Disturbing History - The Wealth Divide

Episode Date: July 29, 2026

The wealth divide in America did not settle the way sediment settles. It was built, revised, briefly reversed, and then rebuilt with better engineering, and nearly every stage of it can be traced to identifiable people making documented decisions in specific years. Brian follows the paper trail, because in sixteen years of police work he learned that the interview is where people tell you what they want you to believe and the paperwork is where you find out what actually happened.This one is a paper case.It opens in New Orleans in 1839, in the rotunda of the St. Louis Hotel, where estates, paintings, and human beings were auctioned in the same room on the same afternoon for more than twenty years. Brian starts by correcting the famous engraving of that room, because the artist drew it in London from a description and got the building wrong, and the title of the picture turns out to matter more than the picture.From there the story runs backward to the Virginia headright system of 1618, a policy that handed out fifty acres for every passage paid and therefore rewarded the prior possession of money rather than labor, and to the laws Virginia passed after Bacon's Rebellion that built a permanent underclass defined by ancestry and a buffer class above it defined by not being in it. The founding section rests on what the founders said in the room. James Madison told the Constitutional Convention in June of 1787 that the Senate ought to be constituted to protect the minority of the opulent against the majority, and he was not hiding anything. Then comes the first great American transfer, when Alexander Hamilton's funding plan paid Revolutionary War debt at face value after speculators had already bought the certificates from veterans at a fraction of what they said on their face.The middle of the episode is the machinery that turned people into capital. By 1860 roughly four million enslaved people represented something on the order of three billion dollars, more than every railroad and factory in the country combined, and they were not only labor but collateral, which meant the ordinary operation of the credit system produced family separation as a foreclosure rather than as an act of individual cruelty. The insurance was written in Hartford and New York.The credit cleared in New York. Brian walks through the four months in 1865 when forty thousand freedpeople farmed their own land under Sherman's Special Field Order Number Fifteen, and the autumn when Andrew Johnson's pardons took it back and General Oliver Otis Howard was sent to Edisto Island to deliver that news in person. Then the crop lien, convict leasing at seventy-three percent of Alabama's state revenue, the eleven men murdered in Jasper County, Georgia in February of 1921 to destroy a federal peonage case before it could be built, and the collapse of the Freedman's Savings Bank, which took the deposits of sixty-one thousand people and was never made whole.The second half is the modern gap and how it was engineered. Railroad land grants and Credit Mobilier. Homestead and Ludlow. Andrew Mellon cutting the top tax rate from seventy-three percent to twenty-five and the income concentration peak of 1928. The Great Compression that followed, which is the proof that the distribution is a policy variable rather than a law of nature, and the racial exclusions written into Social Security, the Fair Labor Standards Act, federal mortgage insurance, and the G.I. Bill in order to buy Southern votes. Redlining maps that named their reasoning in plain language, Levittown covenants, Chicago contract sales with an average markup of eighty-four percent, and interstate highways routed through neighborhoods the appraisers had already devalued. Then the turn. The Powell Memorandum, the hinge year of 1978, the Volcker shock, the eleven thousand three hundred and forty-five air traffic controllers fired on a single day in August of 1981, the tax cuts, SEC Rule 10b-18 and the birth of the modern stock buyback, the 401(k) that came out of a subsection drafted for executives, and the 1993 pay cap that accidentally created an unlimited deduction for stock options. Deregulation, subprime steering documented in sworn affidavits by the loan officers who did it, millions of foreclosures, and a rescue that stabilized the banks and left the homeowners.And finally the strategy estate planners teach openly, buy, borrow, die, and what it means that the twenty-five wealthiest Americans saw four hundred and one billion dollars in wealth growth across five years and paid thirteen point six billion in federal income tax on it.Brian is careful throughout about what the evidence can and cannot carry. Where historians disagree, he names the disagreement rather than picking the version that sounds better, including the fight over whether the Social Security exclusions were racially motivated or administratively driven.Where the data is thin, such as the wealth concentration estimates from the 1890s, he says so on air. He corrects a famous Andrew Jackson quotation that Jackson never actually said, gives the strongest counterargument to the most attackable statistic in the modern half, and declines to claim more than the record supports.The episode closes at fifteen hundred Pennsylvania Avenue, in a building the Treasury Department named after a bank it never repaid, and in the surviving ledgers of that bank, which are now among the most valuable genealogical records in existence for African American families precisely because of what the clerks wrote down and what the institution then did with the money.Have a forgotten historical mystery, disturbing event, unsolved crime, or hidden conspiracy you think deserves investigation?Send your suggestions to [e-mail] History is a dark history podcast exploring unsolved mysteries, secret societies, historical conspiracies, lost civilizations, and the shadowy stories buried beneath the surface of the past.Follow the show and enable automatic downloads so you never miss a deep dive into history’s most unsettling secrets.Because sometimes the truth is darker than fiction.

Some stories were never meant to be told. Others were buried on purpose. This podcast digs them all up. Disturbing history peels back the layers of the past to uncover the strange, the sinister, and the stories that were never supposed to survive. From shadowy presidential secrets to government experiments that sound more like fiction than fact, this is history they hoped you'd forget. I'm Brian, investigator, author, and your guide through the dark corner.

of our collective memory. Each week I'll narrate some of the most chilling and little-known tales from history that will make you question everything you thought you knew. And here's the twist. Sometimes the history is disturbing to us. And sometimes, we have to disturb history itself, just to get to the truth.

If you like your facts with the side of fear, if you're not afraid to pull at threads, others leave alone. You're in the right place. History isn't just written by the victors. victors. Sometimes it's rewritten by the disturbed. New Orleans, 1839. At the corner of St. Louis and Chartreau's streets in the French Quarter stands the St. Louis Hotel, opened the year before. It has a domed rotunda over the lobby floor, and at midday, that lobby stops being a lobby and

becomes an exchange. Estates are sold there. Paintings are sold there. Inslaveed people are sold there. According to the historic New Orleans collection, auctions of human beings ran under that dome on an almost daily basis for more than 20 years. An English traveler named James Silk Buckingham, a former member of parliament, came through the American South that year and published what he saw in 1842 in a two-volume book called The Slave States of America. The frontest piece of the first volume is an engraving with a title that tells you the whole business model. Sale of Estates, pictures and slaves in the Rotunda New Orleans. That engraving is the one most people have seen, and it's wrong. The engraver worked in London from somebody else's description, and the dome

he drew looks more like the Pantheon in Rome than the room that actually stood in New Orleans. So throw the picture out and keep the title. A man could stand in that rotunda and bid on a sugar tract, and then bid on the human beings who would be sent to cut the cane on it, and settle both purchases the same afternoon. That's where this one starts, because everything else in it runs out of that room. Not the cruelty of it, which is obvious, the bookkeeping of it.

I've spent most of my adult life looking at records because the paperwork is where you find out what actually happened. Bank statements, deeds, receipts, payroll, the boring stuff. It's slower, and it's far less satisfying, and it's almost always where the case is. This episode is a paper case. It's about how a country ended up with the wealth distribution it has. I have to start with that phrase itself, because it's deceptive.

Income and wealth often get used interchangeably, and they're not the same thing at all. Income is what comes in. Wages, salary, tips, interest, rent, dividends. Wealth is what you own after you subtract what you owe. A paycheck is income. A house with equity in it is wealth. A pension is a promise. A brokerage account is wealth. The distinction matters more than almost anything else in this story, because income can be

earned in a lifetime, and wealth is mostly inherited, transferred, or accumulated across generations through assets that appreciate while you sleep. Here's the shape of it in the United States right now. According to the Federal Reserve's distributional financial accounts, which track household balance sheets by wealth percentile, the wealthiest one percent of American household, households hold close to 32% of all household net worth. The bottom half of the country, roughly 66 million households, holds 2.5%. Those two numbers describe the same country. The top 1% holds about 13 times what half the population holds combined. And the racial split inside those numbers is its own story.

