Banks Should Pay Reparations
The financial industry literally profited off the enslavement of black people
This past summer, for the first time in a decade, Congress debated the merits of paying monetary reparations for slavery, and just as one might expect, objections to the proposal followed a familiar train of warped logic. “I don’t think reparations for something that happened 150 years ago for which none of us currently living are responsible is a good idea,” Senate Majority Leader Mitch McConnell said in June, on the eve of a House hearing debating the issue.
According to this well-worn argument, the descendants of slaveholders — and that includes McConnell himself — shouldn’t be held accountable for the sins of their ancestors, and no one else from that era is still alive to take the blame. But what if there were some immortal beings that profited from slavery, amassed the massive wealth needed to pay reparations, and maintains the clear liability for paying them?
Such entities do exist. They’re called banks.
At the turn of the 21st century, reparations activists pressured a number of big cities to pass laws that required businesses to disclose whether they profited from slavery. One of the biggest successes was Chicago, which passed such an ordinance in 2002.
Since the Windy City is a major financial hub, the law forced some of the biggest historical beneficiaries of slavery, that is, banks and insurance companies, to disclose any past involvement.
As a result, JPMorgan Chase admitted that between 1831 and 1865, two of its predecessor banks extended loans to slaveholders and accepted 13,000 slaves as collateral. After some of them defaulted, the banks came to directly possess about 1,250 people.
The bank apologized in 2005 and created a $5 million scholarship fund for black youth. That sum is only a fraction of what they made off slavery. In 1860, the average price of a slave in today’s dollars was about $23,000, according to Measuring Worth, a project of economic historians Samuel Williamson and Lawrence Officer. Assuming those slaves were resold, that adds up to $28.7 million. That sum, when invested at a modest rate of return over 150 years, would amount to billions today. And that’s just the tip of the iceberg.
Chicago’s slavery disclosure ordinance revealed that the largest banks and insurers, or their predecessors, had benefitted financially from slavery. Among them were Lehman Brothers, Aetna, AIG, Wachovia, and Bank of America.
This focus on whether or not a bank actually owned slaves is a red herring designed to distract from the real issue: the extent to which they cashed in on slavery. Almost all of them did.
One after the other, these companies issued disingenuous mea culpas that downplayed the roles they played in the greatest crime in the country’s history. In 2006, Bank of America admitted to discovering two “slave-related deals” but insisted that its predecessors never took possession of slaves.
These admissions were inevitably accompanied by the same boilerplate statement of regret. When Wachovia came clean in 2005, its CEO said: “We can learn from our past, and begin a stronger dialogue about slavery and the experience of African Americans in our country.”
But this focus on whether or not a bank actually owned slaves is a red herring designed to distract from the real issue: the extent to which they cashed in on slavery. Almost all of them did.
Slavery was a huge financial enterprise and almost every bank or insurer in the country made a buck off it in some way. King Cotton, the most important raw material in the Industrial Revolution, accounted for 61% of American exports, while the United States supplied approximately 80% of what drove Britain’s textile mills.
In current dollars, slaves would be valued at $14 trillion, according to Williamson and Officer. That’s roughly three-fourths of the United States GDP in 2018. Even if a bank never accepted a single slave as collateral, it almost certainly profited from slavery in some way or another.
For example, the financial giant Lehman Brothers started off as a raw goods trader, and took raw slave-produced cotton as payment in kind for merchandise. Initially, this was a secondary business, but it became the primary profit source for the company. The founders also owned slaves themselves.
A bank could finance the purchase of slaves using something else, such as real property or other assets, as collateral. It could provide loans to slaveholders to buy land or equipment.
A bank called the Consolidated Association of the Planters of Louisiana (CAPL) pioneered the use of slave-backed securities, which were sold globally. Banks were able to finance and profit from slavery while remaining a few steps removed.
CAPL’s partner Baring Brothers & Co. was based in Britain, a country that had abolished slavery and was ostensibly dedicated to stamping out the scourge worldwide.
As Historicly points out, nobody’s hands were clean:
The booming railroad industry in the 1830s received their startup cash from slave bonds. Other companies like the forerunners of Dupont, JPMorgan Chase, Bank of America, and Citibank traded in these securities. In fact, it is hard to find a single European or American company that was formed prior to the Civil War that did not trade in some kind of slave bonds.
