Photo Credit: Wikimedia Commons
Wall Street is a highly influential financial district but its history is rarely talked about. In order to understand the largesse of Wall Street and the system of global capitalism, it is crucial to know Wall Street’s history. Wall Street was founded on slavery and, to this day, it remains a key pillar in upholding racial inequality and economic oppression.
New York City was a Dutch settlement known as New Amsterdam in the Dutch colonial province called New Netherland during much of the 17th century. Through the Dutch West India Company, the Dutch utilized labor of enslaved Africans who were first brought to colony around 1627. The African slaves built the wall that gives Wall Street its name, forming the northern boundary of the colony and warded off resisting natives who wanted their land back. In addition, the slaves cleared the forests, built roads and buildings, and turned up the soil for farming. Slavery was not phenomenon limited to the southern American colonies. Northern colonies, such as Boston and New York, participated in the trans-Atlantic slave trade.
In 1664, control of the colony was handed over Britain and New Amsterdam was renamed New York in honor of James II, the Duke of York. The Royal African Company had a royal monopoly on the British slave trade and James II was a major shareholder. With the Dutch gone, the British maintained the system of slavery in New York. They immediately created a series of laws to protect it. In 1665, a law was passed that legalized slavery. In 1682, slave masters were given the power of life-and-death over their slaves. Twenty years later, in 1702, New York adopted its first comprehensive slave code and it equated slave status with being African. The entire system of slavery was justified by an ideology of white supremacy that considers black Africans inferior and white Europeans superior — an ideology that still exists.
Slavery became the backbone of New York’s economic prosperity in the 1700s. To normalize this massive trade in human beings, in 1711, New York officials established a slave market on Wall Street. Slave auctions were held at Wall Street selling African slaves as property to traders wanting to buy them. Between 1700 and 1722, over 5,000 African slaves entered New York, most of whom came directly from Africa, while the rest from British colonies in the Caribbean and southern colonies. Throughout the 17th and 18th centuries, as Phyllis Eckhaus points out, New York had “the largest urban slave population in mainland North America”. Therefore, New York was a crucial location in the trans-Atlantic slave trade, which established it as the world’s financial capital.
Many well-known companies and financial institutions benefitted from the trans-Atlantic slave trade.They include Lehman Brothers (which went bankrupt in 2008), J.P. Morgan Chase, Wachovia Bank of North Carolina, Aetna Insurance, Bank of America, and the Royal Bank of Scotland. Banks, such as Wachovia’s predecessors Bank of Charleston, South Carolina, and the Bank of North America, and J.P. Morgan Chase’s predecessor banks, made loans to slave owners and accepted slaves as “collateral”. When the slave owners defaulted on their loans, the banks became the new owners. The Lehman family members who established Lehman Brothers started their company to trade and invest in cotton, a cash crop produced by African slaves. Aetna sold insurance to slave owners who wanted to protect their investments in slaves aboard slave ships in case one of them died (this was a very common occurrence as millions of African slaves died on ships carrying them from Africa to the Americas). The insurance company’s policies compensated slave owners for the loss of people who were considered “property”. To this day, there are lawsuits against these corporations to seek reparations for their participation in the trans-Atlantic slave trade.
Photo Credit: Wikimedia Commons
The trans-Atlantic slave trade built the foundation for modern global capitalism. Millions of Africans (somewhere between 12 to 30 million or more) were ripped away from their homes in Africa to work as slaves in European colonies in North and South America and the Caribbean. Unlike native Americans and other white Europeans, free African labor was plentiful (if one died, they could be replaced with another from Africa), Africans had no connections to American lands, and they knew how to grow essential cash crops like cotton and sugar that grew in both Africa and the Caribbean and southeastern United States. These factors made Africans the perfect slave labor force for European colonial powers. The slaves, along with performing many other services, were used to produce commodities that were sold in international markets for a profit (a characteristic of modern capitalism). In addition, slaves, themselves, were considered property and sold on markets. The benefits of this went to slave owners and investors — not the slaves. As a result, wealth was transferred from black African slaves (and their descendants) to white European slave owners and other whites who benefitted from this system (this laid the foundation for current wealth inequality between whites and blacks). This ensured that blacks would remain socioeconomically subordinate to whites for generations to come. Slavery went on for nearly 300 years from the sixteenth century to the mid-nineteenth century when Britain, America, and other countries that participated in the trans-Atlantic slave trade abolished it. Even after it ended, the foundation of modern capitalism and racial inequality was already built.
