Free Money: The Legacy of Freedman’s Bank with Historian Justene Hill Edwards

University of Virginia historian Justene Hill Edwards gave Caleb and Greg “a strong B” on their podcast episode about Freedman's Savings Bank. Nevertheless, they were eager to learn more about this Reconstruction Era fraud. Dr. Edwards’s new book, “Savings and Trust: The Rise and Betrayal of the Freedman’s Bank” tells the story in rigorous detail, the effects of which have repercussions to this day.

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• (00:00) - Welcome to Oh My Fraud
• (03:38) - Recap of the Freedman's Bank Episode
• (06:14) - Justene Hill Edwards' Background
• (15:37) - The Origins of Freedman's Bank
• (26:50) - Challenges and Expansion of Freedman's Bank
• (35:33) - Corruption and Illegal Loans
• (50:44) - The Puzzle of Banking: Balancing Loans and Deposits
• (53:39) - The Lending Bonanza and Its Consequences
• (54:26) - Edgar Ketchum's Confrontation with Cook
• (57:03) - The Public Perception and Marketing of Freedman's Bank
• (59:07) - The Panic of 1873 and Its Impact
• (01:03:25) - Frederick Douglass Takes Charge
• (01:11:09) - The Bank's Closure and Aftermath
• (01:15:28) - Investigations and Lack of Accountability
• (01:21:55) - The Legacy of Freedman's Bank
• (01:30:27) - Final Thoughts and Reflections

Buy Justene's Books
https://www.amazon.com/Savings-Trust-Rise-Betrayal-Freedmans/dp/1324073853
https://www.amazon.com/Unfree-Markets-Capitalism-Carolina-Columbia/dp/0231191138

Connect with Justene
https://www.justenehilledwards.com
https://www.linkedin.com/in/justene-hill-edwards-ph-d-265111104

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Email us at [e-mail]

The Freedman’s Bank Forum obscures the bank’s real history [Washington Post]

Savings and Trust: The Rise and Betrayal of the Freedman's Bank [W.W. Norton]

Justene Hill Edwards Interview: Unveiling America's Roots & Lincoln's Legacy [YouTube] 

The Road to Fraud Is Paved With Good Intentions | The Case of Freedman’s Bank [OMF, Ep. 51]

Creators & Guests

Host

Caleb Newquist

Writer l Content at @GustoHQ | Co-host @ohmyfraud | Founding editor @going_concern | Former @CCDedu prof | @JeffSymphony board member | Trying to pay attention.

Host

Greg Kyte, CPA

Mega-pastor of @comedychurch and the de facto worlds greatest accounting cartoonist.

Guest

Justene Hill Edwards

Professor and Author

What is Oh My Fraud?

"Oh My Fraud" is an irreverent podcast from CPA/comedian Greg Kyte and blogger/former CPA Caleb Newquist.

The two come together to unpack their favorite frauds and explore the circumstances, psychology, and interpersonal dynamics involved. They also fully indulge in victim-blaming the defrauded widows, orphans, infirm and feeble-minded—because who can resist?

If you fancy yourself a trusted advisor—or prefer your true crime with spreadsheets instead of corpses—listen to this show to learn what to watch out for to keep your clients, your firm, and even yourself safe.

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.
Earmark CPE: If you'd like to earn CPE credit for listening to this episode, visit earmark Cpcomm. Download the app. Take a short quiz and get your CPE certificate. Continuing education has never been so easy. And now on to the episode.

Caleb Newquist: Hello and welcome to Omai fraud, a true crime podcast where greed is good, but mostly it's good for just a few people and really bad for everyone [00:00:30] else. I'm Caleb Newquist.

Greg Kyte: And I'm Greg Kyte.

Caleb Newquist: Greg, how are you?

Greg Kyte: I'm great.

Caleb Newquist: You look good.

Greg Kyte: Thanks. Yeah.

Caleb Newquist: Feeling good?

Greg Kyte: Feeling tired. I've been doing. I've been. I've been working with my maintenance guys at my building this week. So I've been. I've been realizing how, uh, how, uh, how how good of a how good of a decision it was for me to pick a career where I get to sit in front of a computer instead of push a broom all day, get getting.

Caleb Newquist: Getting those soft hands. Some real action, [00:01:00] huh, Greg?

Greg Kyte: Exactly, exactly.

Caleb Newquist: Yep. All right. Well, here, if, uh, if you're if you're feeling a little out of sorts, I've got a review to read, a positive review. A five star review.

Greg Kyte: Great.

Caleb Newquist: Are you ready?

Greg Kyte: Yeah. Love it.

Caleb Newquist: Okay. This comment comes from the earmark app from the Cardinal Sins episode. That's number 67. Uh, from Douglas. He rated it five stars, but said you did not have to be so disrespectful [00:01:30] throughout to Catholics. And I think I know what's going on here, Greg. Yeah. Douglas enjoyed the podcast so much that he rated it five stars. But then his Catholic guilt got to him and he felt that he needed to contradict his rating with a mild scold. That's what I think. What happened here, I.

Greg Kyte: Think I think that's a that's a pretty reasonable assumption there. And and look, Douglas, I get it. As a Catholic, you have a lot of time to listen to podcasts because you almost never actually go [00:02:00] to church. And and as a resident of the state of Utah, I feel like I have a lot in common with Catholics because neither of us are Mormon. We're on the same team, Douglas. It was just friendly fire. Uh, so. So really, I think that's why I think he knew it was friendly fire. Yeah. So I think that's where the five stars came from. Well, thanks.

Caleb Newquist: Thanks, Douglas. Uh, for the rating and the and and the review. Yeah.

Greg Kyte: And the rebuke, the.

Caleb Newquist: Well. Well done.

Greg Kyte: Well done. If you if you're [00:02:30] a conflicted Catholic who likes oh, my fraud and also likes Pope Benedict XVI, take a minute to write us a review. It could be something like, forgive me, for I have sinned. It has been two weeks since I last listened to oh My Fraud. Here's five stars and three Hail Marys. That would be great. I would read that all day long.

Caleb Newquist: I would totally read. I would totally read the Hail Mary, uh, review, uh, on Apple or earmark or wherever it may show up.

Greg Kyte: Yeah. Send us an audio file of the Hail Marys. We'll play that on the just a at the very end of the episode.

Caleb Newquist: Yeah. [00:03:00] Okay. Uh, anyway, uh, I'll just quickly mention that, uh, if you or your organization would like a fun and informative presentation on fraud or ethics, you're in luck, because we do fun and informative live presentations on fraud and ethics.

Greg Kyte: And we do webinars, too. And not to toot our own horn, but our webinars do not suck. Or maybe your conference needs a keynote that'll wake everybody up. We do keynote presentations, send us an email at oh my fraud at earmarks [00:03:30] cpp.com to get more information on our pricing and our availability. All right. Okay.

Caleb Newquist: Excellent. Greg, do you remember our first episode of 2024?

Greg Kyte: I absolutely do, oh, for two reasons. One, it was a very memorable episode. Uh, and I felt like it kind of got us out a little bit. I mean, still fraud, but but not not just right down Main Street for what we usually cover. Yeah. And also, I remember it because you reminded [00:04:00] me about it like a hundred times in the days leading up to today's recording.

Caleb Newquist: I'm glad I was getting through. I'm glad I was getting through to you. Yeah. Um, right. And so I guess for the audience, then I'll just I'll just remind if you if you're new here, I'll just remind everyone, or I will inform people that are new here, that it was about Freedmen's Bank. It's episode 51. This was a reconstruction era bank that was established for newly freed African Americans, [00:04:30] uh, in the aftermath of the Civil War. Uh, but this bank ultimately collapsed due to mismanagement and fraud.

Greg Kyte: And if I'm not mistaken, it is the oldest story that we've ever done on oh My fraud. But also, I think it's fair to say that it's one of the more obscure stories that we've ever done. The story of Freedmen's Bank is just not that well known.

Caleb Newquist: Yeah, and that's why I think this episode is so exciting. Greg, you and I had the great privilege to talk to a historian [00:05:00] who has recently published a book on Freedmen's Bank. Her name is Justine Hill Edwards. She is an associate professor of history in the Corcoran Department of History at the University of Virginia. Her work in scholarship focuses on African American history, American slavery, and the history of American capitalism. Her new book is called Savings and Trust The Rise and Betrayal of the Freedmen's Bank. And you can get it wherever you Get books. And Greg, [00:05:30] I can't say enough about this conversation we had. It was fantastic.

Greg Kyte: It was. Justine is the first historian that we've ever had on the podcast. It's not something you would necessarily expect to find on a fraud podcast, but we were excited that she agreed to come and talk to us about Freedmen's Bank and her new book, and to shed some additional light on the story. That is from a long time ago, and I felt honored that she spent some time with us, and I felt like I learned a ton from [00:06:00] her. And not just about this fraud, but about a lot of things.

