Humans are amazing, the way we give cruel names to each other, and even make these names out of others' languages.
As for the 'legend', it sounds to me like a joke that may have come out of Berlin's own racist speech - he mocked black people, so people ask mockingly whether he might have a black child writing his beautiful songs.
And the racism: that came from other hatreds - the Jews who went to America were subject to sneering anti-semitism, and in response they turned on the black Americans. Same thing happened with the Irish. Same thing will happen with the blacks as they rise and stamp on the next unfortunate group of outcastes.