost Black Americans’ fortunes.

In 1964, president Lyndon Johnson signed the Civil Rights Act, which outlawed employment discrimination. A year later, the Voting Rights Act sought to end prejudice at the polling place. As important as these reforms were, they did little to create job opportunities or wealth for African Americans. Black people still found themselves mired in poverty and without access to credit. That meant Black consumers were forced to pay more for groceries and other goods, and to borrow on unfavorable terms. During the riots of the late 1960s, looters often made sure to burn the leather-bound books in which merchants recorded debts. The Fair Housing Act of 1968 was another federal initiative that promised much and delivered nothing.

“Segregation, white flight and declining home values continued to hamper Black families’ ability to grow wealth.”

When Richard Nixon came to the White House, he calculated that attempting real reforms wouldn’t help him politically. So he touted a different path, that of “Black capitalism.” A speechwriter for Nixon described this up-by-the-bootstraps approach as an alternative to “the Negro habit of dependence,” a line that conveniently overlooked decades of government programs that helped white Americans prosper while oppressing African Americans. Nixon’s Black capitalism proposals accomplished little, but they were popular with the press. They also appealed to Black militants, who embraced Nixon’s notion of Black self-sufficiency.

“Ending segregation was not the same thing as integration.” ”

The sagas of the Freedom National Bank of Harlem, which failed in 1990, and ShoreBank, which collapsed in 2010, show that not much has changed when it comes to Black banking. The closing of Freedom National offered a rare example of the FDIC not paying depositors who had more than $100,000 spread across multiple accounts. Only after Congress acted did the FDIC make the bank’s customers whole – even though such a move was common practice at mainstream banks.

ShoreBank was a Chicago institution that served a Black clientele, and it drew the attention of such luminaries as Bill Clinton, Barack Obama and Muhammad Yunus, who won a Nobel Peace Prize for his microcredit initiatives. But the financial crisis of 2008 overwhelmed ShoreBank. When it applied for bailout funds under the Troubled Asset Relief Program (TARP), ShoreBank was denied – even though such Wall Street giants as Citigroup, Bank of America, JPMorgan Chase and Wells Fargo received TARP money.

About the Author

Mehrsa Baradaran is a law professor at the University of California, Irvine. She is also the author of How the Other Half Banks.

This document is restricted to personal use only.

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    R. E. 11 months ago
    American was never founded on equality - it's an article of faith that isn't true. It's when we talk of Athenian democracy - democracy for whom? If slavery existed at the time of the drafting of the American Constitution and does nothing to address it then inequity was LOCKED IN at the outset.

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