Capitol Men (46 page)

F
REDERICK DOUGLASS FOUND
it impossible to walk by the Freedman's Savings and Trust Company on Washington's Pennsylvania Avenue without pausing to admire it. "I often peeped into its spacious windows," he said of the institution founded during Reconstruction to aid the nation's freedmen, "and looked down the row of its gentlemanly and elegantly dressed colored clerks, with their pens behind their ears and button-hole bouquets in their coat-fronts, and felt my eyes very enriched. It was a sight I had never expected to see."

The concept for the bank had originated during the Civil War in the form of ad hoc military "savings banks," which the Union army established for black soldiers and their families to assist the ex-slaves in their first experience with handling money. General Nathaniel Banks in New Orleans and General Rufus Saxton in Beaufort had seen that the freedmen often frittered away their enlistment bonuses and salaries or were easily cheated by army sutlers. To address this problem, the savings program allowed for part of a soldier's salary to be put aside, paid directly to a close relative, or held by the government for payment at the time of the man's discharge.

John W. Alvord, an abolitionist minister and army chaplain, sponsored the idea of making these "Negro savings banks" permanent. Surely, Alvord believed, the need for such an organization would only grow at war's end as freedmen, for the first time, began drawing wages as laborers. Alvord's notion moved successfully up the chain of command, and on March 3, 1865, the same day he signed the bill establishing the Freedmen's Bureau, President Lincoln created the Freedman's Savings and Trust Company. "This bank is just what the freedmen need,"
Lincoln famously said, a remark that would be quoted extensively in promoting it. The board of trustees included the philanthropist Peter Cooper, the editor and abolitionist William Cullen Bryant, and General O. O. Howard, who headed the Freedmen's Bureau. These "patriotic and philanthropic citizens," noted Senator Blanche Bruce, who later investigated the bank's operations, commended the institution "to the confidence of the many thousand simple-hearted and trustful people who subsequently became its depositors." Passbooks from the bank bore patriotic images of Lincoln, Generals Grant and Howard, the American flag, and written testimonials that helped foster the idea that the bank was run (and its deposits guaranteed) by the government.

Alvord was a missionary at heart and believed ardently in his creation. Beginning in 1865 he traveled throughout the South, supervising the opening of new bank branches; ultimately there would be thirty-three in the Southern states, New York, and Baltimore, with headquarters in Washington. The bank offices in the South were often attached to Freedmen's Bureau offices—Alvord was simultaneously president of the bank and superintendent of education in the bureau—and bureau agents frequently acted as cashiers.

The bank was instantly popular among black soldiers and other freedmen. It soon became a show of status to have a savings account, and the bank encouraged participation by allowing accounts to be opened with as little as five cents; between 1865 and 1874 the bank took in more than $50 million from as many as 100,000 depositors. As Senator Bruce noted, "The need for such an institution was real ... it not only supplied a great convenience to those for whose benefit it was ostensibly established, but it stimulated in them a spirit of thrift, frugality, and foresight."

The misleading statements about the bank's governance, and the true nature of its problems, might never have become an issue, had the bank stayed afloat, and until about 1870 all went well. A report made that year by Alvord for the bank's trustees and excerpted by the
New National Era
gave satisfactory marks to eleven Freedman's Banks across the South. Alvord related that he had visited many black schools where children held accounts in the bank and mentioned that even "old time slave owners" who now hired their labor appreciated the fact that the bank offered blacks a sense of money's worth and a means of saving it. He noted that the only parties opposed to it were "whiskey dealers, lottery gamblers, circus men, and a certain class of bounty and claim agents"—
in other words, those accustomed to benefiting from Negro profligacy. He wrote,

At Charleston, S.C., we have a choice property, well-purchased, commodious, and everything properly secured ... at Beaufort we own the office and over 20,000 feet of land ... at Macon, [where] a branch recently opened...$1,000,000 was ... paid to freedmen for their share of last year's cotton; a goodly portion of this sum has been deposited ... A branch is strongly urged at Lexington, Ky. In that city I found 12,000 colored people, the most prosperous of any freedmen I have yet seen at the South ... Kentucky is full of Ku Klux, [but] a bank in Lexington will be safe.