The end of slavery brought new political rights for black people in America, such as the right to vote. However, these political rights were very limited, particularly under the Jim Crow system in the American South. This system barred blacks from voting, segregated them in inferior schools, confined them to low-paying jobs, discriminated against them in numerous areas of life, and perpetuated heinous acts of racist violence against black people, such as lynching. While northern states did not have a de jure system of racial discrimination, there was similar de facto racial discrimination in housing and employment. The civil rights movement of the 1950s and ’60s eliminated legalized racial discrimination with the Civil Rights Act of 1964 and Voting Rights Act of 1965, thereby dealing a deathblow to Jim Crow.
Despite the end of slavery and advancements of the civil rights movement, African-Americans remain socioeconomically oppressed. Black people disproportionately suffer more poverty, unemployment, and socioeconomic misery compared to whites and other ethnic groups. As of December 2011,unemployment for African-Americans is 15.8%, the same as it was at the beginning of 2011. While unemployment for whites is 7.5%, down from 8.5% at the beginning of the year. According to the Census Bureau’s Income, Poverty, and Health Insurance Coverage report for 2010, the poverty rate (defined as a family of four earning less than $22,314 a year) for African-Americans is 27.4%, while for whites it is 13% and 36.6% for Latinos.
The financial sector plays a substantial role in economically oppressing African-Americans. Racial segregation in housing long existed in the United States as a way to keep African-Americans living in separate, poorer neighborhoods away from whites. Redlining, which is the practice of denying or increasing the price of insurance and other financial services to certain neighborhoods based on race, contributed to racial segregation in America for much of the twentieth century. The practice began in the 1930s when the Home Owners’ Loan Corporation (HOLC), established to send loans to homeowners at risk of foreclosure, created a risk-rating system for communities to be used by mortgage lenders. The idea was to protect the long-term value of the property, which was undermined by the introduction of “undesirables” (usually blacks but also Latinos, Asians, and Jews) into a neighborhood.
Using real-estate maps, the HOLC developed a classification system for communities. There were four classifications. Type A areas, coded green, were affluent areas in the suburbs and the most desirable for investment. Type B areas, coded blue, were still desirable, fully developed, but less affluent. Type C, coded yellow, were older, declining areas. Type D areas, coded red, were those with low homeownership rates, poor housing conditions, were in older, inner-city neighborhoods heavily populated by black people. These areas were considered undesirable and too risky for investment — hence the term “redlining”. As a result, HOLC did not provide any loans for black people at risk of foreclosure during the 1930s. This created a system, perpetuated by the Federal Housing Administration (FHA), lending institutions, and insurance companies, that made it difficult for black people to own homes and accumulate wealth in their communities, thereby, entrenching racial segregation and inequality.
While redlining was outlawed by the Fair Housing Act of 1968 and Community Reinvestment Act of 1977, similar racial discriminatory practices continue and achieve the same effect as redlining — further racial segregation and inequality. One common practice is known as steering. Real estate agents will steer people to neighborhoods predominantly populated by people of similar ethnic background. Whites are steered to “better”, white neighborhoods, while blacks and Latinos are steered toward neighborhoods with more black and Latinos, which tend to be poorer.
