Your Black World: Beyond $700 Billion

Beyond $700 Billion

By: Lloyd Wynn

Imagine a patient visiting her physician for an annual checkup and is informed she has cancer. While in her physician’s office, she has a heart attack and now the physician must attend to the patient’s immediate health concern (the heart attack). That is the situation the Administration must confront. The $700 billion request by the Administration will address the heart attack but not the cancer which some experts think has metastasized.

Last week when the Administration made its case before key leaders from Congress and the two presidential candidates, it was revealed credit markets were frozen and interbank lending had ceased. If we are to believe the Administration, famine, pestilence and locusts will plague us for the next 15 years if Congress does not approve their $700 billion request.

Well on Monday, Congress refused to approve the $700 billion plan. The rejection was not along party lines as 133 Republicans and 95 Democrats opposed the plan, but the ensuing finger-pointing surely turned partisan. The republican leadership (Reps. Boehner and Blount) quickly assailed the speech of Speaker Nancy Pelosi, D. CA, given during the debate prior to the vote, as the cataclysmic event which alienated many of the 133 Republicans. I can think of many reasons to run Speaker Pelosi out of town on rails but that speech was not one of them.

Speaker Pelosi flatly stated the truth in her speech: The Administration is responsible for running the economy into the ground. Actually, Speaker Pelosi, in a not-so-subtle effort, responded to media reports from over the weekend. The Republican spin machine was working overtime to place culpability for the economic collapse on the Democrats. For example, the “venerable” Investor Business Daily published an article on how the Democrats blocked Republicans’ effort to reform Fannie Mae and Freddie Mac.

The article written by Terry Jones begins with the question, could the crisis at Fannie Mae-Freddie Mac and the subprime meltdown been avoided? According to Jones, “[t]he answer is yes. As early as 1992, alarm bells were going off on the threat Fannie and Freddie posed to our financial system and our economy. Intervention at any point could have staved off today's crisis. But Democrats in Congress stood in the way.”

Do you believe a reasonable person would conclude, after reading the above paragraph that: 1) Fannie and Freddie was the cause of today’s crisis and 2) Democrats are to blame for today’s crisis because they could have prevented the collapse of Fannie and Freddie?

Jones establishes the premise that Fannie and Freddie are the cause of today’s crisis when he conflates the collapse of the mortgage giants with the subprime crisis. Once this faulty premise is acknowledged, Jones’ facts show how the Democrats stonewalled Republican efforts to reform Fannie and Freddie, thereby causing the crisis.

I do not disagree with Jones that the Republicans were seeking to dismantle Fannie and Freddie during the 1990’s. But Jones and the Republicans do not reveal the true motive for such advocacy which was being done at the behest of Wall Street. Wall Street wanted the $8-10 billion pre-tax income Fannie and Freddie were making annually. Goldman Sachs, Lehman Brothers, Merrill Lynch, Bear Stearns, and J.P Morgan wanted so desperately to capture the business of Fannie and Freddie, their lobbying effort was relentless with the fear inducing mantra “the risk they present is not worth the subsidy they receive”.

The subsidy Wall Street referenced is the discount at which Fannie and Freddie could borrow money. For the past 38 years (the length of time both GSE’s had federal charters) the perception in the marketplace was Fannie and Freddie’s debt was backed by the federal government. With the government’s balance sheet as a backstop, Fannie and Freddie were conferred the highest credit rating. Thus, they were able to borrow money at a lower interest rate than Goldman, et. al.

Fannie, Freddie and the Democrats claimed because of the lower interest rate the mortgage giants received in the marketplace, they (Fannie and Freddie) were able to pass the savings along in the form of affordable housing which was one of their mandates. Wall Street’s counter argument was they (Wall St.) could provide affordable housing without the subsidy, which at various times ranged from $5 to $9 billion annually, depending on the researcher and which party was in office.

Wall Street and affordable housing do not pass the laugh test, yet in many congressional hearings, they proposed reforming Fannie and Freddie and they (Wall Street) would replace them because the free-market system was more efficient. Today, we are witnessing Wall Street’s style of affordable housing. What Terry Jones neglected to tell you is that it is called subprime lending.