In the 2022 survey of consumer finances, the median white household reported a net worth of about $285,000. The median black household reported about 45,000. The median Hispanic household reported about 62,000. The median Asian household reported about 536,000, which is higher than the white figure. And I mentioned that because any explanation that can't accommodate, it's not an explanation. Those are medians, not averages, which means they're not being dragged around by a handful of billionaires. That's the middle household in each group. The temptation is to treat a gap like that as weather, something that accumulated on its own, the way sediment accumulates. The opposite is closer to the truth, and the documents make the case better than any argument I could put on top of

them. Almost every major widening of the American wealth gap can be traced to a specific decision made by identifiable people in a documented year, usually with the stated purpose. Usually with the stated purpose of protecting the people who already had the most. Some of those decisions were monstrous and some of them were routine and technical. And the technical ones may have moved more money than the monstrous ones. I'm going to go in order because order is the only way to see the pattern. And this isn't a story with a villain at the center of it. It's a story about a system that got built, revised, briefly reversed, and then rebuilt with better engineering. Start with land, because in a colonial economy, land is the only real capital there is.

In 1618, the Virginia Company put in place a policy called the Headright System. Anyone who paid for a person's passage to Virginia received 50 acres of land for each passage paid. 50 acres for a wife, 50 acres for a child, 50 acres for a servant, 50 acres for a captive African. In the years after 1619, when the first Africans were sold into Virginia from an English private tier that had taken them off a Portuguese slave ship. That policy as a machine converted existing money into land, and it did it at a multiplier. A man who arrived with nothing got 50 acres if someone else paid his way, and often not even that, because the head right frequently went to the person who paid rather than the person who traveled. A man who arrived with capital enough

to import 20 servants got 1,000 acres. A man who imported 100 got 5,000. The system did reward labor. It rewarded the prior possession of money, and it rewarded it in the one asset that couldn't be made more of. By the middle of the 1600s, a meaningful share of the good tidewater land in Virginia was held by a small number of families, and the men who ran the colony's government were the same men who held the patents. Historians who have worked through the county land records, Edmund Morgan among them, found colonial counselors approving grants to themselves and to their relatives. Underneath the them was a population that modern Americans tend to forget existed. Estimates vary by colony

and by decade, but a common figure among historians is that between one half and two-thirds of all white immigrants to the British mainland colonies before the revolution arrived as indentured servants. They signed away four to seven years of their lives for passage. They could be bought and sold for the term of the indenture. They could be whipped. Their terms could be extended by a court for running away or for a pregnancy. And when they survived to the end of the term, which many did not, they were entitled to freedom dues, which in Virginia by the early 1700s meant a quantity of corn, a small sum of money, and for men, a musket, corn, cash, and a gun, not land. And that was the whole problem, because a free man with no land in a land economy is a man with nothing to sell but his back,

in a market that already had cheaper backs available. In 1676, that arrangement blew up. Nathaniel Bacon, a well-connected planner with a grievance against the colonial governor and an appetite for attacking native settlements on the frontier, raised a force that included poor freedmen, indentured servants, and enslaved Africans fighting on the same side. They burned Jamestown in September of 1676. Bacon died of dysentery a month later in the rebellion colloquium.

collapsed, and the English hanged a number of the leaders. What happened afterward is where historians argue, and the popular telling has run well out ahead of the evidence. In the decades following the rebellion, the Virginia Assembly passed a series of laws that hardened the legal line between white servants and black slaves. The eventual consolidation came in 1705, in a set of statutes that, among other things, declared enslaved people to be real estate. Bared black people from holding office or striking a white person, stripped black Virginians of the right to testify against whites, and simultaneously improved the legal position of white servants

by requiring masters to provide certain goods at the end of the term, and by forbidding the whipping of a white servant without a court order. Edmund Morgan, in American slavery, American Freedom, published in 1975, made the argument that the Virginia elite responded to the terror of a multiracial rebellion by manufacturing a racial floor. Give the poorest white man a legal status that no black person could reach, and you have given him something to defend.

He will defend it, and he won't join the next rebellion. That's an interpretation, not a finding. Other historians have pointed out that the shift from indentured to enslaved labor was already underway before bacon for economic reasons, that English mortality was falling, and indentures were becoming a worse investment, and that the causal chain from the, rebellion to the codes isn't as tight as the popular version makes it. I find Morgan persuasive on the

outcome even where the mechanism is fuzzy. Whatever the assembly intended, the effect is documented in the statute books. Virginia built a permanent underclass defined by ancestry, and it built a buffer class above that underclass defined by not being in it. You will see that same move again in this story, more than once. Now come forward to the founding, because the men who wrote the Constitution were explicit about the problem they were solving, and their explicitness is the most useful evidence we have. On the 26th of June 1787 in the Philadelphia Convention, James Madison spoke about the purpose of the Senate. According to Madison's own notes, and to Robert Yates' notes, which agree in substance, he argued that a chief object of

government was to protect the permanent interests of the country, and that one of those interests was landed property. He said the Senate ought to be constituted so as to protect the minority of the opulent against the majority. That's not a paraphrase from a critic. That's the man who's usually called the father of the Constitution, describing the design intent in the room. Madison had written the same idea more elegantly in Federalist Ten, where he identified the unequal distribution of property as the most common and most durable source of factions in any society, and where he treated the protection of the different and unequal faculties of acquiring property as the first object of government.

He wasn't hiding anything. He believed a republic without checks would allow a debtor majority to vote itself relief at the expense of creditors, and he built a machine to prevent that. The rest of the founding architecture followed. Every state at ratification had property qualifications for, voting of some form, so the electorate itself was filtered by wealth. The Constitution counted three-fifths of the enslaved population toward representation

and toward direct taxation, which handed slaveholding states additional seats in Congress and additional votes in the electoral college in proportion to the number of people they held as property. It barred Congress from prohibiting the international slave trade for 20 years. It obligated free states to return people who escaped bondage. And then, almost immediately, came the first great American transfer. During the Revolution, the Continental Congress and the States had paid soldiers and suppliers and certificates. Promises to pay, backed by a government with no taxing power.

After the war, those certificates collapsed in value. A veteran holding a piece of paper worth $100 on its face could sell it for $15 or $20 if he needed to eat. And many of them did, and many of them had already done. done so by the time anyone in New York was talking about assumption. In January of 1790, Alexander Hamilton delivered his report on the public credit. He proposed that the federal government fund the entire domestic debt at face value and assume the war debts of the states as well. His reasoning was defensible and in some ways brilliant.

A new nation needed credit. Credit required a reputation for paying in full and creating a large class of wealth men whose fortunes depended on the survival of the federal government was, in his view, a feature. Madison objected. He proposed discriminating between the original holders and the current holders, so that the soldiers and farmers who had sold at a deep discount would get something. The proposal was defeated in the House in February of 1790 by a wide margin. What happened in the months before that vote is where the story turns ugly. speculators who anticipated the plan sent agents into the countryside and into the south to buy up certificates from people who hadn't yet heard what was coming.

They bought paper at a fraction of face value from men who had earned it in the field. When the funding act passed, that paper became worth its full face amount, guaranteed by the new federal government, payable with interest. Contemporaries said openly that members of Congress were among the buyers. Charles Beard built an entire and heavily contested book around that claim in 1913, and later historians dismantled a lot of Beard's specifics. I'm not going to tell you that the Constitution was written as a conspiracy of bondholders because the evidence doesn't support the strong version of that claim. What the evidence does support is narrower and still remarkable.

