By Kamille D. Whittaker
“Optimists say that there is no precedent for such a harmful reaction, and that the worst that need be expected is a slight shock reflecting itself in a short-lived hesitation. A more serious view is taken by others, who point not only to the heavy ‚”break‚” in certain commodity prices which has accompanied the slump, but to the danger that Wall Street losses may have gravely shaken the psychological confidence of America in the prospect of unlimited expansion. These observers think that the orgy of speculation in the United States has been so widespread that persons of all classes deceived by, in some cases, real, but in many more cases, purely paper profits from their investments, have been living beyond their means, or, at all events, mortgaging their future by purchasing luxury goods up to, or even beyond, the full limit of their incomes.” –The Economist, 1929
”People is ravin’ ‘bout hard times, tell me what it’s all about. People is hollerin’ ‘bout hard times, tell me what it’s all about. Hard times don’t worry me; I was broke when it first started out.” –Lonnie Johnson, ”Hard Times”
Georgia’s own Ray Charles sang about it too. Hard times. The crooners managed to channel the sentiment well: Hard times are relative and largely tempered by simply living within one’s means. Until recently, African Americans had no choice but to do so. So, it should come as no surprise when it is asserted that the Great Depression affected African Americans severely –to be sure –but not dramatically. African Americans have been well-versed in loss, struggle and devastation. In fact, they’ve seen far worse, not the least of which have been the soaring unemployment rates –a typical bellwether for impending recessions or depressions. During the Great Depression, African-American unemployment rates reached 50 percent in the South; and even in the best of times –the rates have always hovered around 10 percent. So, to paraphrase Ray Charles, who knows it better than African Americans?
Exacerbating the problem, African Americans had to contend with untimely social and racial malaise. Lynching, which had declined to eight in 1932, surged to 28 in 1933 — a likely outgrowth of the desperation that marked the times. Even jobs traditionally held by blacks, such as busboys, elevator operators, garbage men, porters, maids and cooks –were sought by desperate unemployed whites. In Atlanta, a Klan-like group called the Black Shirts paraded carrying signs that read, ”No jobs for niggers until every white man has a job;” while in other cities, people shouted, ”Niggers back to the cotton fields. City jobs are for white men.”
So, it admittedly does come as a surprise (notwithstanding our newly minted president of African descent) that nearly eight decades later, Atlanta-based Citizens Trust Bank is now the second majority black-owned financial institution in the United States to receive billions in Troubled Assets Relief Program funding –a government program designed to purchase assets and equity from financial institutions in order to address the subprime mortgage crisis. It’s ironic, because the very institution that helped bankroll the civil rights movement –a movement that was a direct affront to government sanctioned discrimination –is now being tapped to help get the country out of a recession by a government that was too remiss to even label it as such.
It could only mean one thing. We are all heavily invested in the economic crisis. And no, it’s not because African Americans are thought to have constituted a lion share of home foreclosures and mortgage defaults which led to the bursting of the housing bubble, even as the facts prove otherwise. But no matter. As the bubbles continue to burst, there are lessons to be learned across the board, including acknowledging the parallels that exist between past and present.
There are multiple interpretations of what preceded the stock market crash of 1929 and what subsequently led to a decade-long Depression. Both economic downturns followed periods of extraordinary business investment, productivity and economic booms. The 1920s marked the end of a long period of productivity enhancement because of the invention of the electric motor, which was followed by mass production of automobiles that everybody wanted. In the 21st century the culprit was the housing market.
Yet, beyond the painstaking attempts by economists to cull distinguishing factors from the two economic timestamps in an effort to create a psychological buffer between the two, the themes that undergird these events are greed, unchecked ambition and an uncanny allegiance to an economic dogma proven faulty time and time again. As the editor in chief of Foreign Policy Magazine, Moises Naim, posits in his latest exhortation on the dire straits that the United States has found itself mired in, what the United States needs is an intellectual bailout.
”Policy gyrations and faulty calls have revealed that [the discipline of] economics itself is in crisis,‚” he writes. ‚”This intellectual bailout will force economists to revise the models and methods unquestioned during the boom years. It will force them to produce new tools suited to a new era and reinvigorate their thinking by borrowing more intensively from other disciplines, such as political science and psychology.” The crisis, after all, is largely a crisis of confidence.
