Trust Me, we need Pyramid, & Ponzi schemes: When Blackfolk will know that they have Arrived Financially!!!

I have previously written on my views of practices, policies, & celebrations that I do not agree in full or in part with and I shall continue my diatribe here with Kwanzaa. I have mixed feelings with Kwanzaa because part of me believes that we have pulled away from the family communal atmosphere that once permeated our community. Yet on the other-hand I fully recognize & subscribe to the US being a Constitutional Republic with Capitalistic leanings. Where your are rewarded for your success, if you have the courage to press forward & believe in your dreams.

So with that said on this 4th day of Kwanzaa 2009 - Ujamaa (Corporative Economics) to build & maintain our own stores, shops & other businesses and to profit from them together. This sticks me in the gut. I believe that we should "build & maintain our own stores, shops, & other businesses." That's the Capitalist in me. Yet the next portion "to profit from them together" is the issue point. I fully believe that we as business owners should offer a fair product or service and expect a fair profit in return. Should you expect to share in the profits when I put up the Seed money, Vision, & Sweat equity? That is where the pendulum swings from Capitalism to Socialism. In other-words you have made too much profit so we must take from you & spread it around. It this were a Pyramid or Ponzi scheme you should expect it to eventually trickle down to the lowest level group before colapsing, but as I stated before we live in a Constitutional Republic with Capitalistic leanings & Homie Don't play that...

2009 will go down as a year of eyeopening change in the world of finance & two names have come to the top of the scandle chart Bernie Madoff the jailed architect of a $65 billion Ponzi Scheme & Allen Stanford the alleged architect of a $8 billion Ponzi Scheme. Now it is my thesis that this would never occur in the Black Community, because Bernie Madoff swindled a mostly Jewish investor group in some cases without ever meeting face to face. They almost begged for the opportunity to invest their money with him. Some of the largest names in the entertainment industry (whos names ended in Berg), largest private mostly Jewish universities, hedge funds, & non-profits. These deals came together through country club or golf club marketing where a broker in Florida with the relationship with Madoff would say “Hey Joe, who is handling your investments?” Joe may respond “XYZ firm.” The broker would then ask the gotcha question “If I could get you in the fund managed by the former chairman of the NASDAQ would you be interested?” If by chance Joe said no the next questions is just as critical “You know it has consistently returned above 12%?” (first of all that is unheard of on a consistent basis. & should have sparked an investigation.) But the individuals that were involved mostly answered in the affirmative.

Now it is my Theory that if this same conversation was to occur in the black community it would go Not Slightly, but insanely different. "Yo Donte' where you got your savings?" Donte' answers "In the bank, why you need to know, I don't owe you any money." Oshae answers laughing " Naw, D. Nothing like that, but If I could get you in the fund managed by the former chairman of the NASDAQ would you be interested?" Donte' responds beligerantly "Shae, What in the world are your talking about, you cash your checks at the check cashing place just like me. You don't know anything 'bout no N-A-C-Q. I ain't interested sounds like a pyramid to me."

I often tell the factual story that as a mutual funds broker I held a book a couple million dollars in assets under management and 90% of the total value of my book was held by 3 white women. 10% was held by black folk of all genders. I had to work 10 times harder for that 10% that I had to work for the 90%. The issue was trust. Blackfolk didn’t trust me, where as the white women took me based on my credentials & knowledge.

Every 3-5 years there are a plethora of get-rich-quick schemes that rape the black community of generations of time and wealth that are touted to bring “Passive Income” or whatever the buzzword of the day is to your kitchen table by allowing you to leverage the power of you network. Many times these schemes leave the person an outcast amonst friends & family because every few years they “have found it!”

It is my belief that Blackfolk truly will not know that they have arrived financially until they have a 96 Billion dollar scandle, but that will never happen until we Trust each other.

One Word.... "Duhhhh!!!!"

I the words of that Urban Ghetto Poet Rakim Allah of Eric B. & Rakim Fame “Its been a long time, I shouldn’t have left you without a dope rhyme to step to…” Sorry for the distant time that has passed since the last post. Econ-For-The-African

GM CEO says bankruptcy would cause liquidation

http://finance.yahoo.com/news/GM-CEO-says-bankruptcy-would-apf-14666397.html

I refuse to purchase an American made Automobile. I know with everything going on this is not going to be a popular post. I first got my driver’s license in 1986, I couldn’t wait. I studied hard & my mother took me, and the era of freedom began.

