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HOW THE FIRST BLACK BANK WAS LOOTED  
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Dale Kretz
June 12, 2025
Jacobin
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_ In the early days of the Gilded Age’s rush for profit, freed
people’s savings were siphoned off by politically connected
financiers. Justene Hill Edwards’s Savings and Trust uncovers how
finance cloaked dispossession in the language of uplift. _

Etching of the Office of the Freedmen’s Bureau, Memphis, Tennessee,
founded in 1865. , US Department of the Treasury

 

Review of _Savings and Trust: The Rise and Betrayal of the
Freedman’s Bank_ by Justene Hill Edwards (W. W. Norton, 2024)

Among the myriad metrics of inequality today, none appear so
quintessentially American as the racial wealth gap. Today white
households hold
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percent of all wealth in the United States whereas black families
claim less than 4 percent. The median black family owns
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2 percent of the wealth of their white counterparts. Public-facing
scholarship in recent years has sought to uncover not only the extent
of such inequality in American life but the historical roots of it.

 

It is impossible to tell the story of the racial wealth gap, and
indeed the story of the United States, without a full accounting of
the history of enslavement and its long aftermath. Reconstruction was
a revolutionary period of black political advancement
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democratic possibility. But alongside its gains came a brutal
backlash. In the South and beyond, black Americans were targeted not
only physically but financially.

That Reconstruction was toppled by reactionary forces seeking to
reestablish white supremacy in the South is well known. Less well
known is how freed people’s northern Republican allies betrayed four
million former slaves in the party’s quest to maintain political
power and grow American capitalism. That story involves not simply
abandonment but, before that, complicity — even entrapment — and
contains within it an unlikely fountainhead of America’s racial
wealth gap: the Freedman’s Bank.

From 1865 to 1874, freed people opened over 100,000 accounts worth the
present-day equivalent of $1.5 billion. When the bank shuttered in
July 1874, more than 60,000 depositors lost access to their funds —
a total of $40.1 million in today’s dollars. On average, depositors
would only recoup about 20 percent of their savings. Dispiriting
efforts to recover depositors’ losses continued into the 1940s, by
which time the memory of the Freedman’s Bank hardened like scar
tissue in the hearts of black Americans seeking political inclusion,
economic security, and human dignity.

The rise and demise of this confounding institution is narrated
brilliantly, in meticulous and unsparing detail, by historian Justene
Hill Edwards in her latest book
[[link removed]], _Savings and Trust_.

Selling Risk to the Newly Free

President Abraham Lincoln signed the Freedman’s Bank into law on
March 3, 1865 — the same day he authorized the Freedman’s Bureau,
a federal agency tasked with assisting newly emancipated people. Even
though the bank was technically a private institution and the bureau a
public one housed in the War Department, their fates were inextricably
linked. This owed not merely to the similar names, but also the
overlapping personnel between the two organizations and, most
importantly, the misleading advertising done by the bank’s trustees
to attract depositors.

The commissioner of the Freedman’s Bureau, General Oliver Otis
Howard, himself regarded the privately administered bank as an
“auxiliary” to his public agency. It was Howard’s own
superintendent of education, Rev. John W. Alvord, who founded the
Freedman’s Bank and would eventually serve as its third president.

Chartered as the Freedman’s Savings and Trust Company, the
organization began its life as a savings and loan bank. Savings and
loan banks occupied the safe side of the financial landscape of
nineteenth-century America. They braided together economic and civil
uplift, fastened with good old-fashioned patriotism and bootstrap
self-reliance.

By law, the Freedman’s Bank was limited to investing only in
government debt — “stocks, bonds, treasury notes, and securities
of the United States” — a seemingly safe strategy, especially when
stacked up against the bonanza of speculative ventures that punctuated
nineteenth-century America.

Commercial investment banks were riskier endeavors. They existed to
make a profit, and accomplished this by extending loans of calculated
risk in the hope of paying higher returns to the bank’s investors.
As Karl Marx observed in _Capital _— first published in 1867, two
years after the founding of the Freedman’s Bank — capital needs to
circulate within the market in order to grow. Simply retaining
depositors’ money under the marble mattress of the savings bank did
nothing to promote growth. It was all safety, no risk, and, for the
capitalist, no reward.

Whether mission-based or growth-oriented, all banks needed depositors.
Rev. Alvord and the bank’s first vice president, Mahlon Hewitt,
toured the South to elicit participation from freed people in
“their” bank and, in Edwards’s words, “spread the gospel of
the Freedman’s Savings and Trust Company” and the virtue of
thrift. They targeted black churches.

