The Betrayal of Frederick Douglass

0:05We've been hearing how Reconstruction fundamentally shifted political power in the South as newly freed black people built schools and black men voted and ran for public office. Many Southern whites were unwilling to accept these changes, and so we've also heard about the violence that ensued during Reconstruction. But they were also more subtle ways to undermine the project. One person who saw that coming was the great abolitionist Frederick Douglass. We started our series with Douglass' story, and I argued that because of his impact on the direction of the nation, he should be considered one of the founding fathers.

0:42Douglass understood American politics so well that he was often called prophetic. And yet, this brilliant man somehow got conned by his own allies. I'm Malcolm Gladwell, and this is Reconstruction, the Unfinished Promise. In 1874, about a decade into Reconstruction, Frederick Douglass found himself mired in scandal. In the short run, the scandal would give ammunition to the southern foes of Reconstruction. In the long run, it would foster a mistrust of the financial system for generations of Black Americans, contributing to the wealth gap that exists even today between white and Black. Kai Wright brings us the story of one of the biggest financial scandals of the 19th century, one that meant the beginning of the end for Reconstruction.

1:48Frederick Douglass is best remembered today for his unwavering clarity about American democracy. It would thrive only when everybody got a chance to participate. Racism, he argued, was and is the Achilles heel of any nation that aspires to greatness. But in Douglass's own era, he was also known for a kind of corollary argument about America's greatness. He believed the country was uniquely suited to produce what he called self-made men.

2:25The lessons which such men teach are valuable in many respects. Chief among them is the dignity of humanity. They teach us, too, the value of work, self-reliance, and manly independence. And actually, one of the speeches Douglass gave most often throughout his life was a stem-winding tribute to these self-made men, to people who reached down, grabbed their own bootstraps, and pulled themselves up. Let us appreciate such men and award them the mead of praise due to their heroism. Self-reliance. This to Douglass was the essential part of American life. So it's not surprising that throughout Reconstruction, he was preoccupied with the subject of Black self-reliance.

3:20And I think it's even fair to say that Douglass believed the biggest missing piece of Black liberation, the piece that would create self-reliance and would generate more Black self-made men, was that we needed to get our money right. No people ever yet made any considerable progress in civilization or in the estimation of their fellow men who had not had money. And what the Negro wants, especially just now, is money. In this fixation on the idea of self-reliance, it's eventually how Frederick Douglass gets himself mixed up in this horrible financial scandal. But that's getting ahead of ourselves.

4:09First, we need to go back, all the way back, to the end of the Civil War and the start of Reconstruction. Back then, Frederick Douglass was actually not the only one who could see that the path to freedom in America was at least partially paved with money. Black Americans were transitioning into this period of freedom with fully formed ideas about their own economic lives, themselves as financial actors. I called up Justine Hill Edwards because she literally wrote the book on how Black people tried to build wealth during Reconstruction. She's a historian at the University of Virginia. They were thinking about this when they were enslaved, and surely they were bringing these ideas with them into the period of freedom.

4:57Justine says America was buzzing with missionary zeal during Reconstruction. A small army of civilians in the North went south during and after the war, looking for ways to help. And one of these helpers was a guy named John Alvord. John Alvord was a white abolitionist and minister from New Jersey. A true believer in abolition who worked for the Union Army. A family man, white, in his late 50s, he felt he was genuinely called by God to aid the newly freed people. And at the end of the war, he lingered in the South, looking for his next ministry. That's when he had this crazy encounter. He is talking to a white officer in Beaufort, and this officer tells him that he has about$75 ,000 in Black soldiers' pay.

5:53$75 ,000? Yes. Justine says Black soldiers stationed in the South needed someplace safe to put their cash. So a bunch of them had given their earnings to this white army officer who was riding around with it in a trunk. Where was he going with the truck of money? It's a good question. I'm not sure. Probably just, you know, a trunk filled with, you know, dollars and coins and hoping that nobody stole it. It is. It's such an evocative scene in thinking about how chaotic the financial world was at that moment. There's a truck full of$75 ,000 just driving around in Buford, South Carolina. And this is not adjusted for inflation.

6:40That would probably today be a million dollars or so.

6:48I think we as kind of modern humans like to think about the financial system as being fairly stable. But we're talking about a period of time in American and really world history where banking was inherently a risky venture. And so I call it the kind of wild, wild west of banking. This encounter gave John Albert an idea. He could help the cause of emancipation by starting a bank just for the free people. So he returns to the north. He starts promoting his idea among all the movers and shakers in Lincoln's Republican Party. And pretty quickly, it materializes as one of the first high-profile projects of Reconstruction.