· I got my 1^st car in 1986, a 1979 Ford Fairmont. It was given to me by my aunt. It ran 3 weeks and died one block from my mother’s home.

· I got my 2^nd car in 1986, a 1984 Dodge Omni. It was a great car, it took me places I was supposed to be and some places I wasn’t. It lasted till my junior sophomore year in college around 1991 when the transmission/clutch went out

· I got my 3^rd car in 1991, a 1986 Ford Ranger (this is why I hate “some” pickups). My dad purchased it from my uncle, it ran 2 months and died the Friday of Homecoming weekend when the alternator went out. I got that fixed and 8 months later it died again when the Transmission went out.

For those of you keeping score that is 3 cars in 7 years. I walked & bummed rides my senior year so that I could graduate and purchase my own car, new without any restrictions. When I graduated I purchased

· My 1^st car after graduating was a 1993 Honda Civic. I loved that car. I financed it but immediately got on a mission to pay it off in 3 years which I successfully completed in 1996. That car took me up and down the eastern seaboard from Maryland to Miami, and eventually out to Texas. Unlike the others, I finally retired it in October 2001 when it had 208,000 miles.

· My current car is a 2001 Lexus; it currently has 134,000 miles on it.

For those of you keeping score that is 2 cars in 16 years. Anyone want to guess what I attributed the difference to???

The American auto industry is made up of great companies for those of you with Traditionalist spirits. In my opinion their issues are

· Horribly managed Income Statements & Balance Sheets

· Lack of Innovation (The Arrogance of the CEO’s, Broke Folk Need Not Apply)

· Planned Redundancy

Horribly managed Income Statements & Balance Sheets

Common now, you have read my past blog post do I really need to go into the benefits of building a strong balance sheet? Do I?

Lack of Innovation (The Arrogance of the CEO’s, Broke Folk Need Not Apply)

I make no bones that the last American auto that I realistically looked at and said wow that’s different was the Ford Probe, that was back at a time when Ford’s motto was “Quality is job 1.” Unfornately, I never felt that Innovation was job 2, 3, or even 4. I have been to a few auto shows and people tend to walk and drool over the latest “X-something.“

First point that “X” badge denotes “Experimental”

Second point, it rarely if ever makes it to market.

I had to bust-a-gut laughing when the CEO’s of the Detroit auto makers got their hat handed to them when asking for money from the feds. Then they went home and returned 1.5 weeks later driving their latest hybrid electric vehicles. That was in December 2008. The issue that I have is while their dealerships are going out of business, they have to shut down production in late December to February of every year to retool, and the few factories that are staying open aren’t producing hybrid electric anythings. Finally the Volt by Chevy that the CEO’s drove to DC on their second visit is a 2010 at a cost of $30,000 plus (only with government subsidies, without the subsidies it will be above $40,000) that will not hit the dealerships till estimated end of 2010, however in the meantime you can purchase a lovely Hybrid Escalade ESV for 60,000 plus. Somewhere in Detroit there are some real smart MBA’s getting paid to come up with some dumb a$$ ideas.

Planned Redundancy

Planned Redundancy was practiced back in the day where the auto makers calculated that Americans would change autos at predetermined points in time, mostly 5-7 years. That is why it was difficult to get an auto loan beyond 3-4 years Pre 1980’s. Planned Redundancy also manifested itself in the manufacturing of the product, as you would purchase an auto and in 6-12 months the bumper would fall off. (Why do we think what we think?) Have you ever heard anyone say:

· I have to get me something new before this one starts to give me trouble.

· Oh, I just had to do this repair, you know what that means.

People still have the thought that every 5-7years they have to get a new car even though the cars are better built than they use to be.

Back in the 70’s every black family had that one bourgeois family member that purchased a Mercedes, Volvo, or BMW till they got hit with the $1000 oil change. When the first Hondas hit the US Market they were so good that years later you still saw 1977 Accord Hachbacks on the road well into the 1990’s.

In conclusion, The only American Auto I would purchase is a Pickup Truck (but I hate Pickups). The reason is most pickups are built to work truck standards and work trucks have to take a beating over their lifetime and it would not look good in the eyes of businesses if their work trucks continuously broke down. In other words, that is why Dodge is RAM tough, Built Ford Tough, & Chevy Silverado America’s Best Truck (per the commercials).