It is understandable that Terry Jones would arrive at the conclusion the Democrats are responsible for the crisis we are in today. If Terry had read chapter 5 in my book, Residential Real Estate Finance: From Application Through Settlement, s/he would have known that the subprime industry’s birth came a few years earlier under the Reagan Administration. First, interest rate caps were removed with the Depository Institutions Deregulation and Monetary Control Act. Then adjustable rate mortgages, balloon mortgages and other products that were vigorously regulated became widely available after the passage of the Alternative Mortgage Transaction Parity Act. The door to subprime lending was opened wider with the Tax Reform of 1986, which paved the way for lenders to introduce the Home Equity Line of Credit (HELOC).

Likewise, it is understandable that Speaker Pelosi would resort to partisan rhetoric during debate of the Republican president’s request for $700 billion to resolve a problem created by the republican free-market ideology that is now being spinned as a problem created by her party.

BlackCommentator.com Columnist, Lloyd Wynn, was a consultant in the secondary market. Lloyd is the author of Residential Real Estate Finance: From Application Through Settlement. Click here to contact Lloyd Wynn.

Reposted From Black Commentator

Your Black World Interview With Financial Literacy Expert Bill Thomason

Interview with Financial Literacy Expert, Portfolio Manager and Author, Bill Thomason, by Tolu Olorunda.

William Thomason is a finance expert with nearly 20 years worth of experience. In his tenure as a financial-analyst, he has been quoted by well-known publications, such as, the Wall Street Journal, Barrons, Smart Money, CNBC, and other financial press. He was once named by Ebony Magazine, as "One of the Nation's 50 Leaders of the Future." His 2006 book entitled, "Make Money Work for You – Money Lessons from a Portfolio Manager," lays out patterns and examples worth following, in favor of accomplishing financial-liberation. Of all his acquisitions and feats, Thomason favors his dedication to the education of Black and Brown kids as most essential. He founded a program called, "Wall Street Wizards." Wall Street Wizards was primarily founded to be "a non-profit organization established to bring career opportunities and financial literacy to urban youth." I had the pleasure of speaking with Bill Thomason on his background, the concept and impact of financial illiteracy, the lessons of the recent Subprime mortgage crisis, financial-empowerment, and much more:

Thanks for joining us, Bill Thomason. Can you describe your path toward becoming a Financial Literacy Expert, and why you decided to pursue a career in finance?

Well, I’ve been in the investment business for close to 20 years. Within those years, I’ve been an investment manager, a portfolio manager, author of a book, and I also worked in private equity. It came down to me realizing that I am a Black man in an environment where there aren’t many people of color. I’m from an environment where people struggle financially every day. I was talking to a guy today, and he told me of how he went to a car dealership to buy a car, and he asked the salesman why he was advertising on a Black radio show. The salesman replied saying, “Those are the people who are dumb enough to come in and I can sell them whatever I want.” When you look at the Subprime mortgage crisis, that’s a result of people signing their name on something they had no idea about. That is financial illiteracy. They paid for houses they knew they couldn’t afford. So why am I doing this? That’s why. The Black and Brown people are the ones who get taken advantage of. I am about trying to create and teach Black and Brown people the ethics of money, investing and finance, so they can better take care of themselves.

As a result of that, do you think most African-Americans are financially illiterate?

Yep; and I say that because the statistics bear it out. We have high bankruptcy, 'jacked-up' credits, and all other symptoms that classify financial illiteracy. The symptoms of financial illiteracy are bad credit, stress, untimely deaths etc – and we have them. A lot of times, you can’t get a job if you have poor credit, and that breeds the stress which leads to the untimely deaths.

Can you explain the value of investing, and how one can begin investing, even at the lowest increment of income?

Well, I think we need to start putting money into investment vehicles; and there are plenty of them, such as stocks, mutual funds, exchange-traded funds and real estate. Historically, stock markets have done well; so history is on the side of the investor.