7:32The Freedman Savings and Trust Company, I'll call it the Freedman's Bank, was a financial institution, a savings bank, created specifically for African Americans recently emancipated from slavery. kind of helping them establish a firm financial footing during this new period of freedom. A completely new idea. No place in the world ever tried this, by the way, where slavery had ended throughout the Spanish Empire, British Empire, and so on and so forth. A bank for the freed people? Whoa. David Blight is Frederick Douglass's biographer. We met him earlier in the series. And he says Douglass really loved this whole idea.

8:12Well, I think it was so important to Douglas because it does fit in the best sentiments of that idea of self-reliance. If you had 10 bucks or 20 bucks or 100 bucks, put it in that bank, earn some interest, become your own capitalist, become self-sustaining. See, the Freemans Bank was a moral issue to Douglas. It meant that if the government creates this and it sustains it, it becomes one of the principal examples, physical examples, that the United States truly means the emancipation they committed and they will sustain it.

8:57There is nothing in the world like a little purse put aside for a dark day. Black people absolutely welcomed the Freedmen's Bank. Whole families deposited their money. Parents, grandparents, wives and husbands. There were dozens of branches all over the country, but primarily in the South. And people walked in with deposits large and small, just building up this store of dreams and plans. One of the beautiful stories that I love, I talk about the New Orleans branch and a Black woman who opens an account on July 2nd, 1866. And her name is Mrs. Ellen Baptiste Lubom. And I love how she puts Mrs. in her depositor records.

9:49It's a beautiful name. Right? She was born and raised in New Orleans. She had two daughters, Marguerite and Mary Lou Baum. She was married. She worked as a washerwoman, and she lived close to the French Quarter. But there's a lot that's actually not there. Nowhere on her depositor record is the name of her husband. Instead of putting her husband's name, she puts the name of her two daughters, which I just find so fascinating. She had a sophistication about wealth transfer. And so if she died, the contents of her account could go to her daughters. I mean, we often don't acknowledge enough the education that African Americans, especially the formerly enslaved, were bringing with them.

10:40But it's reflected in these records. Is this a first brush with officialdom? You know, a first brush with being able for yourself to write down, here's who I am? Absolutely. And so it was important for them, I think, to kind of put down as much information as possible or not any information at all. Depending on your temperament. Exactly, exactly. In terms of the bank's life, African-Americans, by and large, deposited about$57 million into the bank. And this is across about 70 ,000 accounts. That's$57 million in today's terms or those terms? This is in 1870s terms today, and this is a conservative amount.

11:25Conservatively, that would be about$1.5 billion. Wow. We're talking about African-Americans recently emancipated from slavery, depositing millions upon millions of dollars. That's mind-blowing. I'm just waiting for you to have a shitter drop. You know this does not end well. Well, but it does get off to a pretty good start, Malcolm. I mean, in five years' time, they opened 34 branches all over the South and as far north as New York City. I mean, it's precisely the kind of thing that Frederick Douglass had been saying Black people needed in order to sustain the political momentum of Reconstruction.

12:05But no, it's not going to end well.

12:17We are in uncharted territory. Staff writer Evan Osnos on the New Yorker Radio Hour. I think all of us right now are trying to make sense of an avalanche of news every day. And there aren't very many places where you can go and understand how something looks in the grand scope of history and context. That's what I come to the New Yorker for. I'm David Remnick, and each week my colleagues and I try to make sense of what's happening in this chaotic world. And I hope you'll join us for the New Yorker Radio Hour.

12:54The Freedman's Bank launched quickly. John Alvord, the guy who started it, knew absolutely nothing about finance. Remember, he was a Baptist minister, not a banker. But he was a well-connected Baptist minister. So he was able to recruit a bunch of influential northern men to help out. We are talking about a who's who of Republicans who supported Lincoln. We are talking about bankers and financiers. We're talking about businessmen who owned kind of export trading companies. And so we are talking about a fairly tight knit group of white men who saw their affiliation with the bank as being an extension of their kind of civic dedication.

13:42They were the wealthy white liberals of their time. Exactly. And during the period of slavery, many of them were supportive of abolitionism and anti-slavery activism. And so this was kind of an extension of that. They saw the kind of next step as being affiliated with an institution like the Freedmen's Bank. They went to their allies in Congress and got their project chartered as a national savings bank. The bank rapidly became one of the most visibly successful institutions of reconstruction. Its trustees even created a sort of monument to their own achievement. They built a beautiful building in Washington just up the street from the White House.