Caleb Newquist: Yeah. Me too. Uh, so let's get into it, then. Here's our interview with Justine Hill. Edwards. The way we like to start this off is we. If you could just give us kind of your life summary in just a few minutes to get things started. Yeah. How did how did you become who you are today and end up ending up on this podcast? [00:06:30]

Justene Hill Edwards: Sure. Um. Well, first, thank you for having me. I most certainly did listen to the Freedmen's Bank episode. And and so I'm happy to be here, you know, talking about the, the book and. Yeah. And just kind of exploring the, the banks history because I think it's really fascinating. Um, what.

Caleb Newquist: Grade did we get, by the way?

Justene Hill Edwards: Oh, you know, a strong b.

Caleb Newquist: Okay, good. We'll take.

Greg Kyte: It. Yeah.

Greg Kyte: Yeah,

Caleb Newquist: We'll take it.

Greg Kyte: Yeah, that still counts.That still counts for graduation. We'll take that. [00:07:00]

Caleb Newquist: Good. Good. Okay.

Justene Hill Edwards: Um. But. Yeah, I am originally from Northern California. I'm from Oakland, and, um, I really wasn't a history buff. Um, I was always a very studious person. Um, kind of a nerd. I loved to read and write and, um. But history and being a historian was never on my radar. I mean, I have friends and colleagues who will say that they knew that they wanted to be a historian since the first time they went to Gettysburg when [00:07:30] they were seven. And that just wasn't me. Um, but in college, I went to Swarthmore College in in Philadelphia. Um, outside of Philadelphia, I became really interested in black studies and African-American history. I subsequently was going to go to law school, decided not to because I worked at a law firm and didn't really want to practice law. It really was not my my calling. Yeah. Um, but I ended up getting a master's degree [00:08:00] in African Diaspora studies, and then I went on to Princeton to get my PhD in African American history. And that's where I really decided to train and be trained as a historian of slavery. Um, my first book is called Unfree Markets, and I looked at the economic lives and activities of the enslaved in South Carolina. And so I was really interested in these overlapping histories of slavery and the rise of capitalism through looking at the strategies that slaves [00:08:30] use to make money to trade, to kind of engage in the economic lives of the communities that they lived in. And I was really interested in the the fact that the enslaved had money, the enslaved were trading, the enslaved were oftentimes selling goods to their enslavers. And this was kind of an underexplored aspect of the history of slavery and really the the micro history of the rise of American capitalism.

Justene Hill Edwards: Um, but at the end of that process, [00:09:00] as I was starting my job here at the University of Virginia and being a historian, being an academic, we're constantly thinking about next projects. Um, and so my, my husband, um, he worked in DC and he would kind of walk around the, the white House complex at, at lunch. And one day around 2015, 2016, he asks me about the Freedmen's Bank, because at that time, a plaque had just been placed outside [00:09:30] of the Treasury annex, um, for the the, the Freedmen's Bank kind of recognizing it as the location where the bank once stood. And so I told him, yeah, I mean, it was a bank. It was founded during reconstruction, but it didn't last very, very long. And that was about it. And so as I kind of started to think again about next projects and about, um, just what I wanted to work on next, the Freedmen's Bank quickly kind of rose up [00:10:00] to being that next project, because I was really surprised that, um, not many historians had written about it. I mean, there are so many books about the war, about Lincoln. Um, but there were only two books written about the Freedmen's Bank. The last one was published in 1976, and the one before that was published in 1927. Um, and there are a handful of book chapters by amazing historians, but no real updated history. And so [00:10:30] I thought this was was a great time. I was in a great position to write this, this book based on my training. And so that's how I came to write a book about the Freedman's Bank.

Greg Kyte: Nice.

Caleb Newquist: Cool.

Greg Kyte: And then it helped me just get a little better context, because we're we're going so far back because we've done a lot of cases about fraud that have been, you know, I want to say the earliest ones are still in the 1900s, but we're talking 1800s for this. And I feel like I've got very little context [00:11:00] for what normal life was for anybody in the 1800s. Do you what like was would the average American, uh, like and I'm just going to say like the average American white person in the, in the in this time, would they be using bank services at that time. How prevalent was banking? I don't I imagine they're not trying to get, you know, 1.5% cash back on their purchases, you know, on Delta. No, no. Okay.

Justene Hill Edwards: Um, well, I mean, this this is [00:11:30] a part of the story, too, that I think is fascinating. Um, banking in this period in the 19th century was very different. Um, savings. Banking was very, very different. The quote unquote average American, the even the, the average white American didn't have access to a bank account, a savings account. Um, and, and actually the kind of foundations for savings banking really emerged in the, the early 19th century [00:12:00] until the the first savings bank was actually established in Philadelphia in 1816. Um, and those banks were created to be benevolent institutions, meaning that they, they were supposed to operate essentially like a nonprofit. Um, they were supposed to provide very simple financial services, banking services, mostly to the poor and working classes. And so the the idea that a bank was created for the population [00:12:30] of recently emancipated African Americans in this, this period, especially after the war was extraordinary.

Greg Kyte: Was and was the main service. Just that I've got some cash and it's not safe in my home, so I need some place that can lock it down. Is that what I mean? Again, that's me having watched Westerns.

Greg Kyte: That's that's that's all.

Justene Hill Edwards: Um, kind of I mean, these these banks were established again for [00:13:00] a variety of reasons. One was, um, in some, some ways, these these banks were created to fulfill, to fulfill the philanthropic goals of the wealthy. And so they wanted to kind of help the, the poor learn how to save or thrift, as they would call it. And so these institutions were created to kind of alleviate poverty. Um, and so most depositors in this, this period, especially of savings banks, weren't actually depositing [00:13:30] that much, much money. We're talking about a couple of dollars. Um, but these institutions were created again to help inspire the poor and working classes to develop the habit of saving.

Greg Kyte: Right? Crazy to think that banks and the like, at their beginning they were to help the poor. And they were philanthropic in nature because that's.

Justene Hill Edwards: What savings banks were in. And this.

Justene Hill Edwards: This.This is part of the story as well. Like we we have to separate [00:14:00] what we might consider a commercial.Bank,

Greg Kyte: Okay.

Justene Hill Edwards: A quote unquote for profit bank from a savings bank, which again, operated kind of like a nonprofit institution.

Greg Kyte: Gotcha.

Justene Hill Edwards: Mhm.

Caleb Newquist: Interesting.

Caleb Newquist: Okay. Um, I'm just curious, before we get into the actual story. Do you remember when you first heard about Freedman's Bank?

Justene Hill Edwards: Oh, um. Not really.

Caleb Newquist: Okay.

Justene Hill Edwards: Um, but, I mean, I'm a historian. I've. I've been reading this this period for a very long time. I'm sure I read [00:14:30] about it when I was preparing for my comprehensive exams in graduate school. And that's when you read hundreds of books to get a sense of kind of what's been written. And so, yes, I'm sure I came across it at the particular point, but it really was not on my radar until about 2015, 2016.

Caleb Newquist: Okay.

Caleb Newquist: Very cool. So, um, I think this is probably a good spot to, like, get into the story. Would you say, Greg?

Greg Kyte: Oh, absolutely.

Caleb Newquist: Okay, cool. So, um, uh, we obviously [00:15:00] you're plugging a book, so we want people to get interested and to go out and buy it. And by the way, I'm I just got to part three, for what it's worth. Um, but I'm wondering.

Justene Hill Edwards: Oh, okay. Cool. Yeah.

Caleb Newquist: So I'm wondering, can you can you kind of walk us through the story, uh, you know, in such a way that you're giving us the whole picture or you're giving the audience the whole picture, but, uh, but also, you know, saving some of the good bits so that when they read the book, they, you know, they're [00:15:30] still surprised.

Justene Hill Edwards: Sure. I will try to make it as dramatic as possible.

Greg Kyte: Nice.

Justene Hill Edwards: Um, well, I will take you to 1864. And so this is at the end of the Civil War. At this at this point, nothing is certain. Um, the the idea that slavery, it's on it's kind of slow death is not really certain, but there are hundreds of [00:16:00] thousands of recently emancipated African Americans in the South. This is also a period of time when you see tens of thousands, soon to be hundreds of thousands, thousands of black men enlist in the Union military to serve. And so they are getting paid for the first time. Their their pay is actually on par with whites, which is amazing. And this, this a period of time for the war. And so they are struggling [00:16:30] with what to do with their their money. By and large, they want to be able to save money and send money back to their their families, but they have no, no place to put it. They're giving their commanding officers money to hold for, for safekeeping. And so there's all of this kind of money being earned by black men. And so you you have three you union generals decide to create what are called military savings banks. There are three. [00:17:00] One in Norfolk, one in Beaufort and one in New Orleans. And so these banks were created to help African American soldiers save money. And so these banks were actually fairly successful in its first year. I think the the Norfolk bank had about $65,000 in deposits. And that is kind of extraordinary.