At what age can one realistically begin the investing procedure?

The truth is that the parent should start before the children are even before. But realistically, as soon as a child is old enough to ask for gifts, the child is equally old enough to learn about financial-literacy. We already have a lot of challenges in front of us as Black and Brown people; so we have to learn how to invest and put money aside -- just to survive.

You founded the program "Wall Street Wizards." What is its objective?

Well, it’s to teach inner-city kids about mathematics, finance, economics, investing and money-management; and to bring financial literacy to our community, so our kids can learn how to be financial stewards. We’re also giving them a lot of other skills in this program; I like to say it’s ‘a life-skill program disguised as a financial literacy program.’ We‘ve got about 60 kids total, in San Francisco and New York. We have two programs operating in both San Francisco and New York. We try to expose them to career opportunities such as, investment bankers, portfolio managers, venture capitalists and private equity.

Your 2006 book was “Make Money Work for You – Money Lessons from a Portfolio Manager." How can the meager wage earned by the majority of our people work for them?

Well, that’s why I wrote that book. In the very last chapter, I tell the story of a woman who started when she was 40 yrs old, and put away portions of her income till she was 80 yrs old. At 80 yrs old, she had amassed $23 million buying stocks. She bought stocks that she knew, and invested in them on a regular basis. There is something called dividend-reinvestment, that shows you can buy stocks without ever paying a commission, and then, the dividends become reinvested to buy the investor more stocks. The woman in particular had a 1-bedroom apartment in New York. She was making a decent living, but wasn’t rich. So putting away $10, $15, $50 or $100 a month would go a long way.

Do you profoundly believe that if Black people took the route you delineate, they can actually liberate themselves from financial-disempowerment?

Yes. The front page of my website says “creating financially empowered individuals and communities." When you’re financially empowered, you can help uplift your community. The statistics, according to 21cf, prove that the Black Community - on an individual basis - is more philanthropic than any other ethnic group. We are philanthropic by nature, but we don’t invest wisely.

Was this financial illiteracy you speak of, revealed in the calamity of Hurricane Katrina and the inability of Black people to rescue their own kinfolk?

That’s such a deep question, and just like in the tragedy of 911, there wasn’t much financial-stewardship and accountability to ensure the donations reached the victims. A lot of people received the funds allocated to them, but a lot of people also didn’t get nothing. My family is from New Orleans, and so, I’m well aware of this reality. When you watch some of the documentaries that were filmed after the flood, and the gross-mistreatment of the New Orleans residents, you’re startled. Financial literacy is an all encompassing value that must be taught to those who intend to manage their financial lives, and put their financial life together. Our community predominantly goes to check-cashing venues to cash their checks, but those places take out a percentage of their earnings.

You spoke earlier about the shortage of Black and Brown financial experts. Can that be looked upon as indicative in the recent financial mortgage meltdown?

Well, I think there is a shortage. I say, go to Wall Street and find out how many Black people are walking up and down the aisle; and that’s just an example. So yes, I think it played a part.

How can the recent mortgage meltdown be avoided next time?

Read. Unfortunately, the old saying goes, “If you want to hide something from a Black person, put it in a book.” We need to read; study and educate ourselves. If you’re well educated, you don’t listen to someone who tells you to put your name on a document you know you can’t afford. We also need to pay our bills on time, and live within our means.

Lastly, what is the most important advice that you hope to extend to the Black Community at-large?

In the 1960s, we realized it was about our Civil Rights – we needed to be able to vote, live where we wanted, and receive equitable wage vis-à-vis our white counterparts – and now we have to fight for our Economic Rights. With Economic Rights, we would become confident enough to own companies. Every kid in my program – Wall Street Wizards – owns stock in Coca Cola. They also go to Shareholder meetings. We now have the right to invest, own stocks and build businesses, and we have to claim that Right.

To donate to the righteous cause of Wall Street Wizards, pls. visit: http://wallstreetwizards.org/

This interview was conducted by Tolu Olorunda, Staff Writer for YourBlackWorld.com