14:26It is one of the most expensive buildings in the city. It is kind of outfitted with black walnut and marble. The furnishings were beautiful. Frederick Douglass writes about this, and he writes about how he first saw the building, and he said he felt like the Queen of Sheba looking at this beautiful building. Its towering height, its perfect appointments, and the fine display it made in the transaction of its business. It was a sight I had never expected to see.

15:06But that beautiful, expensive D.C. headquarters was not a symbol of the bank's prosperity and industry. It was the opposite. First off, if the D.C. building symbolized anything, it was the white trustees' disregard for their Black customers, who, unlike Frederick Douglass, had no particular interest in a fancy headquarters next to the White House. Especially since most of them weren't in D.C., right? Right. A depositor in Shreveport or a depositor in Tallahassee didn't care about this. They wanted to make sure that their money was safe. It represented the fundamental misalignment between the bank's depositors and the bank's administrators.

15:51And that misalignment included a big flaw in the business plan that John Alvord and his friends created at the beginning of this venture. In the most 101 way you can, can you explain the problem that the bank had? Sure. So as the bank is founded as a pure savings bank, where depositors would put money in the bank, and if they left their money in the bank, they would earn a small amount of interest on their money. Think of it like a super conservative retirement account. So you know how you always hear financial advisors today preaching caution? Don't touch your 401k. Ignore the ups and downs of the stock market and just focus on long-term growth.

16:36Well, that was also the initial plan for the Friedman's Bank. Convince a lot of depositors to put in a little bit of money, let it sit, and slowly, slowly build a return on their investment, both for the depositors and for the bank itself. About a third of the bank's deposits were supposed to be invested in government securities. And these types of financial products can take a long time to make a profit. And so the entire infrastructure functioned off of the idea of depositors putting money in the bank and leaving it there for months or years at a time. The depositors were thinking very differently about saving.

17:20African-Americans weren't concerned with building interests on their savings accounts. They wanted to save money to buy land. Land was tangible. Land was capital. Land was kind of what they needed to protect themselves. So, lo and behold, whenever the Black depositors of the Freedmen's Bank had saved up enough money to buy land, they withdrew their money from the bank. They weren't concerned with leaving money in the bank for long periods of time. Which meant that despite the huge sums of money flowing through the bank, it never held on to enough cash to sustain itself. Their business plan, based on slow, cautious investments in government securities, could not work.

18:07The bank's expenses were going up and the bank's investments weren't making money.

18:16so the bank in its original conception is like a it's like a white projection of what black people correct it is a an established white person's idea of what role a bank ought to play in in establishing financial security that's right formerly enslaved people are looking at reality you know um it's not like this was mystery every time the trustees describe the bank to depositors these formerly enslaved people would say, great, here's what I'm looking for, a place to put my money until I get land. And they just couldn't hear them. Not the first time that has happened, by the way. Within a few years of the bank's founding, John Alvord and the other trustees began to realize that they had created a problem.

19:01Despite all the outward signs of success, the huge number of accounts, the dozens of branches, the D.C. headquarters with the black walnut paneling, The bank was barely solvent. The trustees needed a new plan. And this is where the story moves from maybe well-intentioned incompetence to something more ugly and more familiar to today's financial corruption scandals. The idea of the Freedmen's Bank being a benevolent financial institution created first and foremost to serve Black Americans started to shift. In the winter and spring of 1870, the trustees went back to their allies in Congress and they asked for a new charter.

19:46They wanted to become a commercial bank. They asked Congress to let them get in on real estate to make loans to development projects that could generate big, fast returns. It's worth noting that at least one senator loudly objected to this idea. Senator Simon Cameron, an old, dour-faced businessman who controlled the Pennsylvania political machine and who'd been in and out of government for decades. No wisely conducted bank will allow its money to be loaned upon real estate where it can never be quickly collected. Cameron told his colleagues, look guys, it's a really bad idea to let this bank start making speculative loans, especially on real estate, of all things.

20:35There is nothing so unsafe, so changeable in its character, and so easily to be inflated in a board of directors as real estate. Cameron himself had a storied reputation for corruption and sneaky politics. So maybe this is a case, the game sees game, but he tells his colleagues, mark my words, if you let that bank start making loans, the trustees are going to start self-dealing and start lending money to their own speculative development projects. Remember that this money belongs to thousands of people across the country. Thousands of formerly enslaved people primarily. People who had slowly scratched together their money, working under unimaginable conditions, just trying to make themselves into one of Frederick Douglass' so-called self-made Americans.