The first major financial act of the United States government took a debt that had been diffused among thousands of ordinary people. waited until most of them had been forced to sell it cheap, and then paid it in full to the men who had bought it. That's not a moral judgment. That's what the transaction was. The next hundred years of American wealth creation ran on two inputs, and both of them had to be taken from someone. The first was land, and the land was already occupied. The Indian Removal Act passed Congress in May of 1830, and Andrew Jackson signed it. The vote was close in the House, something like 102 to 90s.

which is worth remembering because the popular version of this history often implies a national consensus. There was no consensus. There was a majority. What followed was a series of treaties negotiated under conditions that ranged from coercive to fraudulent. The Treaty of Dancing Rabbit Creek in September of 1830 took the Choctaw homeland in Mississippi. The Treaty of New Akota in 1835, which produced the Cherokee removal, was signed by a small faction of Cherokee men who had no authority to sign it over the documented objection of the elected Cherokee government and a petition carrying thousands of Cherokee names. The Senate ratified it anyway. The Cherokee removal in 1838, the one that came to be called the Trail of Tears, which I've covered here in detail in a previous episode, killed thousands of people. The most

commonly cited figure is around 4,000 deaths, which comes from an estimate by the historian and Grant Foreman. Other scholars have argued the true number is higher, and some demographic work suggests it may be considerably higher when you count deaths in the years immediately following arrival. One piece of this gets repeated constantly and it's not true, and the correction matters for how we read the rest of the record. The famous line attributed to Jackson, that John Marshall has made his decision and now let him enforce it, in response to the Supreme Court's ruling in Worcester v. Georgia in 1832, appears to be apocryphal. It was reported decades later by Horace Greeley, and there's no contemporary source for it. Jackson never had to say it, because the structure of the

case never actually required federal enforcement against Georgia in the way the story implies. The real history is worse than the quotation, in the sense that the removal proceeded through law, through treaty, through appropriation, through the ordinary functioning of the government, and didn't require a single defiant one-liner. Now, follow the land after removal. Federal surveyors moved in. Public land offices opened. The land was sold, and in Mississippi and Alabama in the 1830s, it was sold into a speculative frenzy that people at the time called the flush times. Companies formed to buy tracks on credit and flipped them. Banks issued notes against land they hadn't seen. Jackson himself had made money in Tennessee land speculation

earlier in his life, and he held enslaved people at the hermitage until his death. What was that land for? Cotton. Which brings us to the second input. By 1860, there were just under four million enslaved people in the United States. Economic historians have estimated their aggregate market value at roughly $3 billion in the money of the time. To put that in, in proportion, that figure exceeded the combined value of all the railroads and all the manufacturing establishments in the country. Inslave human beings were the single largest category of capital asset in the American economy other than land itself. When you apply that to the balance sheet, a lot of behavior that otherwise makes no sense starts making sense. When people ask why the

South fought, the answer is sitting in the balance sheet. Secession was a defense of the largest concentration of privately held capital in North America. Cotton was around three-fifths of the total value of American exports in 1860. The cotton went to Liverpool and to Lowell. The credit came back through New York, and the enslaved people themselves weren't just labor. They were collateral. This is the part of the story that gets left out of the standard telling, and it's the part that turns slavery from a regional institution into a national financial system. Bonnie Martin, mortgage records in Louisiana, South Carolina, and Virginia, documented how routinely enslaved people were pledged as security for loans. In her sample, a large share of all mortgage capital

raised in those places was raised against human collateral. A planner who wanted to buy more land borrowed against the people he already owned. The bank that lent him the money held a lien on those people. If he defaulted, they were sold to satisfy the debt. Stay tuned for more history. We'll be back after these messages. That means the ordinary operation of the credit system produced family separation as a mechanical consequence. Not as an act of cruelty by an individual owner, though there was plenty of that to go around as a foreclosure. The domestic slave trade moves something on the order of one million people from the Upper South to the Deep South between the end of the 18th century and the Civil War. Virginia and Maryland, where tobacco had

exhausted the soil, exported people the way Alabama exported cotton. Coffles walked overland. Ships carried people from Baltimore and Norfolk to New Orleans. Solomon Northup, a free black man from New York who was kidnapped in Washington in 1841 and sold South, published his account in 1853 and named the men and the yards. And the money moved north and east. In 2005, J.P. Morgan Chase acknowledged that two of its predecessor, banks in Louisiana, Citizens Bank, and Canal Bank, had accepted enslaved people as loan collateral

and had taken ownership of several thousand of them when planters defaulted. In 2000, Aetna apologized for having issued life insurance policies on enslaved people, with the owner as the beneficiary. New York Life acknowledged that its predecessor company, Nautilus Insurance, wrote similar policies in the 1840s. Brown Brothers, the Merchant Bank, financed cotton. Lehman Brothers began as cotton brokers in Montgomery, Alabama. This is why I dislike the framing that treats slavery as a southern sin that the North fought a war to correct. The insurance was written in Hartford and New York. The credit was cleared in New York.

The textile mills were in Massachusetts. The wealth compounded in all of those places, and it's still there. Then the war, and then the four years, when this story could have gone a different direction. On the 16th of January, 1865, General William Tecumpsa Sherman issued Special Field Order No. 15. It set aside a strip of confiscated coastal land, the sea islands, and abandoned rice country from Charleston down to the St. John's River in Florida, roughly 400,000 acres, for settlement by freed families and plots of not more than 40 acres. Sherman later made mules available from Army stock. That's where the phrase comes from. By the following summer, something like 40,000 freed people were living and farming on that land. They planted. They organized local government.

They were, for a matter of months, landowners in the country that had held them as inventory. Abraham Lincoln was killed in April. Andrew Johnson became president. Over the summer and fall of 1865, Johnson issued pardons to former Confederates by the thousands. And those pardons restored property. And the property included the land. In September of 1865, the Freedmen's Bureau issued circular number 15, which effectively ordered the restoration of confiscated and abandoned lands to their pardoned former owners.

In October of 1865, General Oliver Otis Howard, the head of the Freedmen's Bureau, was sent to Edisto Island in South Carolina to deliver that news in person. He stood in a church filled with people who had been farming that land for the better part of a year and told them they'd have to give it back and enter into labor contracts with the men who had owned them. The freed people of Edisto elected a committee and wrote to Howard and then wrote directly to President Johnson. Those letters survive. They're among the most direct documents in American political history. The committee asked whether the government meant to force them to work for the men who had held them in bondage. On land the government had given them, and they said plainly that they wanted homesteads and had been promised homesteads.

Johnson didn't reverse the order. I've read a lot of witness statements. What strikes me about those letters is how procedurally sound they are. These are people who had been legally barred from learning to read a few years earlier, writing a clear, organized appeal that identifies the promise, the reliance on the promise, and the injury. And it didn't matter, because the decision had already been made somewhere else. So think about what happened between 1865 and 1870 in terms of a balance sheet. Roughly four million people were freed.

That freedom extinguished about $3 billion of assets on the books of Southern slaveholders, which is the single largest destruction of private wealth in American history until that point. But the four million people who had constituted that asset didn't receive the value. They received freedom, which isn't nothing, and they received no capital at all. They didn't receive back pay. They didn't receive land, outside of a few small and mostly reversed. programs. They came out of 250 years of unpaid labor with the clothes they had and a labor market controlled by the men who had owned them. And then the system that replaced slavery went

to work. Sharecropping is usually described as a compromise and in the first year or two, it functioned like one. A family worked a plot and gave the landowner a share of the crop. But the family had no seed, no mule, no tools, and no food to get from planting to harvest. so they bought on credit from a furnishing merchant, who was frequently the same man who owned the land. The instrument that made this work was the crop lien. The merchant advanced supplies and took a legal lien against the crop not yet planted. Because the merchant faced no competition, since the tenant was legally bound to buy from him once the lien was signed, he set two prices, a cash price and a credit price.