Yet, even after $350 billion in TARP capital has already been sunk into banks’ already cushioned reserves with no traceable affect on the markets, government economists are still at a loss for fresh ideas and seem almost incapable of predicting a wide variety of outcomes. And this comes amidst a flurry of alternative solutions –such as a moratorium on foreclosures, tax holidays and spending vouchers –that have been put forth by those closest to ground zero: the people. This is the main cause for concern as historically black financial institutions enter an era where their financial maneuvers will be largely dictated by the federal government. Will the institutional insanity — evidenced by a resistance to dynamic ideas in place of antiquated ones that have failed — infiltrate institutions like Citizens Trust Bank which, by its own conservative means and merits managed to weather the Great Depression and subsequent recessions to date? Will the African-American individual continue to embrace the credit-based and debt-driven mentality that has pummeled the country intro financial ruin? In times of such vulnerability, is it prudent to begin dancing with the devil?
”In 1929, I was six years old, but I remember quite a few things from that era, especially growing up and never having too much. What sticks mostly in my mind was losing my money in the bank. I didn’t quite understand why that bank had to close and take my money, which probably was only a few dollars. When they started paying off a few years later, my check was 11 cents. It helped when my brother gave me his, which was 18 cents, and my older sister’s, which was 23 cents. I was really in the money then.”
–Phyllis Bryant, 79
At the January 1931 board meeting of the Atlanta Federal Reserve Bank, the chairman had a grim report to offer: ”The closed banks now being handled by us are 54 in number. Their liability at date of closing was $14,209,298.58. Of this sum we have collected $7,390,420.71; having charged off $1,545,825.09; have recovered $60,437.40, and as against any further liability we have reserves set up of $1,303,490.33.”
Forty percent of all banks –about 10,000 at the time, had failed by 1932. To date, according to Federal Deposit Insurance Corporation, 19 banks have failed. At the onset of the Great Depression in 1929, President Herbert Hoover maintained a laissez-faire, or ”hands-off‚” approach to the market system. This is in stark contrast to today, where the central bank’s immediate response aggressively infused more than $2 trillion in liquidity and capital into the markets. Additionally, in 1929, the government arguably made matters worse by contracting and not expanding the credit markets, and decreasing the money supply. But, today, we face record-breaking inflation rates, and a national debt and deficit that haven’t been seen in this country’s history. Put another way, the credit environment has already contracted despite a massive infusion of capital into the system.
It’s evident, because 2008 ranked as one of the worst years for Georgia banking since the Great Depression, and 2009 may become the worst ever. There have been five failures in the last five months, a rate not seen in decades, according to the FDIC.
None of them, however, have been historically black financial institutions.
On March 5, 1933, the day after being sworn into office, President Franklin D. Roosevelt declared a ”bank holiday‚” which for four days forced the closure of the nation’s banks and halted all financial transactions in an attempt to allow the new administration time to develop a plan to address the current banking crisis. Because of its sound operation, Citizens Trust Bank was one of the first banks to reopen. Shortly thereafter, Citizens Trust Bank became the first African-American-owned bank to become a member of the FDIC.
Today, fresh off a sound acquisition of The Peoples Bank in Lithonia, Ga., CTB announced its third quarter earnings for the period ending September 30, 2008, of $0.29 per diluted share compared to $0.32 per diluted share for the same period in 2007. Net earnings for the third quarter decreased by $50,000 to $618,000 compared to $668,000 a year earlier and are in line with management’s expectations given the current operating environment. Earnings per diluted share for the nine-month period were $0.56 compared to $0.90 per diluted share for the same period in 2007. It’s a steal compared to other similarly situated banks.
But let’s look closer. In the same third quarter report, the bank reported its non-performing assets to total assets at 4.9 percent. This sounds like a fairly small number until you consider the leveraged nature of the banking industry. CTB’s total assets are $335 million, which is about 11 percent greater than its total liabilities of $302 million. An 11 percent decline in assets would completely wipe out the company’s equity, reducing book value to zero. It has already been reported that 4.9 percent of assets are non-performing, and that this number has been increasing. Suppose the non-performing loan ratio continues to increase? Or, suppose it have to write down a few percent of the bank’s assets? If CTB had followed the example of the failed Wall Street institutions, and overleveraged, they may have spread themselves too thin.
Perhaps this is why Citizens Trust Bank –on approval of shareholders — agreed to receive TARP funding of up to about $7.3 million from the U.S. Treasury, a move that could either prove brilliant or detrimental. James E. Young says it’s the former.