Justene Hill Edwards: If you think about the fact that we are talking about men who were, by and large, formerly enslaved. [00:17:30] Um, and so into the story comes a man named John Al Alvord, and he is a white minister from the north, from Connecticut, and he is traveling along with the military at this, this time kind of taking the opportunity to speak to as many African Americans as possible. He is an abolitionist. He is dedicated to the abolitionist cause. And so [00:18:00] he is talking to African Americans. And what he learns quickly is that they they want a few things. They want to rejoin their their families, and they want the opportunity to buy land because they understand fundamentally that in order to kind of make this transition to this period of freedom, which which is new, they need to establish kind of an economic safety net. And that is land that's property. And [00:18:30] so Alvord is traveling around. He gets a sense that perhaps he can help. And so at the beginning of 1865, he travels to New York, and he gathers a group of about 50 white abolitionists, ministers, politicians and bankers. And he introduces them to the idea of creating what was called the Freedmen's Savings and Trust Company, what we call the Freedmen's Bank. Um, and so this is kind of where the story begins [00:19:00] in terms of thinking about the first stages of the creation of this really important savings bank for the recently enslaved. Mhm.

Caleb Newquist: And that's one of the things that I, in the early part of the book that you, you use this phrasing a few times and it just jumped off the page at me, which is the practicalities of freedom. Right. Where you and we talked about this a little bit in our, episode, but you know, the the, the recently freed African Americans, they [00:19:30] the practical notion of freedom was, was foreign to them and they had to and how they moved through the world and how they operated kind of in the world on a day to day basis was something that they had to learn. And I think that is that is that's such a hard thing to put into context and kind of get your head around and but, but, but having a place to put your money that they were now earning, that's a very practical thing like in everyday life that we all like, [00:20:00] that we just take for granted now that we take it for granted for decades. And so that's um, and so that is a very that's a, that's a, that's a I don't know, that's, that's, that's the part I find myself trying to put myself back in a time where this is not something that you could take for granted. You had you had to figure out practically how that would work, and it made a lot of sense. And so this was this is kind of how it started in this instance.

Greg Kyte: Yeah. Um, quick question before we get too far. So the military banks [00:20:30] that you talked about were those specifically for African American soldiers, or were those for anybody in the military?

Justene Hill Edwards: Um, they were created for African American soldiers. But, um, in, in one of the, the banks, the new New Orleans branch in particular, there there were whites as well, whites, soldiers who used the, the bank's services. And so, um, but that is kind of important foreshadowing be because the Freedmen's Bank. Yes, it's established for [00:21:00] the recently emancipated, but about 10% of the depositors ended up being white. And this is for a variety of reasons that we we can talk about a little bit later.

Greg Kyte: Cool.

Greg Kyte: Right on.

Caleb Newquist: So, Alvord, he he gets these people together, people that have money, people who have influence, people that have their abolitionists. So they believe in they they believe in the cause. What kind of, uh, what what actually has to happen for branches [00:21:30] to start opening for, for their actual for the banks to open and start operating?

Justene Hill Edwards: Sure.

Justene Hill Edwards: Well, so the the so John Alvord ends up traveling to Washington, um, in February of 1865 to kind of rally political support. He, um, he talks to members of Congress, he talks to members of the Lincoln administration, and he's essentially trying [00:22:00] to rally support for this, this bank. And so, um, and so on March 3rd of 1865, Lincoln signed the Freedmen's Bank act. And this is a bank act to essentially establish the the bank. And so what happens is that the bank kind of starts out gradually. They have a charter, they have a congressional and executive support. And so the bank kind of starts off. It starts off slow. [00:22:30] The first branches are essentially kind of tapped into from these military savings banks. But what the banks administrators essentially have to do is to travel around the South to convince African Americans to open accounts, if the if they choose to open a bank branch in that particular city. And the branches were specific in, um, in places with a high black population. And so we're, we're talking about [00:23:00] places like Richmond, um, Lynchburg, Virginia, Savannah, Georgia, New Orleans, of course. Um, Charleston, South Carolina, and so places with a high concentration of African Americans.

Greg Kyte: Gotcha.

Greg Kyte: So, uh. And so things went wonderfully. Lots of people gave deposits. They made, uh, a modest amount of interest and, and.

Greg Kyte: And built,and and built, built [00:23:30] generational wealth that is still enjoyed to this day. So it's been great. It's been great having you on the podcast.

Justene Hill Edwards: I is that I wish.

Greg Kyte: Oh, I haven't, I haven't gotten quite, I haven't gotten quite as far into the book as Caleb has, I guess so.

Justene Hill Edwards: Um, well, so the banks kind of expansion starts out slowly, and it is worth saying that the Freedmen's Bank is one of the first banks to operate under a new kind of regulatory infrastructure. And [00:24:00] so we're talking about the creation of the nation's first financial regulator, the the the office of the Comptroller of the currency. We're talking about the creation and ratification of the National Banking Act of 1863 and 664, which creates kind of a national currency because prior to to this time, states were responsible for chartering banks, which meant that there were thousands of banks and each bank had its [00:24:30] own specific currency. Right. And so we're we're talking about a period of time where where the nation is shifting to one standard currency. We're also a nation kind of emerging out of war debt. Wars are expensive to finance. And so Congress is trying to figure out, well, how do we pay down our debt? How do we raise capital? How do we shift to use using a standard currency? And the Freedmen's Bank is created kind of in this moment, which [00:25:00] actually kind of is a great thing in terms of the bank's ability to expand rapidly, especially in its first two and three years.

Justene Hill Edwards: But what what it means is that there's essentially no regulation. The the controller was supposed to regulate national banks. And the Freedmen's Bank is established as a national bank. Right. There's there's one main bank branch, and there are other branches throughout the the nation. Um, but [00:25:30] because the bank is kind of allowed to expand so, so quickly, at its height, there are 37 branches across 17 states. Um, there's actually lax regulation because Congress was supposed to be responsible for managing the, the bank, but kind of that that aside, um, for can Americans are kind of slow to embrace the, the bank but that's but that kind of expands rapidly. And so [00:26:00] by 1867, um, the branch has there are a variety of branches with hundreds of thousands of dollars in branch deposits. And just so that that I get my numbers right. By 1867, the branch has about $1.3 million in deposits, which again, is outstanding. If you think about the fact that most depositors were formerly enslaved.

Greg Kyte: Right.

Greg Kyte: And also even, I mean, thinking about the [00:26:30] just that I'm I'm assuming that's still in 1860s dollars, not in $2,024. So if you brought that with inflation to today, it'd be, I'm assuming, billions of dollars.

Justene Hill Edwards: Well, as of March of 1867, that that would be about 11. $6 million, about $33.2 million today.

Greg Kyte: Okay. Yeah.

Justene Hill Edwards: Which again.Is outstanding.If you think about the population that we're talking about.

Greg Kyte: Absolutely.

Caleb Newquist: So [00:27:00] so there's some so there's early success and I'm sure a lot of excitement and I and I imagine that John Alvord is feeling really good like that. He feels like that they're they're realizing the mission that they set out to. Well, well, they they haven't they haven't realized, but they are on they are on the right path into, uh, you know, helping the emancipated, the emancipated, emancipated, um, slaves, um, begin to take, begin to giving [00:27:30] them economic, economic freedom and economic responsibility. And that's what they want. And and as you said, um, with the hopes kind of with the longer term goals of acquiring land, acquiring assets in order to again build, uh, financial independence. So what's kind of what kind of happens next? It sounds like the expansion happens rapidly. And so what what what kind of as as things continue to evolve, uh, [00:28:00] what what what happens next?

Justene Hill Edwards: Sure.

Justene Hill Edwards: Well, well, again, the the bank expands rapidly. And the challenge with with this is the core of the bank's infrastructure. And so the bank was chartered to just accept deposits and give a modest rate of return at this. At this point, it was about, um, 3 to 5%, which at this, this point is still pretty high. Um, but there is high overhead [00:28:30] because of course, you have branches, some branches, um, purchased buildings outright, some rented space. Um, each branch had a cashier, and the cashier was essentially the branch manager, and that person was paid. Um, and so to, to run a bank with multiple branches was fairly expensive. And the bank's charter, um, as approved by Congress, only said that the bank could invest about a third [00:29:00] of deposits and those investments were supposed to be in the lowest risk type of financial products, which were government bonds and securities. And so the bank's investments weren't really giving the rate of return in a way that made the bank profitable. There was high overhead. And, um, and the banks and administrators were kind of lax. Right.