The gap between them, annualized, commonly ran between 30 and 70%, and in some documented cases higher. Run those numbers across a season and the arithmetic is inescapable. The crop comes in, the merchant does the accounting, and the family ends the year owing money. They can't leave because leaving with an outstanding debt was a criminal offense in much of the South under statutes passed in the 1860s and after. So they sign again for next year. That's a system that produces permanent debt by design, and it captured white tenant families as well as black ones. By 1930, more than half of all farms in the southern states were worked by tenants rather than owners. And a large share of those tenants, black and white, were in some version of this arrangement.

Alongside it ran something worse. The 13th Amendment abolished slavery and involuntary servitude, except as a punishment for crime, and Southern legislatures read that clause the way you'd expect. The black codes of 1865 and 1866 created crimes that only applied in practice to black men, vagrancy, which in Mississippi meant being unable to prove employment, selling farm products without written permission from a white employer, loud talk in the presence of women, changing employers without permission. A man arrested for vagrancy was fined. He couldn't pay the fine,

So the court assessed costs, and a private employer paid the fine and the costs, and the man was leased to that employer to work off the debt. That's convict leasing, and it ran for roughly 60 years. Douglas Blackman assembled the documentary record of it in slavery by another name, which won the Pulitzer Prize in 2009, working from county court dockets, company records, and Justice Department peonage files. The scale is the thing. The figure most often cited, which traces to the historian Robert Perkinson, is that in 1898, roughly 73% of the state of Alabama's entire annual revenue came from leasing convicts. 15 years earlier, it had been about 10%.

United States Steel, through its subsidiary Tennessee coal and iron, worked leased convicts in Alabama mines. Death rates in some camps ran to double-digit percentages per year, that labor produced coal and pig iron. and the coal and iron produced earnings, and the earnings capitalized into share prices held by people in Pittsburgh and New York. Here's the single case from that era that I can't get out of my head.

On the 18th of February, 1921, two agents of the Bureau of Investigation, George Brown and A.J. Wismer drove out to a 2,000-acre plantation in Jasper County, Georgia, owned by a man named John S. Williams. They were investigating complaints of peonage, meaning forced labor for debt, which had been a federal crime since 1867. Williams had been acquiring black men out of Georgia jails by paying their fines and holding them on his farm under guard.

One man on that place had earned 35 cents over an entire year. The agents looked around, found nothing they could charge that day, and left. The next morning Williams told his black overseer, a man named Clyde Manning, that the workers would have to be gotten rid of before they could testify. and that if Manning wouldn't do it, it would be Manning's neck instead. Over the following days, 11 men were killed. Some were shot. Some were bound with weights and thrown alive into rivers.

Eventually, some of those bodies surfaced in the Yellow River, nearby in Newton County. And the case broke open. Williams was convicted of murder by an all-white Georgia jury and sentenced to life. That conviction was close to unprecedented for a white man in the South at that time. and the jurors reportedly agreed on guilt quickly and spent most of their deliberation arguing about hanging. Manning was convicted as well and died in prison of tuberculosis in 1927. Williams was killed in an accident at the state penitentiary in Millageville in 1931. What stays with me is the visit.

Two federal agents walked on to that property, asked questions, decided there was nothing actionable and drove away. and 11 men were dead in the days that followed because of what those agents had seen. I've made that kind of call myself, the one where you don't have enough to act, and you leave and tell yourself you will come back with more. That's the risk in it, and in 1921 in Jasper County, the risk landed on men whose names are in the indictment and almost nowhere else. There was one more institution that could have changed the trajectory, and it failed in a way that poisoned the well for a century.

Congress chartered the Friedman's Savings and Trust Company in March of 1865, the same month it created the Freedman's Bureau. It was a savings bank for freed people. It opened branches across the South. Its early advertising leaned on the federal charter, and many depositors believed reasonably that the government stood behind it. The bank's trustees then amended its charter to permit investment in speculative loans and real estate, and the money went into ventures connected to Washington financiers, including loans tied to Jay Cook and company. When Cook's firm collapsed in the panic of 1873, the bank was fatally exposed. Frederick Douglass was brought in as president in early 1874, a few months before the end, and later wrote that he had been made the president of a dying

institution and had put his own money into it before he understood the condition of the books. The Friedman Savings Bank closed on the 29th of June 1874. It held deposits from roughly 61,000 accounts, totaling around $3 million. Congress eventually authorized partial repayment capped at $0.62 on the dollar, paid out in five small installments over decades. Many depositors never collected anything because the process required producing the original passbook and filing with federal authorities. Congress repeatedly declined to make the depositors whole.

In 1927, the Treasury announced that the remaining assets from the liquidation were exhausted and that no further payments would be made. Think about what that teaches a population. The first generation out of slavery saved money in a bank with the word Friedman, in the name and a federal charter on the wall, and the money went into speculative real estate loans, and the bank failed, and the government that chartered it declined to cover the loss. The distrust of banks and black communities that persisted for the next century has a documented origin, and it's that.

While all of that was happening in the South, the largest single transfer of public wealth into private hands in American history, was happening in the West, and it was entirely legal. Between 1850 and 1871, Congress granted railroad corporations an enormous quantity of federal land. The figure usually given is around 130 million acres, with 10,000,000. of millions more coming from the states. Acreage totals from that period vary between sources depending on what gets counted as granted versus actually patented. The grants were typically laid out in a checkerboard along the route,

alternating sections for miles on either side of the track. The railroads got the land, sold it to settlers and to timber and mineral interests, and used it as collateral to raise capital in New York and London. The Homestead Act of 1862 is the part everybody remembered. It offered 160 acres to a settler who filed a claim and improved it for five years. And over its life it did transfer an enormous amount of land to something like one and a half million households. But it operated alongside the railroad grants and alongside massive fraudulent entries by timber and cattle companies using dummy claimants.

And much of the best land, the land near the track and the water, never went to homesteaders at all. The corruption at the top of this wasn't subtle. The Credit Mobilié scandal, which broke in the fall of 1872, involved the construction company that the Union Pacific's own insiders had set up to build the railroad. They contracted with themselves at inflated prices and extracted the profit. To keep Congress from investigating, Congressman Oaks Ames distributed shares of Credit Mobiliar stock to members at below market prices. Ames wrote that he was placing the stock where it would do the most good.

The scandal reached the vice president and the incoming vice president, along with the future president James Garfield. The House censured Ames. Almost nobody else suffered a consequence. Out of this era came the first American fortunes at industrial scale, and they were built in industries where the winner took the market. Rockefeller's standard oil controlled roughly 90% of American refining capacity by the early 1880s, built partly on secret rebate agreements with railroads that gave standard a cost advantage no competitor could match and, in some arrangements, paid standard a cut of what competitors paid to ship. Carnegie built steel. Morgan built the financial architecture that consolidated all of it, and in 1901 assembled United States Steel as the first billion-dollar corporation.

Andrew Carnegie published the Gospel of Wealth in 1889, arguing that great fortunes were the natural product of competition, and that the rich man was a trustee for the poor, obliged to distribute his surplus in his lifetime for the public good. Carnegie built libraries with that money, and he meant what he wrote. Three years later, in July of 1892, his partner Henry Clay Frick, locked out the workers at the Homestead Steel Works outside Pittsburgh, and brought in 300 Pinkerton agents on barges up the Monongahela River. The workers met them at the landing. The gunfight killed roughly seven workers and three Pinkertons. The state militia occupied the town. The union was broken, and Steele remained largely unorganized for the next 45 years.