Other institutions likely benefited from founders who personally profited from slavery. During the attempts to hold banks accountable in the early 2000s, reparations activists found documents linking Baltimore merchant and financier George Peabody to the slave trade. Peabody was the partner of Junius Morgan, father of J.P. Morgan, and together they launched a company that became the predecessor to JPMorgan Chase. Modern bank executives maintain that this connection to slavery was tenuous. However, if any of the startup capital was raised through slave-related businesses, all wealth generated — even that created through lawful and ethical means — is still tainted.
But the past is only one part of the equation. The living legacy of slavery is the political and economic disenfranchisement of black people that exists today. JPMorgan Chase and other banks continue to profit from this state of affairs.
JPMorgan Chase’s predatory lending practices targeting minorities are well documented and have been the cause of a number of lawsuits. In 2017, it paid a $55 million mortgage discrimination settlement with the U.S. government, which found the bank routinely overcharged black and Hispanic borrowers. It’s also common practice for many banks to charge exorbitant overdraft penalties and other fees that disproportionately affect black people.
Banks like JPMorgan Chase have also profited from modern-day slavery in the form of the private prison industry. In 2018, banks helped raise nearly $2 billion in debt for the two main private prison companies CoreCivic (formerly CCA) and GEO Group. JPMorgan Chase severed its ties with the industry in March due to pressure from protest groups.
The success of civil litigation in generating nearly $8 billion in reparations for Holocaust victims and their families has prompted many to wonder if the same route might work for the descendants of slaves. But so far, civil suits brought against banks, insurers, and other companies that profited from slavery have been a dead end.
The most famous of these was brought by lawyer and activist Deadria Farmer-Paellmann in 2002 against Aetna, FleetBoston Financial, and CSX Corporation. An Illinois district court dismissed the case in 2005, and in his opinion, Judge Charles Ronald Norgle speaks to why reparations may never be won this way. In addition to listing several procedural issues, he points out the courts just don’t have the legal authority to settle the question.
“From the onset of the Civil War until present, the historical record clearly shows that the president and Congress have the constitutional authority to determine the nature and scope of the relief sought in this case, not the courts,” Norgle wrote.
That leaves Congress as the sole means by which black people might achieve reparations. And there are reasons for optimism. In 2009, the Senate passed a resolution apologizing for slavery. Only a decade earlier, a virtually identical resolution by Rep. Tony Hall, an Ohio Democrat, drew hate mail and death threats.
For decades, Rep. John Conyers (D-MI) carried the torch for reparations virtually alone. Today three Democratic presidential candidates — Cory Booker, Marianne Williamson, and Kamala Harris — have unequivocally voiced support for reparations while nearly all the primary contenders have at least endorsed Rep. Sheila Jackson Lee’s bill to form a commission to study the issue.
With regard to the general public, support for reparations remains low, but compared to two decades ago, it has increased markedly. A 2001 poll cited in The Journal of Black Studies found that only 11% of Americans favored cash reparations. According to the journal, another poll of predominantly liberal New York City found that 62% didn’t even think black people were owed an apology.
A poll conducted last year found current support for reparations at 26%. Though it’s far from the mandate needed to make reparations happen, one in four Americans are currently on board, while 61% agree that the government needs to do more to achieve black-white equality (up from 43% in 2009).
So there is nearly a supermajority in agreement with two key premises of the reparations movement — black people still suffer from the historical legacy of slavery and government action is necessary to address this — but how do we explain the lack of support for reparations?
Whenever the topic of reparations comes up, the idea is always met with one or more standard objections. “I never owned slaves and neither did my ancestors,” some like to say, “so why should I be held responsible?”
This thorny question stands as a major hurdle to the political project of reparations. Under the framework of civil law, you need a plaintiff and a defendant — a party who has been harmed and one who has harmed them. If this had been done during Reconstruction, it would be relatively straightforward: slaves and slaveholders.
But a century and a half has passed since slavery was abolished, which complicates things considerably. While it’s fairly easy to establish that the legacy of slavery continues to harm black people to this day, it’s harder to decide who bears the blame and who should pay what to whom.
That’s where banks come in.
Credit was the lifeblood of the slave system. Without the financing to buy tools, land, raw materials, and slaves, it would not have been able to achieve its breakneck expansion westward or its transformation into a multibillion-dollar industry.
Financial institutions were not merely profiteers that just skimmed off the top of the slave system or took possession of a slave here or there. They enabled it to exist.