Another racial discriminatory practice, which led to the financial crash and current depression, is predatory lending. Rather than deny financial services, financial institutions targeted the black community, and other nonwhite communities, to sell them risky, high-priced subprime mortgage loans. Because of this, the practice is also known as “reverse redlining”. Subprime loans are typically made to people with poor credit histories and, hence, come with higher interest rates. According to a 2009 NAACP “Discrimination and Mortgage Lending in America” report, “even when income and credit risk are equal, African Americans are up to 34 percent more likely to receive higher-rate and subprime loans” than whites. This predatory lending perpetuated a decade-long housing bubble from the late-1990s to late-2000s.
Wells Fargo is one of many financial institutions that engaged in predatory lending in black communities. As the New York Times reported in June 2009, Wells Fargo “saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.” Revealing the big bank’s true racism, loan officers at Wells Fargo commonly referred to African-Americans as “mud people” and subprime loans as “ghetto loans”. Wells Fargo has been sued by individuals and groups, such as the NAACP, for its racial discriminatory practices.
In late-November 2011, a regretful former regional vice president of Chase Home Finance in southern Florida (a subsidiary of JP Morgan Chase, whose roots lie in slavery), James Theckston,admitted the predatory lending practices of big banks to New York Times columnist Nick Kristof. In fact, predatory lending was incentivized since lenders earned higher commissions from subprime loans than normal prime loans. In his column, Kristof notes:
“One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. Sothey looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.
These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.”
So not only did big banks intentionally push black people and other people of color to buy subprime loans but they were well aware of the racism behind their actions. Moreover, the banks did not care if people lost their homes because of these risky, high-priced subprime mortgages.
The reason why subprime mortgage loans were aggressively pushed on to millions of people was so they could be bundled up into mortgage-backed securities. In 1999, the Glass-Steagall Act, which separated commercial from investment banking, was repealed under Clinton. This made it easier for subprime mortgage loans to be bundled into securities and sold on Wall Street for massive profits. When the housing bubble burst in 2007, that led to the financial crash in September 2008 and the current economic depression. Wall Street got bailed out but the people got stuck with massive poverty and unemployment. Millions of people lost their homes and many are on the edge of foreclosure.
Black and Latino households were hit the hardest. As the Center for Responsible Lending points out, around 25% of all black and Latino borrowers lost their home to foreclosure or are close to foreclosure, compared to under 12% of all white borrowers. Home equity makes up the largest portion of overall wealth in black and Latino communities. Because of the collapse of the housing bubble and resulting foreclosures, black and Latino communities have experienced a dramatic wealth decrease in their communities. According to a recent Pew Research Center report, in 2005, median net worth (or total household wealth) of white households was $134,992, for Latinos it was $18,359, and $12,124 for blacks. In 2009, median net worth for white households dropped 16% to $113,149, Latino households experienced a 66% drop to $6,325, while black households experienced a 53% drop to $5,677. Pew rightly attributes this drop to the bursting of the housing bubble and recession that followed from it.
Therefore, Wall Street, since its founding as a slave market, continues to play a substantial role in oppressing African-Americans and other working-class people. To fully understand racial inequality, it is important to know Wall Street’s historical roots in the trans-Atlantic slave trade. With this knowledge, we can combat the oppression of African-Americans by challenging the greed and oligarchy of Wall Street. Fortunately, there is already a movement doing just that — Occupy Wall Street.
- David McNally, Another World Is Possible: Globalization & Anti-Capitalism, (Winnipeg: Arbeiter Ring Publishing, 2006), Ch. 4, pp. 137 – 204
- Howard Zinn, A People’s History of the United States: 1492 – Present, (New York: HarperCollins Publishers Inc., 2003), Ch, 2, pp. 23 – 39
- Lerone Bennett, Jr., Before the Mayflower: A History of Black America, (New York: Johnson Publishing Company, Inc., 1982)
- James W. Loewen, Lies My Teacher Told Me: Everything Your American History Textbook Got Wrong, (New York: Simon & Schuster Inc., 1995)
- See also Douglas Massey & Nancy Denton, American Apartheid: Segregation and the Making of the Underclass (Harvard University Press, 1993) for history of racial segregation in the U.S.