Carnegie was in Scotland and corresponded with Frick throughout. I don't think Carnegie was a hypocrite in the simple sense. I think he genuinely believed both things. He believed that concentrated wealth was socially useful because men like him would spend it wisely, and he believed that the men who made the steel had no legitimate claim on the decision. Those two beliefs fit together perfectly, and that's the point. Philanthropy on that scale isn't a contradiction of concentrated wealth. It's the argument for it, and it happened again, worse, in Colorado.

On the 20th of April 1914, the Colorado National Guard and Company, guards attacked a tent colony of striking coal miners and their families at Ludlow. The camp burned. Counts of the dead vary by source, from about 19 to about 25, and the discrepancy comes from whether you count only that day or the fighting that followed. What's not in dispute is what a telephone linesman found the next morning under an iron cot in the ruins. Two women and 11 children had suffocated in a pit dug beneath a tent where they had taken shelter. The mine was operated by Colorado fuel and iron, controlled by John D. Rockefeller Jr., who had testified before a congressional committee earlier that year that he would stand by

the operator's position on the union. Afterward, Rockefeller Jr. hired Ivy Lee, one of the first modern public relations men, and later worked with William Lyon McKenzie King on a company union plan. The public relations industry, as we know it, has one of its origin points in the after aftermath of Ludlow. By the end of the 1890s, wealth concentration in the United States had reached a level that the country wouldn't see again for a hundred years. The numbers here are the weakest in this episode, and I'd rather say so now than have you find out later. There was no income tax yet and no survey of household balance sheets. Estimates for that period are reconstructed from probate records and tax proxies, and the serious ones put the richest 1% share of national wealth somewhere in

the range of 40 to 50%. Treat that as an estimate with a wide error band, not a measurement. The correction, when it came, came through the tax code and through the war. The 16th Amendment was ratified in 1913, authorizing a federal income tax without apportionment among the states after the Supreme Court had struck down an earlier income tax in 1895. The first modern income tax was almost comically narrow. A top rate of six, 7%, applying only to income above $500,000, which in that era meant a few thousand households in the entire country. Almost nobody paid it. Then the First World War arrived and the rates went vertical. By 1918, the top marginal rate was 77%. An excess profits tax hit corporations. For the

first time, the federal government was funded substantially by taxes on capital income rather than by tariffs, which had been a regressive consumption tax in everything but name. That lasted about three years. Andrew Mellon became Secretary of the Treasury in 1921 and served under three presidents. Mellon was, at the time, one of the three or four richest men in America, withholdings in aluminum, banking, oil, and coke. He argued that high rates on top incomes were self-defeating

because they drove capital into tax-exempt bonds and out of productive investment, and that lower rates would raise more revenue from the wealthy. That argument is still with us, and it still carries his fingerprints. Stay tuned for more disturbing history. We'll be back after these messages. Through the Revenue Acts of 1921, 1924, and 1926,

the top marginal rate came down from 73% to 25%. The estate tax was cut. The excess profits tax was repealed. What happened to the distribution during the decade that followed shows up in the tax data that Thomas Pickety and Emmanuel Sias reconstructed. In their series, the share of national income going to the top 1% climbed through the 20s and peaked at around 23 or 24% in 1928. That series has been revised more than once and other economists reach somewhat different levels using different definitions of income. So take the exact figure loosely and the shape of the shape of. of the curve seriously.

1928 is the peak. Hold on to that year, because the country wouldn't return to that level of income concentration until the 2000s. And when it did, it got there through a policy sequence that looks a great deal like melons. The market broke in October of 1929. Over the next three and a half years, industrial production fell by roughly half, around 9,000 banks failed, and unemployment reached something close to one and four words. workers. The Pecora hearings in the Senate in 1932 and 1933 put the leadership of the major

banks under oath and produced, among other things, the fact that Charles Mitchell of National City Bank had paid no federal income tax for 1929 after selling bank stock to his wife at a loss, and that J.P. Morgan and Company had maintained preferred lists offering favored customers, including former cabinet officers and a former president. Stock at below market prices. That testimony is why Glass Stagel passed in 1933 and why the Securities and Exchange Commission exists. Public disclosure of specific behavior by named men moved policy in a way that abstract argument never had. What happened over the next 35 years is the only sustained reduction in American inequality in the country's history. An economists call it the Great Compression, a term from a 1992 paper by Claudia Golden and Robert Margo.

The mechanisms were direct. Top marginal income tax rates went to 79% in 1936, to 88% during the Second World War, and to 91%, where they stayed through the 1950s. The estate tax became genuinely confiscatory at the top. The Wagner Act in 1935 gave unions federal protection, and union density rose from around 11% of the workforce in 34 to roughly a third by the mid-1950s. Wartime wage controls compressed the pay scale from the top. The Fair Labor Standards Act of 1938 set a minimum wage and the 40-hour week.

Social Security created the first federal retirement floor. The GI Bill sent millions of veterans to college and guaranteed their mortgages. Federal housing policy turned a nation of renters into a nation of homeowners, and home equity became the primary form of wealth for the American middle class. By the 1970s, the top 1% share of national income had fallen from about 24% to around 10 or 11%. Median family income roughly doubled between 1947 and 1973, and it doubled at every point in the distribution, which is the part that people miss. The bottom fifths income grew as fast as the top fifths.

That hasn't happened since. That's a real achievement, and I don't want to diminish it. It's proof that the distribution is a policy variable rather than a law of nature. But you can't tell that story honestly without the other half of it, because the Great Compression was built with a racial exclusion written into the machinery, and the exclusions weren't accidents. They were the price of the votes. Franklin Roosevelt needed Southern Democrats to pass anything.

Southern Democrats chaired the committees. Ira Katzenelson documented the pattern in detail in when affirmative action was white, and the mechanism is visible in the statutes themselves. The Social Security Act of 1935 excluded agricultural laborers and domestic servants from old age insurance. Those two categories covered roughly three-fifths of all black workers in the country at the time, and closer to three quarters in the South. The stated justification was administrative difficulty in collecting payroll taxes from

scattered employers. Whether that was the real reason is genuinely disputed. Katznelson reads the exclusions as a racial bargain with the South. Larry DeWitt, a historian at the Social Security Administration, has argued at length that the administrative rationale was sincere and that similar exclusions existed in other countries with no comparable racial politics. The first great federal retirement program was closed to most black workers and to a great many poor white farm workers as well. The Fair Labor Standards Act of 1938 carried. the same exclusions.