Despite the nightmare of restored Confederate landownership, freed
people began putting their trust in the Freedman’s Bank — and by
March 1867, they had deposited the present-day equivalent of $33.2
million.

The overwhelming priority for newly emancipated people was economic.
They sought stability and independence and accordingly regarded
landownership as the surest path to economic security. Most lacked
both the capital and appetite for financial risk. They were wary of
abstract figures in ledgers and preferred tangible forms of wealth —
things they could put in their pockets or sink their plows into and
call their own.

 

Many freed people held out hopes for the long-awaited promise of land
redistribution, as forecasted by directives such as General William T.
Sherman’s Field Order No. 15, announced in January 1865, which set
aside 400,000 acres in coastal Georgia and South Carolina for the
exclusive settlement of black families on 40-acre plots.

By January 1866, however, that dream had unraveled. President Andrew
Johnson, once regarded as the scourge of the planter class, reversed
course and denationalized hundreds of thousands of acres confiscated
from rebel slaveholders during the Civil War. Despite the nightmare of
restored Confederate landownership, freed people began putting their
trust in the Freedman’s Bank. By March 1867, they had deposited the
present-day equivalent of $33.2 million.

Yet Edwards identifies serious warning signs early on. The bank was
growing too fast, and the trustees struggled to meet the demands of a
growing base of black depositors. There were not enough branches.
Trustees also worried that freed people did not keep their deposits in
their accounts long enough to earn any interest or afford the trustees
an opportunity to accrue earnings from their investments. Most
important, they felt constrained by the bank’s charter, which
restricted investments to government securities.

To address these issues, Alvord lobbied for more branches to open in
cities across the South and persuaded the trustees to relocate the
bank’s headquarters from New York City to Washington, DC. The
capital offered both symbolic and strategic advantages: proximity to
larger black communities and the illusion of federal backing. “The
relationship between banking and citizenship,” Edwards demonstrates,
“became central to the bank’s propaganda to black depositors.”

From Philanthropy to Pillage

The bank’s headquarters relocated from Wall Street to Washington in
the spring of 1867, though the more consequential move was the
addition of financier Henry D. Cooke to the board of trustees. Back in
December 1861, Cooke had partnered with his brother to form the
nation’s first investment bank: Jay Cooke & Company.

The Cooke brothers raised millions of dollars during the Civil War to
finance the Union war efforts through the selling of government bonds.
Having “saved” the Union, Cooke must have felt entitled to join a
board staffed with former abolitionists and avowed philanthropists. He
sat on the bank’s moribund finance committee and quickly set about
remaking it in his image.

Cooke embodied the bank’s fateful transformation: the union of high
finance and high politics. Leveraging his influence, Cooke promptly
brought on board two close colleagues: Daniel L. Eaton and William S.
Huntington. Eaton received the bank’s first illegal loan, valued at
about $21,000 today, just two weeks before he began serving as the
bank’s actuary. This loan, though modest, was but the first trickle
out of a dam about to burst. In February 1868, the board authorized
Cooke and Eaton to use $300,000 (about $7 million today) to buy
railroad bonds instead of government securities. These bonds were
brokered by Jay Cooke & Company.

By March 1868, Alvord was elected president of the Freedman’s Bank,
which held today’s equivalent of $76.1 million and would, in a year,
hold more than $161 million. And Cooke continued the lending spree.
Burdened with rising operational costs and buoyed by the allure of
more lucrative investments, Cooke and the board appealed to Congress
— which had afforded the bank zero oversight — to amend its
charter so trustees could take out low-interest loans.

Congress approved the bill to amend the charter of the Freedman’s
Bank on May 3, 1870, retroactively legalizing what had already become
common practice. The trustees had transformed a savings institution
for formerly enslaved people into their personal slush fund —
raiding more than $292 million (in today’s dollars) from nearly
45,000 depositors. Consolidated in the hands of Cooke, Eaton, and
Huntington, the Freedman’s Bank extended hundreds of loans between
1870 and 1872. Most of these loans went to men who enjoyed personal
connections with the trio.

The trustees had transformed a savings institution for formerly
enslaved people into their personal slush fund — raiding more than
$292 million (in today’s dollars) from nearly 45,000 depositors.

The first whistleblower sounded off in early 1871. Edgar Ketchum, the
bank’s secretary, had long been a proverbial thorn in the side of
Cooke and his cronies. After months of questioning the bank’s
investment portfolio, Ketchum convinced the board to start calling in
its many loans in January 1872 — beginning with the one extended to
Jay Cooke & Company. The board demanded the return on February 6.

The recall read like writing on the wall. Cooke resigned two days
later.