(EMERGENCY POST) The Emperor has No Clothes & The Inmates are Running The Asylum

I sometimes listen to Bill O’Reily and Rush Limbaugh to see what the other side is thinking, Sometimes I agree… & sometimes I don’t. But sometimes they say something that Is so ludicrous that I just have to check it out… Last night Bill O'Reily cited the below article and more specifically the highlighted section from a Forbes.com article and what a US Treasury rep answered as to how they came up with $700,000,000,000. US Gov Due Diligence at its best...

http://www.forbes.com/home/2008/09/23/bailout-paulson-congress-biz-beltway-cx_jz_bw_0923bailout.html

Below is a reprint from the link above…

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.
"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."
Wow. If it wants to see a bailout bill passed soon, the administration's going to have to come up with some hard answers to hard questions. Public support for it already seems to be waning. According to a Rasmussen Reports poll released Tuesday, 44% of those surveyed oppose the administration's plan, up from 37% Monday.

Doing my Damndest to work on this A-Political Thing… But getting tired of the Conspiracy Theories!!!

This is not what I was originally going to post this week, as I have been watching our government make what I consider more and more boneheaded mistakes. Now that the news media has gotten everyone worked into a lather.

On morning of Wednesday September 24, 2008 I was in a Suburb of Chicago after my 5:30am workout I was watching CNN & preparing for work in my hotel room and while watching what were the financial plans congress had to decide to tackle for the US on this day. You know the ones (because you are informed):

• $700,000,000,000 bailout of the Wall Street financial markets.
  

I also had the Steve Harvey Morning Show streaming through my computer (Gotta get my daily shock by the Strawberry Letter 23) but I was listening to Tommy’s Tips and as I believe “Behind every Joke there is some Truth.” So let me put it together like he did…

Today’s Title is “Can Bush go on and leave now, We got it from here… Onst again, Can Bush go on and leave now, We got it from here…” As they said on the show whats the worst that can happen... We go to War, We loose our Jobs, We loose our homes, Gas prices go up...

(btw... that is George W. Bush in the picture)

But then I get in the rental car and while listening to the XM satelite station XM169 The Power the Conspiracy Theories begin... "They are going to target Black people and turn them away from the polls." "You know they are devising schemes to keep you from voting." and my ultimate favorate "lets march to show them they can't steal this election like they stole the last one..."

First, let me address the email blast that we have began, after the 23rd time I got the email asking if the rules on the Polling places (No banners, no buttons, no hats) were true.

by the way...YES, IT'S TRUE!!!

My dad lived across the street from Brown Highschool in the WestEnd of Atlanta in the early 80's and that highschool happened to be the polling precenct for the WestEnd in Athanta. the morning of the election I remember getting a knock at the door and it was a polling official informing us we had to remove the political signs in the front yard.

Black people, It is great that they are reiterating this rule, however in every election rule book in every state of the union their have always been rules on:

• How many ft/yrds campain paraphanelia can be from a polling venue
• What is considered passive campaigning (ie t-shirts, hats, buttons in polling area)

Sorry, I guess this wasn't for me... it was for the uninformed... LOL (hanging head & stepping down from the soapbox)

Now that, that is clear can my Friends and Frat brothers stop sending me this email!!! (Honorable Mention to Perry & Jon)

I origionally thought that I would put out "What Black Folk should do now..." every 6 months. However, With everything going on I decided to put out a listing of items for all to consider. I decide to put out another "What Black Folk should do now!!!"

WHAT BLACK FOLK SHOULD DO NOW!!!

Early Vote to avoid Lines - Check with your respective county to see when it begins
The A-political person in me says If I don’t like the decisions that a person makes while in office at the next election I’ll vote them out and put someone else in. Many persons have alluded to the fact that this is an important election, therefore let me save you some time, headache, and frustration from the potential lines. Around the nation some jurisdictions have began early voting. To find out when your jurisdiction’s early voting process begins Google your county and/or state elections board (You can find it... My county in Texas starts October 20th at selected poll locations). Now, once you get the information "Go Early Vote!!!"