Agriculture and domestic service out. The Wagner Act protected unions but didn't prohibit unions from excluding black workers. And many of the craft unions did exactly that through constitutional bars and through segregated locals. A federally protected closed shop that won't admit you as a federally protected barrier. And then the housing programs, which is where the money really was. Because home equity is how ordinary American families accumulated wealth in the 20th century. The Homeowners Loan Corporation, created in 1933, produced residential security maps for

more than 200 cities. The maps graded neighborhoods from A to D. The D areas were outlined in red, and the accompanying area descriptions state the reasoning in plain language, referring to infiltration by what the surveyors called a lower grade population, and noting the presence of black and immigrant residents as a factor in the grade. Those documents are digitized, now, and anyone can read them. The Federal Housing Administration then wrote those judgments into national mortgage insurance policy. The 1936 underwriting manual instructed appraisers to consider whether protection against adverse

influences existed, warned about the infiltration of what it called inharmonious racial groups, and recommended racially restrictive covenants recorded against the deed as a means of maintaining neighborhood stability. The manual included model covenant language, so the federal government didn't merely fail to lend in black neighborhoods. It instructed private lenders and appraisers to treat the presence of black residents as a defect in the collateral, and it recommended a legal instrument to keep them out. The Supreme Court held racially restrictive covenants judicially unenforceable in Shelley v. Kramer in 1948, but the covenants stayed in

the deeds and the appraisal practice stayed in the industry. Levitown on Long Island, the archetype of the post-war suburb sold houses on terms that a returning veteran could afford with almost no money down. The leases and deeds contained a clause barring occupancy by anyone not of the Caucasian race. Not one of its original residence was black, and the GI Bill, which is remembered as the most democratic program in American history, was administered locally by design at the insistence of Congressman John Rankin of Mississippi, who chaired the relevant committee. Local administration in the South meant local outcomes. Katznelson cites a survey by Ebony Magazine finding that of the 3,229 home, business, and farm

loans, guaranteed by the Veterans Administration in 13 Mississippi cities in 1947, two went to black veterans. Northern outcomes were better and still bad. In New York and the northern New Jersey suburbs, fewer than one hundred of sixty-seven thousand mortgages backed by the program, went to non-white buyers. Black veterans were steered to vocational programs rather than colleges, and the colleges that would admit them in the South were the historically black institutions, which didn't have anywhere near the capacity for the demand. I should add a qualification here that the research supports. Work by Sarah Turner and John Bound found that the bill's effects broke sharply along regional lines.

For Black Veterans outside the South, it appears to have helped. For Black Veterans in the South, it widened the gap. The indictment is of how the program was administered in the states that ran at worst. Not of the program in every place it operated. Put those pieces together and you get the clearest single explanation for the modern racial wealth gap that exists. Between 1934 and 1968, federally supported mortgage lending underwrote the creation of the white middle classes asset base,

and the program was written to exclude black families, and the asset it created, appreciated for 70 years, and passed to children and grandchildren. The gap you see in the 2022 survey data isn't a mystery. It's a mortgage portfolio. If you weren't allowed into the mortgage market, you still needed somewhere to live, and there was a market waiting for you.

In Chicago in the 1950s and 60s, Speculators bought houses cheap in white neighborhoods on the edge of the Black South and West Sides, often by panicking the sellers, and then sold them to black families on installment contracts. Under a contract sale, the buyer made monthly payments but received no deed and built no equity until the final payment. Miss one payment, and the seller could evict and keep everything paid in. The markups were the business model. Barrel Satyr, whose father was a lawyer who fought these cases, documented the practice in family properties, tracing individual houses through the speculator and out to the family.

The Duke and University of Illinois researchers who later put numbers to it found that the average contract price carried a markup of about 84% over what the speculator had paid, and that somewhere between 75% and 95% of homes sold to black families in Chicago in those two decades were sold on contract rather than by mortgage. The same two research centers published an estimate in 2019 in a report called The Plunder of Black Wealth in Chicago, that contract selling extracted between $3.2 and $4 billion in current dollars from black families in that one city. The Contract Buyers League organized in the late 60s, went on payment strikes, and litigated. They won some cases and lost the big federal one.

Most of the money never came back. And on the other side of the ledger, the Federal Highway Program authorized in 1956 put interstate routes through the middle of hundreds of urban neighborhoods, and the neighborhoods chosen, were disproportionately black and poor, in part because the land was cheap, which was itself a function of the appraisal practices described above. Urban renewal cleared more. Compensation went to property owners at appraised value. Renters got nothing. James Baldwin's description of urban renewal as Negro removal in a 1963 interview wasn't rhetoric. It was a summary of of where the bulldozers went.

Now we come to the turn, and this is the part of the episode that I think matters most for anyone under 50, because this is the world you were born into. Somewhere in the 1970s, the compression stopped and reversed. There's no single day, but there's a decade where a set of decisions accumulated, and by 1980, the direction of travel had changed for good.

Start with a memo. On the 23rd of August, 1971, a Richmond corporate lawyer named Lewis Pousiepard, sent a confidential memorandum to a friend at the United States Chamber of Commerce. It was titled, Attack on American Free Enterprise System. Powell argued that American business was under assault from academia, the media, the courts, and the consumer movement, and that individual companies responding one at a time were losing. He called for sustained, organized, long-term, collectively financed political action.

He specifically identified the courts as the most important, and most neglected arena, and he urged business to fund scholars, monitor textbooks, place speakers on campuses, and build a permanent institutional presence in Washington. Two months later, Richard Nixon nominated Powell to the Supreme Court. The memo didn't become public until after his confirmation, when the columnist Jack Anderson published it. The memo has become a kind of shorthand, and the shorthand overstates it. Powell didn't invent the conservative business movement.

The memo wasn't a secret master plan, and much of what followed was already in motion. What it is, reliably, is a clear statement of strategy written by a man who then joined the Supreme Court. At the exact moment, the strategy began to be executed, and it was executed. The Business Roundtable formed in 1972, made up of chief executives of the largest corporations, lobbying directly. Corporate political action committees multiplied through the decade. The number of corporations with registered lobbyists in Washington went from a few hundred in

1971 to several thousand by the end of the decade. A network of policy institutes was funded and staffed. Then came 1978, which the historian Jefferson Cowie identified as the hinge year, and once you look at the legislative record for that single year, the case is hard to argue with. Labor law reform, which would have sped up union elections and stiffened penalties for illegal firings of organizers passed the House and died in the Senate to a filibuster, despite Democratic control of both chambers and the White House. Full employment legislation, the Humphrey Hawkins Act, passed in a form with no enforcement mechanism. And a Republican congressman named

William Steiger attached an amendment to the revenue bill that cut the top rate on capital gains from something near 50 percent down to 28 percent. It passed. A Democratic president signed it. Something else happened in that same 1978 Revenue Act, in a subsection that almost nobody noticed. Section 4.01, Paragraph K, allowed employees to defer taxes on a portion of compensation placed in a company savings plan. It was written with executive deferred compensation in mind. In 1980, a benefits consultant named Ted Benna read the provision and realized it could be used to build an entire employer savings plan with a company match. Within 20 years, the defined benefit pension, where the employer owed you a specified monthly payment for life and carried the investment risk, had been largely replaced by the defined contribution account where you carry the risk.

That change moved the retirement risk of the American workforce from corporate balance sheets to individual households, and it happened because of a subsection drafted for a different purpose. If you want a single illustration of how the technical beats the dramatic in this story, that's it. No speech, no scandal, no confrontation. A paragraph in a tax bill. Then the economy broke, and the response to the breakage set the terms for everything after. Inflation ran into double digits by 1979. Paul Volker took over the Federal Reserve in August of that year

and pushed interest rates to levels that had no modern precedent. The prime rate touched 21 and a half percent in December of 1980. The recession that followed drove unemployment to 10 and 8 tenths percent in November of 1982, the highest since the Depression. It worked. Inflation came down and stayed down. It also killed a large share of American heavy manufacturing on the way, because the high dollar that came with high rates made American steel and machine tools

uncompetitive at precisely the moment the industry needed capital to modernize. The mill towns of the Ohio Valley and the Monongahela Valley didn't recover. They still haven't. On the 3rd of August, 1981, the Air Traffic Controller's Union struck illegally. Ronald Reagan gave them 48 hours to return. On the 5th, he fired 11,345 of them and banned them from federal employment for life. The Federal Labor Relations Authority decertified the union that October. The controllers had endorsed Reagan the year before.

