Question

True or Falsea: If False, why?

1. The C. A. P. L. formula allowed the South to control its own credit by issuing investment bonds based on slave-based mortgages backed by guarantees from state legislatures.

2. The economic boom of the 1830s was made possible by strict state regulation of bank credit, securitization of slave-based mortgages, and high-risk speculation on future cotton revenues.

Answer 1

1. The C. A. P. L. formula allowed the South to control its own credit by issuing investment bonds based on slave-based mortgages backed by guarantees from state legislatures.

Answer: TRUE

Justification:

In Edward E. Baptist’s book, The Half Has Never Been Told: Slavery and the Making of American Capitalism, there is a description about the extent to which financial speculation is baked into the American economy. From Baptist , we can learn that 185 years ago, the acquisition of slaves, like any other property, could be financed by mortgages; that bonds were sold to investors based on the value of those mortgages; and, that securities based on enslaved human beings produced a “slave asset bubble” not unlike that produced by the rampant speculation in home mortgage derivatives that helped cause the financial crisis of 2008.

2. The economic boom of the 1830s was made possible by strict state regulation of bank credit, securitization of slave-based mortgages, and high-risk speculation on future cotton revenues.

Ans: TRUE

Justification:

Baptist details how that system was built in a Chicago Sun-Times article last year:

In the 1830s, powerful Southern slave owners wanted to import capital into their states so that they could buy more slaves. They came up with a new, two-part idea: mortgaging slaves; and then turning the mortgages into bonds that could be marketed all over the world.

First, American planters organized new banks, usually in new states like Mississippi and Louisiana. Drawing up new lists of slaves for collateral, the planters then mortgaged them to the banks they had created, enabling themselves to buy additional slaves to expand cotton production. To provide capital for those loans, the banks sold bonds to investors from around the globe –– London, New York, Amsterdam, Paris. The bond buyers, many of whom lived in countries where slavery was illegal, didn’t own individual slaves –– just bonds backed by their value…

As slave-backed mortgages became paper bonds, everybody profited –– except, obviously, enslaved African Americans whose forced labor repaid owners’ mortgages. But investors owned a piece of slave-earned income. Older slave states such as Maryland and Virginia sold slaves to the new cotton states, at securitization-inflated prices, resulting in a slave asset bubble. Cotton factor firms like the now-defunct Lehman Brothers –– founded in Alabama –– became wildly successful. Lehman moved to Wall Street, and for all these firms, every transaction in slave-earned money flowing in and out of the U.S. earned Wall Street firms a fee.