Justene Hill Edwards: Again, this was established as a benevolent institution. [00:29:30] It was a essentially charity, especially by on the the part of the bank's administrators and the the bank's board of trustees. And so this starts to kind of shift fairly quickly. And so in 1867, um, John Alvord, who is on the bank's executive board, he's a secretary at this at this point and then ascends to being the the bank's vice president. Um, he introduces the idea of moving the bank's main [00:30:00] office This from New York, where it was adjacent to to Wall Street to Washington, D.C.. And so this is a big deal because most of the banks main trust, A trustees, were from and worked in New York. And so they slowly started to kind of say no to their their administrative responsibilities with the bank. And so by shifting from New York to D.C., it shifts to the kind [00:30:30] of hub of political power. And Alvord convinces a kind of a new crop of trustees to join the the bank's board. And it is worth saying at this point, the entire board of trustees were white.

Justene Hill Edwards: And so at this, at this point, when the bank shifts to DC, to DC, he encourages a new kind of cadre of businessmen to join, the most important of whom was Henry Cook. And so I'm not sure if you know who Henry Cook was or heard of the name cook, but Henry [00:31:00] Cook was the savvy brother of famed investment banker Jay Cooke. And Jay Cooke was the founder of Jay Cooke and Company, the nation's first investment bank. And the Cooke brothers had cultivated very strong ties and relationships to members of the Lincoln administration, because during the war they were responsible for, uh, for engaging in a massive bond sale, they were responsible for raising billions of dollars [00:31:30] of capital to help fund the war effort. And so Henry Cooke was not a banker necessarily. He was at first a lawyer and then a publisher, but he was a shrewd lobbyist and essentially a shrewd politician at this, this point. And so he joins the board of trustees in the spring of 1867. At this at this point, he is the president of the First National Bank, and that [00:32:00] is the D. The D.C. branch of Jay Cooke and Company. And he brings with him two men, Will William Huntington and a man named d l e Eaton, and he chooses to be the board's actuary. And when D.L. Eaton accepts the position of the board's actuary, he actually does some something that I claim kind of shifts the fundamental mission of the bank. Two [00:32:30] days before he accepts the position, he takes the first illegal loan from the bank of $1,000.

Greg Kyte: Now illegal?

Greg Kyte: Yes. Go ahead.

Caleb Newquist: Go ahead. Go ahead Greg.

Greg Kyte: Okay, so first off, as you saw from our reaction, it's like, wait, an illegal an illegal loan. But that's it's I'm assuming it's illegal because like you said earlier, the bank was only allowed to invest, what, a third of its deposits and only in the safest securities. So the bank specifically was precluded from any loan. [00:33:00] So any loan is an illegal loan, right?

Justene Hill Edwards: Yes. Exactly.

Justene Hill Edwards: Exactly. And the the person responsible for evaluating the bank's kind of risk profile takes the first illegal loan.

Greg Kyte: Oh, nice. Well, also, it's funny that you said the way you said it was. Eton chooses to be their actuary, and I'm, like, going. I know enough about being an actuary that you maybe need to be trained and you just get to go, hey, who wants to be the actress? It was like me, I guess.

Greg Kyte: Can I, I guess I'll do it. So. [00:33:30] Yeah,

Justene Hill Edwards: Yeah, yeah, yeah.

Justene Hill Edwards: And the low.

Greg Kyte: Do I get illegal loans?

Greg Kyte: I'll do it if I get illegal loans.

Justene Hill Edwards: Yes.

Justene Hill Edwards: Um, but again, this is a huge deal, right. The, the fact that two years into the bank's tenure, um, he takes a loan and he pays it back a few weeks later, but still. I mean, this is.

Justene Hill Edwards: A huge deal.

Justene Hill Edwards: It is illegal. Um, and, [00:34:00] uh, and what happens is that, um, this, I think, kind of chips away at the the bank's fundamental mission again. The the bank is, is a pierce a savings bank, the kind of most boring type of financial institution. Um, and by taking a loan, he kind of corrupts the banks. Again, very benevolent mission to serve the recently emancipated. And so, um, and so this [00:34:30] is a shift, right? The move to DC to add cook, uh, to the the bank's board. And it's important to to note, too, that cook um, becomes the bank's, uh, the chairman of the bank's finance committee and the, the finance committee again, is really responsible for investing a third of the bank's deposits. And so this shifts. And so at this, this time to a year later, John [00:35:00] Alvord becomes the bank's president. And so he is in an interesting position. He's the Freedmen's Bank president, but he's also working for the Freedmen's Bureau. And the Freedmen's Bureau is kind of, um, it is an important kind of federal institution that was made responsible for negotiating work contracts between the formerly enslaved and white employers. They were just distributing land. It was a really, really important institution [00:35:30] at this, this time. And so, um, John Alvord was not only a bank president, he was also kind of working for the Freedmen's Bureau. And again, I think it is important to note that John Alvord was not a banker. He didn't really know much about finance at this. This time, his family's finances were kind of, um, not.

Justene Hill Edwards: Great. And so.

Greg Kyte: But could he be an actuary? That's really what we need to know.

Justene Hill Edwards: Could he be an actuary? No, he most certainly was not. He [00:36:00] was not a banker.

Justene Hill Edwards: He was most certainly not an actuary either. Um, and so. Yeah. And so this kind of shifts things. Um, and at this time, the bank's board of trustees want to, um, want to build a new, glorious, beautiful building. Um, and so they, they embark on the very expensive project of building, um, a main office of the Freedmen's Bank in that office is subsequently positioned right in front of [00:36:30] the Department of Treasury, wide right adjacent to the the white House. Um, and so they are on this kind of spree of spending money. Increasingly, they start to illegally lend money. And this is a period of time when, in 1869, the board of trustees says, hey, why don't we actually start to make some of this legal? Um, and so they lobbied members of Congress.

Greg Kyte: They're like they're like, hey, get together. You know how we're doing all this stuff illegally? And it's working out so great. Maybe, [00:37:00] I mean, just to to dot some I's and cross some T's.

Justene Hill Edwards: Exactly.

Greg Kyte: Jeez.

Justene Hill Edwards: Exactly.

Greg Kyte: Okay.

Justene Hill Edwards: And so Henry Cook, um, lobbies his friends and colleagues in Congress. And in May of 1870, they, uh, members of Congress approve of an amendment to allow the Freedmen's Bank to not operate as a savings bank, to essentially allow it to operate as a commercial bank, to make bank loans.

Greg Kyte: Okay.

Justene Hill Edwards: Mhm.

Caleb Newquist: And if [00:37:30] I, if I remember correctly, there, there were some, there were some warning signs at this stage. Right. Like there it wasn't as though it, it there I guess there was some debate about whether or not this was a good idea, like the bank wanted to do it, but even within Congress, there were there were, I believe, if I remember right, there were there were senators, there were people that were involved in the legislative process that were saying, this isn't what you all set out to do. So why [00:38:00] so why is this happening now? Is that correct?

Justene Hill Edwards: Exactly. And this this is a period of time to I mean, we we think that Congress was Partizan now, but it was then too, I mean. Right. Um, especially in this, this period in the late 1860s, you have Democrats starting to trickle back into Congress. Um, you have, um, really kind of powerful political voices saying, look, I'm not sure if allowing [00:38:30] the Freedmen's Bank to make loans is a good idea. Um, as we all know, um, to allow those with money interests to tap into these deposits, it may not be a great idea because it could be open to plunder.

Caleb Newquist: Yeah, right.

Greg Kyte: But but I've got to assume that the other argument for making the loans goes back to what you were saying before, where it's like the Freedmen's Bank was having a difficult time being profitable, so I could see them using that going, hey, [00:39:00] this is a great idea. We're doing some great work. We're really helping some people, but we're not profitable. If you allow us to make these loans that we absolutely have been making before this time. So don't ask.

Justene Hill Edwards: But we're not going to talk about that.

Greg Kyte: So but if we could make these loans, then maybe we could actually become a profitable bank and continue the mission is that's an assumption. Was that part of the argument that was made? Do you know?

Justene Hill Edwards: Yes, that was absolutely what Henry Cooke said.

Greg Kyte: Okay.

Justene Hill Edwards: He he said that if we can [00:39:30] kind of diversify our investment portfolio, then at the end of the the day, this will only go to benefit for could Americans who are putting their money in these these accounts entrusting us with their deposits for this, this bank. And so, yes, that was absolutely a contention that he was making. And it was convincing because on the surface, yes, rationally, that made sense.

Greg Kyte: So when did the pillaging start?

Justene Hill Edwards: 1867? [00:40:00] No. Okay.