The message that action sent to corporate management was received immediately, and it's documented in what management did next. Permanent replacement of strikers, which had been legal since a 1938 Supreme Court decision, but was rarely used, became standard practice. Strike activity collapsed. In the 1970s, the United States averaged around 300 major work stoppages a year. By the 1990s, it was in the 30s. Recently, it has run in the teens and 20s. Union density in the private sector went from around a quarter of workers in 1973 to about 6% today. Economists across the political spectrum attribute a meaningful share of the growth in wage inequality to that decline,

with estimates commonly landing somewhere between a fifth and a third of the total increase in male wage inequality. The tax code moved at the same time. The Economic Recovery Tax Act of 1981 cut the top marginal rate from 70% percent, to 50%, and accelerated depreciation for business. The Tax Reform Act of 1986, which was genuinely bipartisan and did close a great many shelters, brought the top rate down to 28%. In the space of five years, the top marginal income tax rate fell by 42 points, and in 1982, the Securities and Exchange Commission adopted Rule 10B18.

That rule sounds like nothing. What it did was create a safe harbor for corporations repurchasing their own stock on the open market. Before it, a company buying back its own shares faced real risk of being charged with market manipulation, because that's what it looks like. Afterward, if a company stayed within daily volume and timing limits, it was presumed not to be manipulating. The chairman of the commission at the time was John Shad, who had come from 30 years on Wall Street. corporate buybacks went from a rounding error to the dominant use of corporate cash. In recent years, companies in the S&P 500 have spent in the neighborhood of $800 billion to a trillion

a year buying back their own shares. That money does one thing. It raises the price of the stock by reducing the number of shares outstanding, which benefits shareholders and above all, executives paid in stock. Which brings us to the idea that made all of it feel not just permanent. permissible, but obligatory. In September of 1970, the New York Times Magazine published an essay by Milton Friedman, arguing that the social responsibility of business is to increase its profits,

and that a corporate executive who spent shareholder money on social objectives was spending someone else's money without authority. In 1976, Michael Jensen and William Meckling published a paper in the Journal of Financial Economics, framing the relationship between shareholders and managers as an agency problem, in which managers will pursue their own interests, unless their incentives are aligned with the owners. Stay tuned for more disturbing history. We'll be back after these messages.

In 1990, Jensen and Kevin Murphy published an article in the Harvard Business Review, arguing that the problem with executive pay wasn't that chief executives were paid too much, but that they were paid like bureaucrats rather than like owners, and that pay should be tied far more tightly to stock performance. Corporate America took that advice with enthusiasm, and then Congress helped, in one of the great own goals in the history of tax policy. In 1993, responding to public anger over executive compensation, Congress enacted Section 162, subsection M, capping the corporate deduction for executive pay at $1 million per executive. But it exempted qualified performance-based compensation from the cap.

And guess what? Stock options are performance-based compensation. So a law written to restrain executive pay created an unlimited deduction for paying executives in stock options. At the exact moment, the prevailing management theory said executives should be paid in stock options, and eight years after the Securities and Exchange Commission had made it safe for those same executives to spend corporate cash,

raising the stock price. The Economic Policy Institute tracks the ratio of chief executive compensation to typical worker pay at large firms. In 1965, that ratio was about 21 to 1. It crossed 100 to 1 during the 1990s boom and peaked near 380 to 1 in the year 2000, at the top of the stock bubble. For 2024 measured on realized compensation, including exercised options, it was about 281 to 1.

An average realized pay at the 350 largest public firms was just under 23,000 million dollars. None of that required a conspiracy. It required a tax provision, a securities rule, an academic theory, and a compensation committee. The last two decades of the century then removed the regulatory guardrails that the 1930s had installed. The Graham Leach-Blailey Act signed in November of 1999, repealed the sections of Glass Stigall separating commercial banking from investment banking. City Group had already merged travelers with Citicorp in 1998 in a transaction that wasn't legal under existing law, operating under a temporary waiver while the law was changed. The Commodity Futures Modernization Act, signed in December of 2000, exempted most over-the-counter derivatives,

including credit default swaps from regulation by either the Commodity Futures Trading Commission or the Securities and Exchange Commission. Brooksley-Borne, who chaired the Commodity Futures Trading Commission, had warned in 1998 that this market needed oversight and was publicly opposed by the Treasury Secretary, the Federal Reserve Chairman, and the Chairman of the Securities and Exchange Commission. She left office in 1999. The Bush tax cuts of 2001 and 2003 cut the top income rate again, and crucially, cut the top rate on long-term capital gains and qualified dividends to fit. 15%. That's the key structural fact of modern American taxation. Income from owning is taxed at a lower rate than income from working. A surgeon making $400,000 a year in salary pays a higher marginal federal rate on that income than a person who makes 400,000 selling appreciated stock.

And then came the housing bubble, which is where all of the threads in this episode braid together. Subprime lending was marketed as an expansion of access to credit. What the litigation record shows is that it functioned in significant part as a targeted extraction from exactly the communities that the earlier system had excluded. In 2009, in litigation brought by the city of Baltimore, two former Wells Fargo loan officers filed sworn affidavits. Beth Jacobson, who had been one of the bank's top-producing subprime officers, stated that the bank pushed borrowers into subprime loans, that loan officers were paid more for subprime, and that the bank targeted black churches and black neighborhoods for that marketing while treating those loans internally with racial slurs.

A second affidavit from a loan officer named Tony Pashall described the same practice and the same language. Those are sworn statements by insiders, filed under penalty of perjury, and they were tested by the ordinary adversarial process. In 2012, Wells Fargo Cells, settled with the Department of Justice for at least $175 million over discriminatory lending, without admitting liability.

Countrywide through Bank of America settled a similar case in 2011 for $335 million. Federal Reserve and other analyses of loan-level data found that substantial shares of borrowers steered into subprime products would have qualified for prime terms. When the market broke in 2007 and 2008, somewhere, between 6 and 10 million American homes went through foreclosure over the following years, depending on whether you count completed foreclosures or every household that received a filing. The wealth effect was catastrophic and it wasn't evenly distributed. Pew Research, analyzing census data from 2005 to 2009, found that median household wealth fell

by 66% for Hispanic households and 53% for black households, against 16% for white households. households. A generation of black homeownership gains, the first real one since the Fair Housing Act of 1968, were wiped out in about four years. And the response tells you where the priorities were. The troubled asset relief program committed hundreds of billions to the banks. The Federal Reserve extended emergency lending facilities on a scale that ran into the trillions. Those institutions were stabilized. The homeowner side, the Home Affordable Modification Program, was announced with the goal of helping three to four million households and delivered permanent modifications to roughly one million. No senior executive of a major American financial institution

went to prison for conduct related to the crisis. I spent 16 years watching people go to jail for far less than what's described in those settlement agreements. I'm not saying that to be inflammatory. I'm saying that as a matter of documented outcomes, the enforcement response to the largest financial fraud environment in American history consisted almost entirely of corporate fines paid by shareholders, and those fines were, in most cases, a fraction of the revenue the conduct generated, which leaves the modern machine, and it's worth understanding in detail, because it's genuinely elegant and almost none of it is illegal. The wealthiest Americans don't have income in the sense that the tax code recognizes. Their wealth is in appreciating assets, and appreciation isn't

taxed until it's realized in a sale. So the strategy isn't to sell. Instead, you borrow against the assets. Loans aren't income, so they're not taxed. The interest rates available on loans secured by large portfolios have historically been very low. You live on the borrowed money, then you die, and at death, under a provision of the tax code called the step-up and basis. The cost basis of your assets resets to their market value on the date of death. Every dollar of appreciation that accumulated during your lifetime, which was never taxed because you never sold, is erased for tax purposes. Your heirs inherit at the new basis. If they sell the next day, they owe nothing.

