The bank changed from a savings bank into a highly leveraged investment bank. In fact, Henry Cooke was using the funds to invest in the riskiest of all investments—railroad finance. As war bonds were no longer profitable, Jay Cooke turned toward financing the railroad, and in 1869 the Cookes used the Freedmen’s Bank’s deposits to bet on the railroads’ westward expansion. Without their knowledge or consent, the freedmen’s deposits were being used to finance what was essentially the first postwar asset bubble.