21:30I don't know how much Senator Cameron cared about these people, but he clearly didn't trust the bank. Nonetheless, his objections were dismissed. The Senate approved a new charter for the Freedmen's Bank. And the trustees went on to break every rule in exactly the way Senator Cameron had predicted. The floodgates are just let loose. Yes, sir. $85 ,000. Approved. $7 ,200. You got it. They were lending money with stocks and bonds as collateral. YMCA stock was used as collateral. This is$12 ,000, sir. Approved. $43 ,225. Approved. You have the bank's white administrators essentially gambling with the savings of African Americans.

22:26Have at it. $7 ,750. Approved. And sure enough, they lent a lot of money to their own speculative ventures. The lead lobbyist for the new charter, who was himself a trustee, borrowed at least a half a million dollars.

22:44If I had the ability to ask these historical actors, right, I'm sure they would say, being free, being a citizen, having inclusion in the body politic requires you to take risk. And so if you are not ready to take that type of risk, then you should not have put your money in the bank. And as an extension of that, perhaps African-Americans were not ready for the responsibilities of freedom. If they weren't ready to gamble. Yeah, yeah. But as is often the case with gambling, eventually the bank rolled craps. The economy just tanked in the spring of 1873.

23:35The Panic of 1873, as it was called. It is still, today, one of the most brutal economic crises in all of American history. Within only a matter of a few months, there was huge unemployment. 25 % unemployment in most major Northeastern cities. Dozens of railroads went under, just stopped functioning. Mining companies just went under. It became a depression that kind of rose and fell and rose and fell for the next, well, more than a decade. Almost nobody alive today has experienced an economic event like this. But maybe if you were an adult during the 2008 financial collapse, you can remember that sense of panic as the bottom falls out of everything.

24:27That kind of panic can create what we call bank runs, which is when huge numbers of people try to take out all their money all at one time. And if the bank doesn't have enough cash on hand to cover all those withdrawals, it fails. It goes under. These runs became common in 1873, including at some branches of the Friedman's Bank. And the trustees knew they were in trouble because they had already gambled away almost all the depositors' money. They had to convince the depositors that their money was safe. The trustees had a good idea who to call.

25:06Frederick Douglass is an advocate of the bank. He is constantly supporting the bank publicly. And he is a great candidate to become the bank's very public new face. The board got together and they said, all right, let's put Douglass in charge. That'll give black people confidence because if Frederick Douglass is in charge of this, well, that means there's got to be something good going on here. That is not what it meant. Almost everybody who was close to him urged him not to take the presidency of this bank. Everyone around him, including his sons and his daughters said, don't do this. Just don't do this.

25:45But he did. Why do you think he did it? Prestige. and maybe a very particular kind of prestige. Douglass spent decades famous and influential and nonetheless always feeling personally insecure about money. He'd made his living as a speaker, an editor, and a writer. That's it. And like artists and writers and so on throughout history, he needed a patron here and there. And that is no easy way to get up in the morning and provide for a family and five kids. Yeah. He just turned 56 years old, and I can imagine bank president sounded like a lot better gig than newspaper editor and barnstorming activist.

26:34And after all, he was a self-made man. He could handle a new challenge, right?

26:42And so he accepts the presidency of the Freedman's Bank and quickly learns that the bank is underwater, that he was asked to be the bank's president by a group of trustees who were expecting the bank to fail. And that's exactly what happened on July 2nd, 1874. Barely three months after Frederick Douglass took over, the bank collapsed. Depositors can't get their money. They actually don't have much money on hand. Douglass was mortified. It's very embarrassing. he did not know what he was doing by entering into it, and it died on his watch. How cynical, bringing in Douglas at the end, as the bank is sort of lurching towards disaster, how cynical is that?

27:34Is it the only way to save this is to bring in a very trusted black figure and restore the kind of integrity of the bank? Or is it, let's get out and blame the black guy? Which of those versions is it? I don't think we know. And it might be all of the above. Certainly there is no one else that could have convinced black people not to take out their money. And he really spends the rest of his life trying to explain it, you know. Was he financially ruined by the collapse of the bank? He was not, but he was never financially stable in the first place, right? But he is certainly emotionally crippled by it.