Estate planners call the sequence, buy, borrow, die. It's taught openly. It's in the textbooks. Layer on the rest of it. Carried interest allows private equity and hedge fund managers to treat what's functionally a performance fee as a capital gain, taxed at the lower rate. Section 1031 exchanges let real estate investors roll gains from one property into another indefinitely without recognizing the gain, and then the step-up erases it at death. Grantor retained annuity trusts, dynasty trusts in states that have

abolished the rule against perpetuities, and valuation discounts on family partnerships, move assets to the next generation at reduced or zero transfer tax. And the estate tax itself has been hollowed out. In the mid-1970s, something like 7 or 8% of all deaths resulted in a taxable estate. After a series of increases in the exemption, culminating in the 2017 law that doubled it again, the share of estates that owe any federal estate tax is now roughly 1 in 1,000. In June of 2021, ProPublica published an analysis of Internal Revenue Service data covering thousands of the wealthiest Americans. Comparing the taxes, those individuals actually paid against the growth in their net worth

over the same period. The reporters calculated what they called a true tax rate. The 25 wealthiest Americans saw their combined wealth rise by $401 billion between 2014 and 2018 and paid $13.6 billion in federal income taxes over those same years. That's a true tax rate of 3.4%. The reporting also documented that Jeff Bezos paid no federal income tax in 2007 and 2011, that Elon Musk paid none in 2018, and that several others had years with no federal income tax liability at all. The other side has a real point here.

The tax code doesn't tax unrealized gains and never has, so measuring taxes against wealth growth compares two different things, and ProPublica invented that measure rather than finding it in the law. Measureed the conventional way against adjusted gross income, that same group paid an average of about 15.8%, which is a real number and not a trivial one. But adjusted gross income is exactly the thing the strategy is designed to keep small. The system is constructed so that the primary form in which the largest fortunes grow

is a form the system has decided not to see, and both of those percentages are true at once. So who benefits and why does it persist? The beneficiaries are identifiable at every stage, and they're not always who you'd guess. In the colonial period, the beneficiaries were the men who could pay for passages and who sat on the councils that approved their own patents. In 1790, it was the holders of discounted certificates. In the 1830s, it was cotton planners and land speculators and the banks that financed them,

in New Orleans, and in New York. After emancipation, it was landowners and furnishing. merchants and the industrial companies that leased convicts. In the Gilded Age, it was railroad promoters holding federal land grants and the men who consolidated industries into trusts. In the 1920s and again after 1980, it was the owners of financial assets whose returns were taxed at declining rates while wage income was not. Today, it's asset holders, and the concentration is extreme even within the top. The top 1% isn't a homogeneity of. group. The gains of the last 40 years have been concentrated overwhelmingly in the top 10th of 1%

and the top 100th of 1%, which is roughly one household in 10,000. A dentist in the top 2% has more in common economically with a school teacher than with a hedge fund principal. As for why it persists, I'd offer four reasons that the record supports. The first is compounding. Wealth grows at a rate, a family that acquired an asset in 1950. and held it, has had 75 years of compounding. A family barred from acquiring that asset in 1950 started later and started smaller, and no amount of subsequent hard work catches a compounding curve that had a 75-year head start. This is arithmetic, not ideology.

The second is that the political system is responsive to money in ways that are measurable. Martin Gillins and Benjamin Page published a study in 2014, examining nearly 2,000, policy questions between 1981 and 2002 and comparing outcomes against the preferences of median income Americans, affluent Americans, and organized interest groups. They found that the preferences of the affluent and of organized business groups had substantial independent influence on outcomes, and that the preferences of average citizens had close to none, once the others were controlled for. That study has been criticized on methodological grounds and the strongest version of its conclusion is contested. The weaker version, the policy tracks affluent preferences much more

closely than it tracks median preferences, has held up reasonably well. The third is the buffer. Go back to 1705 in Virginia. The most durable technique for preventing a coalition of people at the bottom is to give one part of that group a status the other part can't have, and then let them defend it. It worked after Bacon's rebellion. It worked when the populist movement, of the 1890s, which briefly organized black and white farmers together in the South, was broken by an explicit appeal to white supremacy, and then by disfranchisement written into new state constitutions. It worked in the New Deal when the exclusions bought Southern votes. Every time a broad economic coalition has formed in this country, the reliable way to

break it has been to make part of it choose race over class, and it has worked nearly every time it has been tried. The fourth is that the mechanisms are boring. Nobody marches over the step up and basis. The step up and basis is worth more to the wealthiest Americans than almost any other single provision. And it's a sentence in the tax code about the valuation of inherited property. The most effective transfers in this story haven't been the ones with soldiers or Pinkertons. They have been the ones written in language designed to be skipped. So what does the divide actually due to people. I've been dealing in aggregates for most of an hour, and aggregates are easy to look past. In 2016, a team led by the economist Raj Chetty published a study in the

Journal of the American Medical Association, linking one and a half billion tax records to Social Security death records to measure life expectancy by income. Working from federal tax records matched to Social Security death records, they found that among men the gap in life expectancy at age 40 between the top 1% of the income distribution and the bottom 1% was 14.6 years. Among women, it was 10.1 years. 14.6 years. That's the price, measured in time alive. The same research team measured what they called absolute mobility, the probability that a child earns more than their parents did at the same age. For children born in 1940, that probability was about 90%. For children born in 1980, it was about 50%, a coin flip. Their decomposition found that

the decline was driven more by the way growth has been distributed than by the rate of growth itself. And in the most recent period, the pattern held under stress. Between March of 2020 and the end of 2021, while hundreds of thousands of Americans died of a virus and tens of millions filed for unemployment, The combined wealth of American billionaires rose by roughly 70%, from about $3 trillion to close to $5 trillion, driven by the asset price recovery that emergency monetary policy produced. That estimate comes from Americans for Tax Fairness and the Institute for Policy Studies, and I'll tell you up front that both are advocacy organizations rather than statistical agencies. So weigh it accordingly.

Nobody disputes the direction. Meanwhile, the Small Business Administration's own Inspector General estimated that more than $200 billion in pandemic business relief went to fraudulent or potentially fraudulent claims. The Federal Eviction Moratorium expired. The expanded child tax credit, which by Census and Columbia University estimates cut child poverty sharply in the single year it operated, was allowed to lapse at the end of 2021 because it couldn't hold 60 votes in the Senate. There's a building at 1,500 Pennsylvania Avenue in Washington, across from the Treasury Department. It was built in 1919 as the Treasury Annex, on the site where the Friedman's Savings and Trust Company had its headquarters until the bank collapsed in 1874 and its 61,000 depositors lost most of what they had saved. In 2016, the Treasury Department renamed that building the Friedman's Bank

building. The records of the bank survived. The signature, books, the deposit ledgers, the account applications. Clerks in the 1860s and 70s wrote down each depositor's name, their age, their complexion, where they were born, the name of the plantation, the names of their parents and siblings and children, and often the name of the person who had owned them. They collected that information to verify identity for people who had no birth certificates. Those ledgers are now one of the most valuable genealogical resources in existence for African-American families. Because for many of them, it's the earliest document in which their ancestors appear by name with a family attached, hundreds of thousands of names, indexed and searchable. So a family sits down at a

computer and finds a great-great-grandmother and gets her age and her birthplace and the names of her children and the amount she had on deposit at the Friedman's Savings and Trust Company of Washington, D.C., on a date in 1872. And then they close the page, because that's where the record ends. The bank took the money. Congress declined to replace it. The ledger is the inheritance.