Justene Hill Edwards: The legal pillaging started almost immediately. Oh. Um. Yeah. And so, look, looking at these, these accounting records was fascinating because once may, May 1870 happens, um, you see kind of $2,000, $5,000, $500 just kind of flowing out of the the bank. And each of these loans were supposed to be secured by real estate collateral, two times the value of [00:40:30] the loan.

Caleb Newquist: And real estate, real estate only. Is that right?

Justene Hill Edwards: Yes.Real estate only.

Greg Kyte: Okay.

Justene Hill Edwards: Which, which also meant that the the bank was kind of constrained to only lend to people in and around DC, because that's where the banks main office was. That's where the board of trustees were. Um, but increasingly, uh, people who wanted to borrow money started to use, um, stocks [00:41:00] and bonds to secure their, their loans, which again, was illegal, but nobody was examining the, the bank at this, this time the comptroller was not examining or regulating this, this bank now. And so it was just allowed to happen.

Greg Kyte: One of the things that I, that I remember from when we did our podcast before about Freedman's Bank was because and it sounds like this might have been part of the reason why we only got a B for the episode, [00:41:30] but, um, we found some numbers.

Justene Hill Edwards: A strong B, a strong B

Greg Kyte: We're trying to pull it up today. This is our this is our. We're retaking the test today.

Greg Kyte: But the, um, it was the idea that and again, these were the numbers that we found were Freedmen's Bank was giving returns to their depositors of 6%, whereas they were these loans that they were giving to other people were only earning them 5%. Exactly. And and so and [00:42:00] and also there was some wasn't there, some internal dealing with the cooks as well where they were and and even. Anyways, so first off, I go to in today's day and age, like I remember at my work, we do a lot of banking at my day job. Uh, and I remember when we first got a loan that got down as low as 5.2%, that was back in like, uh, 2000, like 2012, we got a 5.2 and everyone's like going, oh my gosh, 5.2. This [00:42:30] is unheard of. This is the lowest rate anyone's seen in their lifetime. Well yeah. You know and we had parties and things like that because this 5.2% people get.

Caleb Newquist: Excited about interest rates. Yeah.

Justene Hill Edwards: I mean, of course, especially yeah.

Justene Hill Edwards: Yeah, especially interest rates.

Greg Kyte: But then I, but then I think also once those interest rates that people were paying on loans were so low, all of a sudden savings returns were like nothing. And so I've got to go, okay. If savings returns were 6% for formerly enslaved people, who again, I've got to [00:43:00] assume are probably not getting the best rates on their savings just because of everything that was going on at that time. Then if you're if you're getting 6% on your savings and somebody's borrowing at 5%, that must be a dream loan. To get a 5% loan from a bank is am I on to something with that?

Justene Hill Edwards: Yes, you you are. But I think the the the important part of this, though, is that, um, I talk about in the, the book the kind of asymmetry of expectations. Right. [00:43:30] What the white Bank administrators hoped in terms of depositor behavior and what African Americans wanted the bank to do for them. One of the problems was that white bank administrators wanted African Americans to leave their money in the the bank for a specific period of time, a year, two years. Um, African Americans didn't want to they wanted to put money in their bank accounts, have it be safe. [00:44:00] They didn't care about accruing interest. They they wanted safety and reliability, not interest payments. And so they would leave their their money in the bank for a few months and then with withdraw when they had enough to buy what they really wanted, which was land and machinery. And so that was kind of a struggle as well. Um, a lot of the marketing material that I talk about in the book were just like, really encouraging African Americans to leave their money in the bank [00:44:30] for longer periods of time. But African Americans African-Americans did, didn't care about that. They they only wanted safety and reliability above all else, not interest payments.

Caleb Newquist: Yeah, and correct me if I'm wrong, but at some point, there was even a run on one of the banks that it was a little bit. I think I'm going back in time a little bit, but there there was actually a run on one of the banks, which again, John Alvord not having any banking experience is slightly problematic because, [00:45:00] I mean, we still what's crazy is that in about 170 years of history or 160 years of history, we're still having runs on banks. And so, like, it's one of those things that we that is just that is that is the the puzzle of banking is keeping money in it, but also loaning it to people so that the bank can operate. And it is it is a it is kind of the operational kind [00:45:30] of a balance of banking is very tricky, but in this case, in Freedman's Bank, it doesn't sound like they were all too concerned about that. It was really it really kind of got out of hand really quick as you as you as you've already said, it got out of hand really quickly, like the loans started flying once they had the, the once they revised the charter, the, the loans really started like just flying out the door.

Justene Hill Edwards: Flying out. And, and I mean, it got to a point when, um, when African Americans could not access [00:46:00] the money that they, they had put into their, their accounts because so much of it was being sent to DC, to DC, right, for all of this loan making. Um, and part of this, this to writing this, this book has been a really interesting kind of study of, of economic behavior, because I had to put myself in the the mindset of a recently emancipated African American person. Um, and thinking about everything that I know about slavery, everything I know about the really precarious [00:46:30] transition to this period of freedom. The violence, the unpredictability of reconstruction. Um. And so. Of course. Yes. Um, they wanted, again, a safe place to put their, their money. They kind of didn't care about it, about anything else in terms of their, their interactions with the, the bank. And, um, and so, yes, there would, would be runs. I mean, any fear about not being able to have access to their, their money [00:47:00] would kind of spur a bank run, which of course makes sense.

Justene Hill Edwards: Because we're.

Justene Hill Edwards: Right. Um, like, if there's fears that, um, someone could not access their life savings, why why wouldn't they kind of flood bank branches to try to withdraw money as quickly as possible, right?

Greg Kyte: Especially considering what you just said, that the the main things that were looking for was safety and reliability. So if you're going, oh, maybe at least the reliability is is maybe going away and possibly the safety. Then [00:47:30] all of a sudden you got no no motivation to keep your keep your money there.

Caleb Newquist: Okay. So just to kind of reset where we're at in the story. Loans are flying out the door. Uh, we've got some very opportunistic, uh, administrators or trustees running this bank. They changed the charter. The loans are flying out the door. Um. Are there what? What? Um, there are there any, like, I guess, uh, what is what is kind [00:48:00] of the next phase of kind of this, this lending bonanza that's going on?

Justene Hill Edwards: Sure. Um, no. It's a oh, that is the title of one of my chapters. I'm like, I recognize that.

Caleb Newquist: I it was it was it was in my subconscious.

Justene Hill Edwards: I, I recognize that name.

Caleb Newquist: Yes. It was a bonanza.

Justene Hill Edwards: Um, so what happens next is, um, this brings us to 1872, and there is a trustee. His name [00:48:30] is Edgar Ketchum, and he is very. Um, he questions cook and cooks strategies, especially his lending strategies. He's seeing that cook is borrowing lots of money, kind of exchanging bad loans for loans that he has on his books. Um, and he's essentially using the bank as his kind of personal slush fund. Um, at this at this point, um, cook [00:49:00] is cook and his brother are trying to sell bonds to help fund the Northern Pacific Railroad. And so in the past, during the the war, they they had a fair amount of success raising money and raising capital in Western Europe. Um, by 1872, that kind of stops. And so they are kind of struggling financially. And Ketchum sees this in a sense. He calls cook to pay back his his loans.

Greg Kyte: So. [00:49:30]So is Ketchum. Is he the like an internal auditor? Because I so badly want an internal auditor to be named Ketchum.

Justene Hill Edwards: I just I didn't even think about that. That's so. Oh man. I was like, so in the the.

Justene Hill Edwards: Book, this is the first time I'm actually. What a great name.

Greg Kyte: Yeah. He tried. Did he.

Greg Kyte: Okay. I just want to know did he he he caught.Him, but.Maybe not. So continue. Sorry. Continue.

Justene Hill Edwards: No, I mean he he he catches cook. He he basically calls his bluff and [00:50:00] says, we need you to pay your loans because it's overdue. You're you're over leveraged. We're we're over leveraged as a bank. You need to to pay this. And so instead of paying it back, cook steps down from the bank.

Justene Hill Edwards: Which is not funny. It's just so like, of course he does of course he steps down.

Justene Hill Edwards: Classic cook.

Caleb Newquist: Those. It's. I love a fraud story. I love a fraud story where someone is confronted with all the evidence that they are committing fraud, and they're like, [00:50:30] um, I'm. I'm just gonna go to the bathroom. I'll be right back.

Caleb Newquist: And then they never come back. He doesn't come back, and then they disappear.

Caleb Newquist: Yeah, right. Yeah. Okay, so cook is busted.

Justene Hill Edwards: Yes.

Caleb Newquist: Bye bye. Ketchum.

Justene Hill Edwards: Ketchum. What a great catch. Yeah.

Caleb Newquist: Yeah. Okay.

Justene Hill Edwards: Yeah.

Caleb Newquist: Yeah. And so he steps down.