”This investment further enhances our regulatory capital ratios, which are already considered as well-capitalized for regulatory purposes, positions us to capitalize on current market opportunities and expands our ability to meet the needs of our customers, communities and shareholders during these challenging economic times‚” says Young, president and CEO of Citizens Bancshares.
Higher FDIC insurance is a key change that will benefit community-midlevel banks as well. While insurance for retirement accounts stays fixed at $250,000, coverage for all other accounts increases from $100,000 to $250,000.
”That’s something we have been asking for, for years‚” says George G. Andrews, president and CEO of Atlanta-based Capitol City Bank & Trust Co. — also a black-owned financial institution. ”This change is a plus for banks’ consumer and especially, business accounts.”
But bailout benefits come with caveats. The likelihood of increased governmental involvement and new regulations is worrisome for obvious reasons. For others, it may already be too late for any action at all.
Atlanta Life Financial Group recently canceled fundraising for the Atlanta Life Venture Fund, which was launched in 2007 to target companies providing goods and services to Fortune 1000 companies. It had planned to focus on the Southeastern United States, with a particular emphasis on the Atlanta. ”The Boards’ decision to close the fund is a result of the financial market downturn,‚” says Egbert Perry, a member Jackson Securities’ Board of Managers, and chairman of Atlanta Life’s Board of Directors, the parent company of Jackson Securities. ”The private equity market is unusually volatile given the current financial landscape, and has caused us to rethink our launch strategy at this time.”
”We feel it is necessary to move in a different direction‚” says William A. Clement, president/CEO and board member of Atlanta Life and chairman of Jackson Securities’ Board of Managers. ”Closing the fund gives Jackson Securities the opportunity to continue to build and strengthen its other services.”
Expect a domino effect, as the pool of venture capital earmarked for small business and community development drastically contracts.
”My dad was a carpenter and farmer, and did lots of things to keep us going. We lived close to a family that owned a cow. My dad milked her twice a day, fed her and cleaned the stall. In return we got two quarts of milk a day. With all the canning my mother did from our garden, our weekly grocery bill wasn’t that big. We only bought the bare necessities.” –Phyllis Bryant
There were two main themes that characterized the African-American experience during the Great Depression, financially, socially and politically: Persistence and resilience. ”The 1932 election of Franklin Delano Roosevelt represented a realigning election in American politics,” explains Dr. Leroy Davis, professor of history and African American studies at Emory University. ”After realizing that President Hoover’s politics and responses to the stock market crash were maligned with African-American interests, African Americans, who, up until voted for the party of Lincoln, decided overwhelmingly to give Roosevelt, a Democrat, a chance.”
By 1936, 75 percent of African Americans were voting for Democrats throughout the union.
African Americans especially responded to Roosevelt’s ”Black Cabinet‚” an unofficial group of prominent blacks who advised the president on race relations –Ralph Bunch, Mary McCloud Bethune, and Robert Weaver to name a few. The president’s wife, Eleanor Roosevelt, is also credited as being the main proponent of some new deal programs like Agricultural Adjustment Act, Civilian Conservation Corps and Works Progress Administration designed to put people to work.
In the North, the New Deal programs, for the most part, were executed as planned. Not surprisingly, in the South, there were several glitches. ”The Roosevelt Administration was afraid of ruffling too many feathers in the American South, and so Southern legislatures were allowed to control many of the ways the programs were implemented, which negatively affected African Americans,” says Dr. Davis. Southern members of congress used this considerable control to either exclude the vast majority of African Americans or treat them differently from others so as not to disturb the region’s racial status quo.
For example, the Agricultural Adjustment Act of 1933 authorized the Secretary of Agriculture to inflate prices by reducing farm acreage. This meant white farm owners were paid to let their land sit idle, often resulting in the eviction of sharecroppers and tenant farmers, a significant number of whom were African American. The reduced acreage caused African American’s estimated annual cash income to fall from $735 in 1929, to $216 in 1933. Also in 1933, two-thirds of southern black cotton farmers made no profit.
In another instance, the New Deal’s Social Security measure gave at least some protection to 30 million citizens, but it excluded farm workers and domestics, most of whom were non-white and African American.
On the labor front, the National Recovery Administration created labor unions which denied access to black workers. According to Dr. Davis, members of the Black Press re-dubbed the program ”Negro Removal Act,” ”Negroes Robbed Again,” and ”Negro Run Around.”
In fact, Ira Katznelson writes in his book ”When Affirmative Action Was White‚” that by 1955, the federal government had transferred more than $100 billion to support retirement programs and fashion opportunities for job skills, education, homeownership and small-business formation. African Americans had no part in it.