Counseling Thrift as a Cover for Theft

Though unique in its stated mission to promote the financial
well-being of freed people, the Freedman’s Bank ultimately came to
typify the reckless financialization of Gilded Age capitalism. It also
served as a canary in the coal mine for the larger American economy:
the financial panic of 1873 began with the collapse of none other than
Jay Cooke & Company. In many ways, the Freedman’s Bank had
become _its_ auxiliary.

 

After nine years of deceptive solicitation, a dizzying period of
reckless and illicit lending, and the “retirement” of President
Alvord, the trustees of the Freedman’s Bank sought a public
relations makeover. For that they turned to the most famous black man
in America: Frederick Douglass.

A longtime advocate of the Freedman’s Bank, Douglass accepted the
bank’s presidency in March 1874 completely unaware of its imminent
insolvency. Black allies on the board, including Prof. John Mercer
Langston and Dr. Charles Purvis, hoped Douglass’s ascent to the
position would reverse course and re-inspire confidence in the
institution. But the motives of their white counterparts on the board
were entirely cynical. They needed a fall guy. And, to sufficiently
bear the public shame of financial irresponsibility, he needed to be
black. “The narrative would be,” Edwards forecasts, “that black
administrators mishandled the bank and black depositors were unable to
handle the economic responsibility of freedom.”

On June 29, 1874, the trustees decided to end operations. In the
fallout after the bank’s demise, as tens of thousands of depositors
struggled — and failed — to recoup their deposits, Congress
finally launched an investigation into the misconduct of the bank’s
leadership. The committee recommended that charges be brought against
several key figures, including Alvord and the Cooke brothers, but no
legal action was ever taken.

Still, the investigation continued, albeit at an agonizing pace. Like
his Democratic counterparts, Senator Blanche K. Bruce also wanted the
bank’s trustees to be held accountable for swindling depositors. But
Bruce and other black leaders took very different lessons from the
bank’s failure. They learned, according to Edwards, to keep their
savings — and their trust — to themselves.

Small Sums and Grand Thefts

For Edwards, the story of the Freedman’s Bank is more than a
cautionary tale. It left a lasting impression on black political
consciousness and was an early prototype for how economic inclusion
could be paired with dispossession — not only along racial lines,
but through class hierarchies — under the guise of institutional
legitimacy. The bank taught black people to mistrust white financial
institutions and — through a massive transfer of wealth away from
four million freed people (some $1.5 billion today) — deepened the
racial wealth gap during a critical period of emancipation and
inclusion. It is not that black wealth was nonexistent in the early
years after 1865; rather, it’s that black people’s hard-won
accumulation was systematically targeted and stolen.

Bank leaders manufactured a false image of the Freedman’s Bank as a
federal institution, and that patronizing the institution with their
‘small sums’ was freed people’s patriotic duty.

The word_ plunder _has come to occupy a central place in describing
this history, both for its rhetorical precision and moral clarity. (A
recent work by historian of slavery Calvin Schermerhorn is
pointedly entitled
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Plunder of Black America: How the Racial Wealth Gap Was Made_.) Though
the term evokes images of raiding and pillaging, the actual
perpetrators —then as now — wore suits, cited laws, and operated
with impunity, as any observer of the 2008 financial crash and bailout
saga must acknowledge.

A broader lesson, emphasized by scholars like Keeanga-Yamahtta Taylor
and K-Sue Park, is that economic inclusion has often coincided with
exploitation and predation
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The white trustees of the Freedman’s Bank were incentivized to
attract as many black depositors as possible and, using their savings,
extend increasingly risky loans to generate more revenue for the bank.

In doing so, they capitalized on the inexperience of a population
newly thrust into the free market — a people not only denied
meaningful participation in formal financial institutions but who were
once themselves regarded as capital. The dictates of financial
capitalism remade self-stylized protectors into predators. Bank
leaders consciously manufactured a false image of the Freedman’s
Bank as a federal institution, and that patronizing the institution
with their “small sums” was freed people’s patriotic duty.

 

As amply demonstrated by the tragedy of the Freedman’s Bank, the
inclusion of former slaves into the American economy through the
threadbare morality of thrift and the extremely dubious vehicle of
banks was bound to fail. Far from being insulated from the pressures
of financial capitalism, such normalizing ideologies and institutions
were — and remain — foundational to it.

_DALE KRETZ is a historian, organizer, and the author
of Administering Freedom: The State of Emancipation after the
Freedmen’s Bureau. He works as a labor representative in Los
Angeles._

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* U.S. history
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* slavery
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* Inequality
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* Reconstruction
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* Racism
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* Banks
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