Justene Hill Edwards: And so he steps down, and. And this brings us to 1873. The bank is still lending out money, by the way.

Caleb Newquist: So, like, what's the public perception at this point.

Caleb Newquist: For the bank. [00:51:00]

Justene Hill Edwards: Well, the the the bank's marketing strategy is actually pretty good. Um, the bank consistently, uh, markets in black newspapers throughout the, the South, they constantly are telling African Americans how much money is being put in the bank. Um, tens of millions of dollars by, by this point. Um, and so from a public facing perspective, the bank seems to be doing well.

Caleb Newquist: Huge success. Yeah.

Justene Hill Edwards: Yeah. [00:51:30]

Justene Hill Edwards: African Americans are extremely proud of this institution that they're that they are putting. And again, the the bank is constantly advertising how much money African Americans are putting in the, the bank. Um, and so this brings us to February of 1873. And finally the controller decides to examine the the bank. It's under a mandate to examine all of the banks in and around DC. And [00:52:00] the Freedmen's Bank is that first bank on the the list. And so in February of 1873, a report is released by the comptroller. And it's pretty damning. It basically says kind of that the bank is Leveraged their bank runs. Um, the books are not as well kept as they should be. Individual bank branch cash cashiers are operating with kind of impunity at this, this point. [00:52:30] And so the bank's board of trustees needs to kind of right the, the ship. And so this happens and African Americans kind of start to get scared. But at the the end, the comptroller Charles Mays, he he says, but I have every faith and confidence that the bank's board of trustees can redeem them themselves and reestablish the trust that they had previously. And so that's what happens. [00:53:00] Kind of this takes us to September of 1873. And so in September of 1873, we encounter the failure of Jay Cooke and company. Jay Cooke and company declares bank bankruptcy. And this is like a lightning bolt. News kind of spreads fairly quickly. Henry Cook is in DC at this. This time he absconds to to Philadelphia where Jay Cooke and company is. [00:53:30] And there are runs on the Freedmen's Bank, of course, because African Americans are here hearing about the bankruptcy of this really big, important bank. They are scared about what this means for for them. And so they start to make bank runs. And of course, a bank run is a horrible thing for a bank to be, because it kind of kind of illuminates what's going on internally in the bank's infrastructure.

Greg Kyte: Well, and especially you don't want a bank [00:54:00] run, uh, where your depositors are pulling out of their money at the same time that I'm assuming one of their biggest, uh, debtors. Just so it's like, well, we can't. Yeah, we we there's no way to get that money. Not just because it's tied up in a loan, but the guy those. Those folks are no good for it anymore. So you're so everybody so at this point, just everybody's screwed.

Greg Kyte: Is that.

Justene Hill Edwards: Exactly?

Greg Kyte: Yeah,

Justene Hill Edwards: Exactly.

Justene Hill Edwards: And if depositors know that Henry Cooke was affiliated with the the bank but [00:54:30] was still kind of connected to it. And so, yeah. And so this is a scary position to put them in.

Greg Kyte: Yeah. Yeah. For sure. Um, what um, one of the things, another one of the, the just the data points that sticks out to me from when we did the podcast before was, um, once every and maybe this is maybe this is premature and as telling the story, but was at this point that it was found out that like, uh, the Freedmen's Bank's assets were only like 2% of what [00:55:00] their loans were out to the, to the, to the world.

Justene Hill Edwards: So, yeah, I mean, they, they had so small of an amount of, of money on, on hand kind of currency and bonds. That it was was clear that the finance Committee was just kind of sending money out the the door to anyone they, they wanted to.

Justene Hill Edwards: Give it to.

Greg Kyte: And that and we would really just look at that as being grossly over leveraged with that.

Justene Hill Edwards: Grossly over leveraged

Greg Kyte: Yeah. I mean, maybe grossly is not even a [00:55:30] dramatic enough term for that. So so you're grossly over leveraged and you've got to run and you've got a failure of one. What am I correct that Cooke and company. They were the were they. They've got to be at least a non a a a very material part of their the loans that were put out, were they like a, the main borrower from the bank.

Justene Hill Edwards: Yes.The biggest.

Greg Kyte: they were the biggest okay.

Justene Hill Edwards: They did not get the biggest single [00:56:00] loan but they were by by far by loan volume the biggest. Yes.

Greg Kyte: Right. So so so the African American community that had invested, not not invested, but just trusted the bank with their deposits, um, like how much if we're talking, they're obviously not getting all their money back out of the bank. How what percentage is the average depositor getting back of the money that they put in?

Justene Hill Edwards: Do you mean in 1873 [00:56:30] or in the next year, 1874?

Greg Kyte: Uh, let's go take walk. It sounds like a journey. Let's go on that journey.

Justene Hill Edwards: There there are like three steps until.

Greg Kyte: Okay. Okay.

Justene Hill Edwards: So, um, so we we have from the fall of Jay Cooke and company, the panic of 1873. And this is a depression. And so, um, and so the bank's board of trustees, um, decide to [00:57:00] tell Al Alvord that he has to step down. And so he steps down as president in February of 1874. He's still on the board of trustees, but he's no longer the the president. And this is when they ask the most famous African-American person in America to be the bank's president. And so in March of 1874, Frederick Douglass says yes and accepts the position as the president of the Freedmen's Bank.

Caleb Newquist: So [00:57:30] just for the audience, for the sake of the audience, because I think Frederick Douglass is like, it's someone that everyone hears about in history class at some point, right? But I'm wondering if you can put him into context, like who he is, what he did, and why he was so prominent at this time.

Justene Hill Edwards: Sure. So Frederick Douglass was an enslaved person, uh, born and raised in Maryland. And when he is a late [00:58:00] teen, he, um, he escapes with his freedom. And so he is essentially a fugitive slave for the rest of the period of slavery. And he travels across the Atlantic, and he kind of speaks in the the abolitionist circuit. And he is essentially the most famous black abolitionist in America, um, during the war. He [00:58:30] is an advocate for black men and kind of military service. He, um, he he found an important abolitionist newspaper. He, um. Yeah, he is just an incredibly influential person in the US during the 19th century.

Caleb Newquist: But I just to stop you for a second, but he also but he also went to Europe and spoke about it as well. So it's it's it's like he has international. He's [00:59:00] internationally renowned. Okay. Wow.

Justene Hill Edwards: Yes.

Justene Hill Edwards: He is the most photographed American of the 19th century. He's constantly sitting for paintings and portraits and photos. And so, yes, he is incredibly recognizable, which is why we we have so many pictures of him. Um, and so he is an early supporter of the Freedmen's Bank. He, um, he encourages African Americans to open accounts. He [00:59:30] moves to D.C. in 1871 and opens and runs a black newspaper there. And this newspaper, uh, paper, is constantly talking about and writing about the Freedmen's Bank. And so he is a big advocate. Um, and so he joins the bank, and he is the president at this, this period of time when he essentially has to decide kind of steps to move forward. It [01:00:00] was at this, this time, too, that the second, um, examination comes out in February of 1874, and it is again, pretty damning. It's a more robust one. Um, the the controller sends examiners to about 11, um, branches to examine their, their books. And the report is again, really damning, essentially saying that African Americans are essentially doing what they're supposed to do. They're putting money in the bank. [01:00:30] They're saving. But freakin Americans know that all of this, this money is being lent out in DC, DC, and in one particular branch. I talk about this in the Saint Louis branch. The the examiner writes that African Americans know that the the bank is a essentially a dragnet. That's the, the, the term that he uses and that the money would be much better spent if it could be invested in the communities in which the the banks reside. And so [01:01:00] this this is kind of a stark reminder for the board of trustees. And Douglas comes in kind of understanding this. And so he sits down with the the board. He sits down and looks at the books and realizes quickly that the bank is in an untenable position, that about by this this point, about three, $3.5 million had been lent out in in funds. About 75% of that loan volume [01:01:30] was overdue.

Justene Hill Edwards: Um, which which means that.

Greg Kyte: Wait, wait.Say that again. Say that number.Again.

Justene Hill Edwards: Yeah.About 75%.Of the loan volume was overdue.

Greg Kyte: Okay.

Justene Hill Edwards: Um, which which meant that those who were borrowing money were strategically not paying back their loans from the Freedmen's Bank, which I just think is is insane.

Caleb Newquist: No, it's, it is at that level. At that level, [01:02:00] it isn't just it's not an accident. Yeah, it seems that it's too widespread and it's too systemic to think, well, this is just, you know, a couple people going through a rough patch. It's like, no, no, no, no, there's something else at play here.

Greg Kyte: And and that's just, I mean, all of these data points like that from the, the Upside Down, you know, the reverse arbitrage that they're getting from their lending from the, from from the, the, the vastly gross, [01:02:30] uh, you know, over leveraging to, to the, the, you know, 75% of the loans being behind on their payments. It's like who's who's running the bank. That's the like just the, the level of of either negligence or, or incompetence.