And so, another school of thought began to creep to the forefront. ”As the Depression continued to worsen conditions for African Americans, people started to say that black people ought to close ranks and look within the community for the development of black businesses and institutions,” explains Dr. Davis. ”It was a sort of economic nationalist stance that said that we could no longer depend on the larger society for community development.”
A surge in strategic, non-violent protests ensued as community organizations, like Atlanta NAACP, tried to bankrupt the idea of segregation. CTB began investing in the development of housing subdivisions throughout the predominantly African-American southwest Atlanta, creating neighborhoods for which white banks would not provide mortgages. The strategic maneuvers that occurred, as an outgrowth of the Depression, would largely serve as the foundation for the organization and coalition-building that would be necessary as African Americans approached the perils of the ‘40s, ‘50s and ‘60s; and what some historians will deem the unintended consequences of integration.
First, the good news. According to Dr. Danny Boston, professor of economics for Georgia Institute of Technology and CEO of Euquant, over the last five years, black businesses outgrew those of all other ethnic groups. ”For every $1 million spent with black businesses 10 jobs are added to the business; seven go to blacks. Furthermore, every $1 million of black business revenue adds $3.1 million in to total United States output and 25 jobs to the economy. Nationally, black businesses operate in neighborhoods that are 44 percent black; 35 percent operate in high poverty areas.” He recommends a reform in government contracting policies, increased access to corporate supply chains, and most importantly, a push for globalization.
And now the bad news: In Georgia, only $6 out of every $100 is spent with black businesses. The disconnect is blaring.
It appears as if within a matter of decades, the African-American community has gone from complete self-sufficiency to nearly a complete divesture from its own community.
Consider these statistics detailed in the ”The Economic Impact of Black Business in Atlanta‚” by Dr. Edward Davis of Clark Atlanta University: African-American households comprise roughly 28 percent of all households in the state and nearly 55 percent of households in the City of Atlanta. Yet, roughly 50 percent of all persons living below poverty in Georgia are African American. This percentage increases to 84 percent for the City of Atlanta. Black unemployment in the state is roughly three times that of whites, while the rate drops to 1.7 times that of whites in the City of Atlanta.
The Great Depression managed to neutralize any chasm between rich and poor, and in that common ground, African Americans were able to find strength in their institutions –educational, financial, religious and community-centered alike. Yet, the growing schism between rich and poor in Atlanta today –even as it holds the title ”Black Mecca” — is indicative of a need for a realignment of ideals. Few acknowledge that Dr. Martin Luther King Jr.’s very next step before his untimely death was to engage in the Poor People’s Campaign in order to address economic injustice. Yet, in 2005, the majority-black Atlanta city council passed a resolution banning panhandling in the downtown tourist districts, an area that includes the King Center, a memorial to the civil rights leader’s legacy. Thus the doctrine of ”progress‚” has made it possible for a homeless person to be arrested for begging in front of the Gandhi statue on Auburn Avenue. In many ways, Atlanta represents a dream deferred, and a fervor forgotten.
The debate, according to Dwight Hunter, owner of Exodus Tax and Business Services in Atlanta, has been miscast from the start. ”The state of black Atlanta, or black America, discussion has been around for the entire 40 years I have been alive, and as a lawyer, I know that when you ask the wrong question you will most likely get the wrong answer. But nobody, especially no political or public figure, wants to speak on the real problem. The real problem is poverty, and the inequitable distribution of wealth and resources. The conversation about the state of black Atlanta is the same superficial rehashing of superficial issues.”
Hunter predicts that until we begin to realize that the challenges ahead of us must be met with a new plan and a new program, we will persist in addressing 21st century issues with a 19th century mentality. ”We will continue to do the things we have always done, and expect things to change. We continue to practice this insanity and we will ultimately reap the disaster we have sown.”
Unless, we begin to imagine the possibilities.
”In Roll of Thunder Hear My Cry‚” the true-to-life narrative by Mildred Taylor of a southern black family who lived during the Great Depression, the father, used an old fig tree, shrouded by tall overbearing oak and walnuts trees in the field as a teachable moment to explain to his child why he wouldn’t relinquish ownership of his farm land to the surrounding landowners who were trying to force him to do so. He carefully explained that the fig tree’s roots run deep and had plenty of growing, blooming and fruit-bearing to do. The lesson was persistence and resilience in the face of hard times then. It still can be. AT