"Permit me to say," Alvord concluded, "that no one can visit our branch institutions—note their progress, freedom hitherto from losses, increasing patronage and popularity—without astonishment. This institution has been the child of a protecting Providence ... the system we have adopted seems as safe as anything of the kind in human affairs can be."

The bank's charter stipulated that two thirds of the available funds be invested in government securities and the other third held with the bank. In June 1870, however, around the time Alvord was circulating his upbeat report, the bank fell into the hands of a Washington-based clique whose duties related to the Freeman's Bank overlapped with their participation in various local real estate and investment schemes. The charter was amended to enable the new trustees to invest in a more aggressive and speculative way, allowing for one half of the money held for government securities to be used for investment in real estate. Such a drastic redirection had never been intented by the bank's cautious founders; and because the original basis for the bank had been largely philanthropic, its charter lacked the kind of penalties designed by most financial businesses to keep those in charge from disregarding the depositors' best interests. Most of the men who had helped put the bank in business had by now departed, and neither the aging Alvord nor the bank's actuary, D. L. Eaton, possessed enough expertise to fully understand the danger.

Despite warnings from a handful of onlookers, the bank began making speculative loans to a risky class of borrowers. Jay Cooke and Company (Jay's brother Henry sat on the bank's financial board), Howard University, the YMCA, and the Seneca Sandstone Company were among the entities that, along with certain well-connected individuals, secured
extremely advantageous loans from the Freedman's Bank. Henry Cooke, the president of the First National Bank of Washington, shifted poor securities from First National to the Freedman's Bank and took advantage of his role as territorial governor of the District of Columbia to borrow heavily in the district's name. In the Panic of 1873, which started with the crash of Jay Cooke and Company and soon devastated many other national financial institutions, these loans quickly went bad. The bank's trustees did what powerful men in such circumstances have often done—feathered their own nest, protected their friends as best they could, and scurried away.

Suddenly, instead of a beacon of thrift and promise, the bank became a worrisome disaster, an example of the era's worst tendencies, heaping woe upon the freedmen. Frederick Douglass, as ever their outspoken guardian, was sickened by the institution's distress, and in March 1874 he took charge of the bank in an effort to correct its course and restore its good name in the eyes of "the sable millions," as he announced in printed circulars. But Douglass, one of the bank's early boosters, was to become a convenient scapegoat for a debacle that was without remedy. The bank's assets, he found, were mostly tied up in uncollectible real estate loans; also, knowledge that the institution was in trouble had led depositors to make three devastating runs on the bank, withdrawing $1,800,000 over an eighteen-month period. In desperation, Douglass loaned $10,000 of his own money to keep it afloat, dollars that were never recouped. "The false building, with its marble counters and black walnut finishings, was there, as were the affable and agile clerks," Douglass grieved, "but the Life, which was the money, was gone, and I found that I had been placed there with the hope that by 'some drugs, some charms, some conjuration, or some mighty magic,' I would bring it back." He would later compare the experience to being "married to a corpse." To make matters worse, Douglass soon discovered that a bank examiner's report describing the institution's true predicament had been withheld from him. On June 28, 1874, the day Douglass informed Congress that the bank should be shut down, it owed 61,114 depositors a sum of $2,993,790, but had just a little over $31,000 on hand. (At about the same time, in depressing counterpoint to the bank's collapse, Douglass's own
New National Era
went out of business.)

In spring 1879 Senator Bruce pushed through two resolutions asking for an inquiry into the bank and was put in charge of the Senate investigating committee. In the House, Joseph Rainey of South Carolina, who since the inception of the crisis had insisted that the government make
good on the deposits, joined a similar conclave. It was a curious congressional alliance urging the issue forward—Southern black representatives like Bruce and Rainey seeking resolution (and reimbursement) for their constituents and Democrats eager to heap political embarrassment on the Republicans who had created the bank and on whose watch the mismanagement had occurred.