Greg Kyte: That's or both.

Justene Hill Edwards: I think it was both. Yeah.

Greg Kyte: That's that's happening at the bank or or or I mean, or you know, to put a different lens on it, which and I'm sure this has to be part of it. Just the exploitation, [01:03:00] um, that's happening is, uh, is a little bit depressing.

Greg Kyte: So, yeah.

Justene Hill Edwards: And so, I mean, Douglas attempts to assure depositors that he is in a position to make things right, but ultimately he he can't. The malfeasance was just too widespread. And so in June of 1874, Congress intervenes and kind of forces the board of trustees [01:03:30] to make a plan to close the the bank. And so they do. On July 2nd of 1874, and again, there are about three, $3.5 million in loans outstanding. And the depositors had do about two, $2.9 million, um, in money that they had deposited in the, the bank. And so that was spread across about 61,000 depositors, which just kind of gives you a sense of, [01:04:00] again, the kind of broad scale of the malfeasance that was happening, especially in the latter years.

Greg Kyte: So, okay, so now give us the give us the autopsy. What, was anybody able to get money out of the bank?

Justene Hill Edwards: So there were five disbursements. Um, but we're not talking about the entire contents of deposits. And so, um, the first one was about 15%, and then [01:04:30] it went as high as 20 and as low as five. Um, and so the majority of depositors who still had money in their accounts did not get the entirety of their, their money back. Um, which.

Justene Hill Edwards: Again. Yeah.

Greg Kyte: So best case scenario 80, you lost 80% of your money.

Justene Hill Edwards: Yes.

Justene Hill Edwards: Best case. And there were all of these hurdles that depositors had to jump over to get money. They had to send in a bank book, which was basically an accounting [01:05:00] of how much money they had in their their account. They had to send it to a specific person at a specific time. But these notices were put in newspapers, some sometimes not in black newspapers. And so it was just all of these hurdles that depositors had to kind of go through to get their their money. And it ended up being not just a hassle, but kind of a shame in terms of the fact that we're we're talking about, in many case, the life savings of African Americans [01:05:30] again, who recently emerged from slavery.

Greg Kyte: But but they could all take comfort in the fact that Alvord and and both the cook brothers went to jail and were totally held accountable for all of their actions. Right.

Justene Hill Edwards: I wish that were the.

Greg Kyte: Oh, that's not how it worked out. I wish.

Justene Hill Edwards: That. Of course not. We're talking about fraud here.

Greg Kyte: Oh,Bankers aren't held.Accountable for their actions.

Caleb Newquist: Bankers and accountability aren't exactly something that you hear a lot about.

Caleb Newquist: But anyway. Yeah. This is. Yeah. What? So what happened? So what does happen in the aftermath? There is an investigation. [01:06:00] Correct.

Justene Hill Edwards: There are kind of three investigations. One, an immediate post mortem in 1874, but there are two congressional inquiries, 1 in 1876 and 1 in 1879, 1880. And the first one was held by Virginia congressman named Beverly Douglas with one s, not two.

Justene Hill Edwards: like Fred, Frederick. And he was a. He was a former Confederate general, [01:06:30] a Democrat who reemerges in this period and becomes a congressman. And so his reasons for holding a congressional inquiry were not to benefit African Americans. It was essentially to score political points and to show that all of this happened under the control of Republicans in Congress, the party of Lincoln. And so but he is again a former Confederate. He, um, was someone [01:07:00] who was a leader in the KKK. And so he was not dedicated to ensuring that African Americans get their their money. He essentially wanted a public flogging of Republicans in terms of their handling of the the bank. And so the second congressional inquiry is, I think, the more important one. It's here. I'm going to see if I can find his picture. One of the first black senators, [01:07:30] actually, the second black senator in the US. I'm looking for his his picture because I think it's a great one. His his name is Blanche. K Bruce. It's a picture of him here.

Caleb Newquist: Oh, yeah.

Justene Hill Edwards: Um, and he is. He kind of knows that he's on his way out. He's not going to be reelected. Um, and, um, and so he chooses to hold a congressional inquiry and it takes about a year. And so he brings Douglas to testify. [01:08:00] He brings Henry Cook to testify. He brings other bank administrators to testify. And essentially what he does is he wants this to be on record, which is great for me as a historian.

Justene Hill Edwards: Because it's on record.

Justene Hill Edwards: But, um, no one is kind of brought up on charges for malfeasance. If anything, the idea of, um, of this is the risk that you [01:08:30] take when you want to be fully included in the body politic. Um, this is the responsibility of being kind of a full citizen is to be able to take and handle risk. Um, Bruce wants to present a different perspective. But again, no one is brought on charges, and those who took loans from the bank were just allowed to take loans and walk free.

Caleb Newquist: And I mean, there's a lot of there's a lot of important things that kind of emerge [01:09:00] from this report. Right. And, and including and I don't remember keep me honest here, but and I don't think you mentioned it, but even the fact that even the fact of Douglas becoming the president, that was, uh, the trustees did that deliberately because they wanted a black man to be at the head of the bank when because the failure was inevitable. They knew the failure was inevitable at that [01:09:30] point. And so they thought, oh, we can put the most prominent black man on the earth in charge of this bank, and then he will be the one that people blame for its failure. That that I don't remember if that came out of this, this Bruce report or not, but there were all kinds of revelations at this time. Um, and yet no accountability was really handed out in terms of, like criminal, like criminal accountability.

Justene Hill Edwards: Sure.

Justene Hill Edwards: Well, and and this this I think is, is kind of an important, [01:10:00] um, part to kind of break down. And so at this, this time when the bank is kind of on its last, last legs in 1874, there are a small group of black trustees. Um, the most prominent of which was John Mercer Langston. Um, a man who was a formerly enslaved in Virginia, the child of his white, enslaving father and his black enslaved mother. Um, he would later be become the first black congressman from Virginia. He's [01:10:30] on the the board. And doctor Charles Purvis. Um, the first kind of medical the the first professor of medicine at Howard University, both, both of whom are black. They encourage Douglass because they really hope that he can redeem the bank's reputation. They they really hope so. The other white trustees, however, are continuing to loan money or taking money for them themselves and essentially know that the the bank is going to fail. And [01:11:00] so they're fine with Bank, with Doug, with Douglass being the bank's president at this time, because they anticipate that the bank's going to fail anyway.

Caleb Newquist: So there wasn't even, so even at the at the administrative level, like trustees, it's clear that the white trustees were not being transparent with their with their fellow black trustees, who are also who are also charged with governing the bank. But like there is there is this kind of that it's not malfeasance. But I'm saying that they're [01:11:30] they're they are concealing the fact that they've been making not only they they aren't they aren't technically illegal loans now, but they are kind of loaning in ways that are still against the charter because, as you said, it was supposed to be collateral was only supposed to be real estate, for example. And so, you know, in a, in a kind of a classic fraud story, there's related party issues, but then there's also conspiracy at play. And like all these other things that make [01:12:00] it kind of a well, this all happened prior to most of the frauds that we talk about. So this is kind of the, uh, this is a good example of how fraud is kind of timeless in a way, because the behavior, the behavior and the mechanisms are all pretty familiar in, in a lot of, in a lot of ways.

Caleb Newquist: Um, I just want to ask you, because I we're this has been a an amazing conversation. I've learned so much. Can you just talk a little bit about kind of like the legacy of, [01:12:30] of this event. And I think it's important because as you pointed out at the beginning of the conversation, this isn't a well-known story. And even when we and like I said, I learned at it for in in in a in a in a, in a work setting about kind of the history, you know, the, the history of, of really the history of African Americans and the relationship with banking. And I don't know how many people were in that training. There were many people in that training. No one knew this story. Not [01:13:00] a single person knew this story. And so I'm just wondering, as a historian, I think, I mean, I'm not I think part of what you do again, keep me honest, but like putting the present in proper context based on these past events. So I'm just wondering how how do you how do you what what's what's the what's the long term impact of this? Because it's because it's it's massive.

Justene Hill Edwards: Sure. Well, I think it is worth saying and I talk about this at the, the, the end of the book that [01:13:30] African Americans continue to work into the 1940s Authorities begging attorneys, generals, controllers, even US presidents for help, for recompense. And so this is a story that does not end in 1874. It does not end in 1911, when the final congressman introduces a bill to help compensate depositors. Right. Um, there is this this question I think, of kind of trust. [01:14:00] And again, I talk about this in the book that, um, that there we we have all of these kind of public policy conversations about financial inclusion and the bank, the the unbanked and underbanked. But there is this, this, this kind of unspoken question about why African Americans are disproportionately within the population of unbanked and underbanked. I think it's about 14% to about 2% of white Americans are [01:14:30] unbanked and underbanked. And that is a, I think, think of that as a huge gap. Um, but I also think that there is this, this question of, of trust, this idea that perhaps white owned financial institutions cannot be fully trusted with, um, with African Americans money because of this generational legacy.

Justene Hill Edwards: And I've been saying this quite a bit as I've been talking about the the book. I mean, members of my own family will oftentimes [01:15:00] have money underneath the mattress or in a coffee can in some place in the, the, the house. The the idea of having quick access to money and funds is really important. And so that comes from somewhere. That type of behavior does not just kind of come out of nowhere. And so really understanding the history of this, this bank and understanding the, the, the fact too, that as much as we talk about financial inclusion, [01:15:30] we actually have to look at this period. 18 665 was the first effort by the federal government to support financial inclusion through the creation of the the Freedmen's Bank. It was the most robust. And so, again, I think this this history is so important because I think it illuminates a lot of what we talk about today with the racial wealth gap and economic inequality along racial lines today.

Greg Kyte: Justine, thank you so much for being on the podcast. [01:16:00] Uh, we yeah, an amazing conversation. You are obviously a fount of knowledge and a wealth of knowledge that that I'm I'm thankful that I was able to to receive the benefit of that. So thank you for what you did with the book. Thanks for being on the podcast. We appreciate it so much.

Caleb Newquist: Yeah,

Justene Hill Edwards: Thanks.This has been a lot of fun.

Caleb Newquist: There you go. That was Greg and I with Justine Hill Edwards. Words, Greg. I [01:16:30] mentioned this in the introduction to the podcast, but we learned a lot in this episode, did we not?

Greg Kyte: We did. I learned tons of things. Uh, let's see, I learned that I'm a better banker than anyone in the 1800s. Yeah. I learned that you can just volunteer for the job of actuary. Uh, I learned that banks are actually social welfare programs that also steal from the poor and the disenfranchized. I learned that no banker has ever gone to jail in the history of our country. No. I learned [01:17:00] that someone with the title of trustee can be very untrustworthy. Um, that's that's just a few. That's just a taste of the things I learned from today's discussion with Justine Hill. Edwards. How about you, Caleb?

Caleb Newquist: Oh, my gosh. Um, I have to say, I, I've, I've read about half of her book. And if you if you enjoyed this conversation, uh, you will definitely enjoy the book because it goes into just greater detail about [01:17:30] all of the things that happened. And then there's there's stuff, of course, that we didn't talk about at all. And for example, like one thing that sticks out in my mind is early on in the book, uh, there is um, I believe it is that Abraham Lincoln has been reelected and there at the inauguration of him being reelected and Frederick Douglass is there, and Andrew Johnson is Abraham Lincoln's vice president. Right. And he he becomes president when Abraham [01:18:00] Lincoln, after Abraham Lincoln is assassinated and Frederick Douglass and she and she kind of she kind of like this this came, I think, from one of Frederick Douglass's autobiographies, but she she excerpts it and she kind of describes the scene. But Frederick Douglass is at this inauguration and he had never met. He had met Lincoln, I think, at uh, a few times prior to this, but he had never met Andrew Johnson. And Lincoln, like, points out Frederick Douglass to Andrew Johnson, and Frederick Douglass sees him like pointing him out. And [01:18:30] he said Johnson had the most awful look on his face when he saw Frederick Douglass. Like, just like a like a look of contempt for him.

Greg Kyte: Oh, no.

Caleb Newquist: Oh, yeah. No. It's crazy. And so then later on, after Johnson becomes president, Frederick Douglass and this kind of, um, this, this group of black leaders go to the white House, um, a few years later and to to talk to him. I think it's after, um, I don't remember which [01:19:00] amendment to the but it was the amendment that gave black men the right to vote. Okay. I think it was maybe the 15th amendment. I don't know some. If Justine were here, she would she would tell us. But anyway, so Frederick Douglass and these other black leaders are going to the white House and they're, you know, encouraging Johnson to kind of like, keep up the reconstruction, the effort of reconstruction, this and that and the other. And Johnson has no interest in doing that. He's not he's not he he was not for reconstruction and but but Douglas she in her in Justine's book she talks about how Douglas [01:19:30] he went into that meeting remembering his first encounter with Johnson and just how bad it was. And like, and like Johnson even tried to like, like to to to like to like unfake or like, tried to undo his ugly face that he made or something. Oh, no. And so he's like, like, oh, I just didn't scowl at you or anything. And but it was clear that he's like, that guy. That guy is not that guy is not my friend. He's not going to help. He's [01:20:00] going to be a problem. And it like, I don't know, it's just it's just a great it's it's I haven't finished it, but I've, I'm, I'm enjoying the book immensely. And anyone who's uh, you know, uh, into history, especially from that period of time I think will enjoy it very much. So that's my endorsement, I suppose. Um, for for Justine's book.

Greg Kyte: Well, and and she I mean, I didn't feel like it was any sort of like shameless self-promotion, self-promotion or anything. But when you asked Justine kind of about her, her, [01:20:30] you know, give us the story of how you got to writing about Freedman's Bank. She did talk about her other book, Unfree Markets, which I thought sounded fascinating. And I'm yes, I'm probably going to grab Unfree Markets because that. Yeah, that sounds very, very interesting. The kind of the, the, the Venn diagram of of capitalism and, and, and slavery in the United States just. Yeah, I think that sounds incredibly interesting.

Caleb Newquist: Yep. Absolutely. Justine's book, again, is Savings [01:21:00] and Trust the Rise and Betrayal of the Freedman's Bank. Go out and get it wherever you get books. And you can find more about Justine at Justine edwards.com. And we've included some additional links in the show notes, including to the book and, um, some videos and some of her other writing. So yeah, check all that stuff out.

Greg Kyte: Okay, that's it for this episode. And remember, Andrew Johnson is no Abraham Lincoln.

Caleb Newquist: And also remember, if you want to be an amateur history nerd, [01:21:30] get into the reconstruction era. We've got enough Civil War buffs. All right.

Greg Kyte: It's too many.

Caleb Newquist: Too many. Knock it off. Too many.

Greg Kyte: Yeah, we get it. You're weird weirdos. Find something else to to be interested in. Yeah. If you want to drop us a line, send us an email at. Oh, my [e-mail]. Caleb, where can people find you out there on the internet?

Caleb Newquist: Not on Twitter because I deleted my account. Finally. Greg, I am happy to report. Oh, they they were threatening in [01:22:00] the aftermath in during the hurricanes. They were threatening meteorologists and I. And that I cannot abide Greg.

Greg Kyte: So all those snarky tweets from 2013 are just gone now. Gone?

Caleb Newquist: Uh, because, I mean, good riddance.

Greg Kyte: Yeah. Good riddance. I was gonna say that's a loss, but you were like, uh, I read a couple. Not worth it.

Caleb Newquist: Yeah, right. Uh, I am on LinkedIn, though. Caleb. Newquist.

Greg Kyte: Uh, yeah. No, I'm glad you asked. You can also find me on LinkedIn. Uh, Greg Keaton, [01:22:30] CPA.

Caleb Newquist: Oh, my fraud is written by Greg Kite and me. Caleb Newquist, our producer is Zach Frank. Rate. Review and subscribe to the show. Wherever you listen to podcasts, you listen on earmark. You can get free CPE and the time is running out.

Greg Kyte: Oh, yeah.

Caleb Newquist: I believe this is it's early December when this episode is first released. So if you need CPE, better get it.

Greg Kyte: Yeah, man, I'll tell you what. It's a earmark app. Get the subscriptions where you can binge [01:23:00] all the episodes. You can. It's a it is the most painless way to get your CPE when you're driving across country for Christmas. Just listen to every episode of Oh My Fraud and the Accounting Podcast and take the quiz when you get where you're going. And two times speed, you'll rack them up.

Caleb Newquist: Two times speed.

Greg Kyte: I can't do two times. I can only do fast. 1.25. Yeah.

Caleb Newquist: That's a I think I think you're right.

Greg Kyte: But 1.25. Sometimes when I'm listening at 1.25, I'm like going, how horribly slow are these people [01:23:30] talking if this is what they sound like at 1.25 speed.

Caleb Newquist: Yeah. The, um, um, um, uh, Zach's, uh, jazz selections don't quite sound as good at 1.25, though. Like, the music definitely has to be played at regular speed, but yeah, nevertheless. Yeah, yeah, yeah, there's more than 70 episodes. That's a lot of CPE.

Greg Kyte: Yeah, a lot of it.

Caleb Newquist: Okay, okay. Join us next time for more avarice, swindlers and scams from stories that will make you say, oh.

Greg Kyte: My, how are those [01:24:00] people? Bankers? Oh, did I say the wrong thing? Oh.