The nearly yearlong Senate inquiry found that several sections of the bank's charter had been "disregarded, violated, or misinterpreted." The findings included reckless loans, embezzlement at the branch banks, and recordkeeping so shoddy that deposits had sometimes been entered as withdrawals, and withdrawals as deposits. Other transactions were so confusing as to defy categorization. Many reports of corruption and sleight-of-hand surfaced concerning cashiers; the worst transgressors were Washington branch tellers "Daddy" Wilson and his son-in-law, Boston, who "lived in style beyond their means" and whose petty schemes took cruel advantage of the freedmen. Boston, it was found, had for years fleeced an illiterate depositor named Watkins who was unable to read his own passbook. Believing that he had $900 on deposit with the bank, Watkins arrived one day to learn from another cashier that his account had been emptied of all but forty cents. In other testimony, General Howard, who had supervised the bank's affairs early on, recollected that in some instances federal soldiers had solicited deposits or served as tellers while wearing their army uniforms. He stopped short of suggesting a deliberate effort to deceive but agreed that depositors had every reason to believe the bank was operating under government auspices.

Investigators found that wayward investment policy alone had not done all the damage. No group of "sane and honest men could so trifle with a serious trust and so recklessly administer the funds of others," it was concluded; the "dishonesty of men holding official positions in the institution" was cited as the immediate cause of the bank's collapse. But by the time Bruce's committee issued its report, few culpable persons were left to blame. Alvord and the actuary D. L. Eaton had died, while the surviving ex-trustees either "pleaded forgetfulness or ignorance of the violated law" or simply blamed Alvord, who, it was now revealed, had suffered from mental lapses and had been briefly committed to a sanitarium. Only one person was convicted in relation to the collapse of the bank, an Atlanta branch cashier and minister named Philip Cory, who had embezzled $10,000. Sentenced to four years in prison, Cory was pardoned after he agreed to move west and become an Indian agent. To try to recoup some of the loss, those who made the inquiry advo
cated that the federal government purchase the Freedman's Bank building in Washington and appoint a single person to oversee the process of dissolving the bank.

As the historian James M. McPherson points out, the Freedman's Bank, over the nine years of its operation, was technically less of a failure than is commonly believed. But the symbolism of its collapse was powerful, for the bank, rightly or wrongly, was perceived as yet another example of how the nation tried to confer new status on black Americans, only to default on that commitment and eventually shun accountability.

In the wake of the bank's collapse, many people, most notably General Howard and Frederick Douglass, called on Congress to make good on all remaining deposits. These demands were revived sporadically over several years, by Senator Bruce in 1880 and by the Mississippi congressman John Roy Lynch in 1883, among others. (Bruce, for his efforts, wound up with the consolation prize of a load of discarded Senate office furniture to donate to a home for colored women and children.) Despite many editorials and petitions in support of this equitable and humane idea, the motion was ignored, even as hand-scrawled notes from former depositors or their relatives seeking information about lost savings continued to arrive on Capitol Hill. These appeals were still showing up as late as the 1920s, a half-century after the doors of the bank had closed.

In 1876, a year of national self-reflection, Americans at last had a presidential election with the potential to resolve the issues left over from the Civil War. The Republicans, grouping behind Rutherford B. Hayes, the kindly but unexciting governor of Ohio, were intent on blocking the further ascent of the opposition symbolized by the Democratic sweep of the House in 1874; the Democrats, in turn, led by the New York reformer Samuel Tilden, saw the Republican Party, which had held power since 1861, as a bloated political machine long overdue for dismantling, along with its wayward Southern policy.

The results of this close election were elaborately disputed, amid extensive partisan maneuvering and delay, and the end came only with a backroom compromise struck in Washington. The deal itself soon became infamous, accusations of fraud and manipulation lingered, and neither candidate emerged whole from the experience. Hayes, the nominal winner, was a one-term president who never truly earned his countrymen's respect (he became known as "His Fraudulency"), while
Tilden wound up conceding the election despite strong evidence he'd been cheated out of victory.