Manage Your Balance Sheet

Yea, I know I sound like a broken record, but I happen to like Old School. I believe that the Urban Ghetto Poet Charlie "Last Name" Wilson of the legendary Green Archer & Pine Band (The GAP Band for those of you who are uninformed) said it best “The Bigger the Headache, The Bigger the Pill…The Bigger the Doctor, The Bigger the Pill…” The government is handing the American taxpayer Bigger and more Bitter pills to swallow everyday. I want to address the current and future ramification of these actions. I also want to address “Personal Liquidity” and how you can build a Strong Balance sheet regardless of what the market is doing. First note: As I have said numerous times before a Strong Balance Sheet will help you avoid bankruptcy & retire in a respectable manner. If these companies had strong balance sheets they would not need a bailout.

ASSET Management (Grow Strong Assets)

• Cash - ("Cross Town Money") Facts about cash... Nothing spends like cash. I know I own it. I don't have to pay interest, People will pay me interest in the right vehicles. (Assuming it is held in a checking or Savings account) (Don't get it twisted, Know the Truth... See the FDIC Rules below)


• Money Market Accounts (Your Emergency Fund - 3-6 months of EXPENSES)
  Some funds have “Broken the Buck” what that means is they have let their share value dip below the $1.00 mark. That does not mean that "All" Money markets are at risk. This still the one of the most liquid, most stable, & penalty free accounts that you can have. Money Markets invest in less risky more stable vehicles Treasury Securities, Municipal Securities ect.


• Retirement accounts (ROTH's, IRA, SEP's, Simples, 401(k)
  I have written in my post "Sometimes we do things & don't know why we do them..." sometimes we fail to realize that retirement takes planning. Planning is an active process it requires us to be fully engaged with the goal of knowing the lifestyle we plan to retire in.


• Houses (Yea, I said it...)
  Your house is an Asset, that will not change. I have a statastic that said that House Value (Equity) accounts for 60% of Middle Class wealth. I personally believe that it should account for No more than 45% if you build the Strong Assets listed above. Most people over the last 5 plus years purchased more house that they could not afford. This Over Zealous Exuberance and the Ill Founded Belief that realestate always goes up in value has put the US in the position it is currently in. The reason for my 45% versus 60% statement is that if at retirement you have $1 million in Assets (for most of us that amount is too low to retire in a comfortable manner given inflation) that tells me your home is $600,000 of your wealth, and in order to gain access to that $600,000 you have to either sell the home (where are you going to live?) or take out a loan (which is contrary to building a strong balance sheet!!!). My 45% calculation would give you a $450,000 home at $1 million in total assets, that means you have over half a million in cash and cash equivilents. You are more Liquid!! I would dare to say that at retirement you need $600,000 in cash you don't need a $600,000 minimally liquid house. If you disagree please write me...

LIABILITIES (Don’t Reduce… Get rid of them)

• 10 – 15 Year Fixed Rate Mortgage
  Finally, they are going back to the old formula of granting mortgage debt. Simplisticly the formula was 20% down and your home should be no more than 3 times your income. (Oh my gosh, that takes us back to the stone ages, I will never be able to save that...) I agree, you will have a difficult time saving that if you are attempting to purchase more home that you can Afford (ie $525,000 home on a 55,000 total household income, thats $105,000 Down... that is also approx a $3,500 a month mortgage payment on a 15 year) A more realistic scenario is purchasing a home 3 times your income or less (ie 3 times $55,000 equals $165,000) putting 20% down or $33,000 and paying a mortgage of approx $1,113 or less on a 15 year.
  
• Auto Loans
  Finally, they are going back to the old formula of granting auto debt. The old formula is your total car debt should not be more that half you annual income (ie $55,000 times .5 equals $27,500)
  
• Credit Cards, Student Loans, Heloc's & 2nd Mortgages
  YOU SHOULD NOT HAVE THEM... YOU HAVE CASH IF YOU DID WHAT WAS STATED IN THE ASSET AREA.

NOTES:

• PROTECTION (These are not Balance sheet Assets but they are items that protect your balance sheet assets)


• Personal Protection
  Life Insurance
  Health Insurance
  
• Government Protection
  (FDIC) Federal Deposit Insurance Corporation
  
  Today’s Title is “Can Bush go on and leave now, We got it from here… Onst again, Can Bush go on and leave now, We got it from here…” Bush misquoted this protection granted under the FDIC on last night in his bail out speach. Now people (I'm trying to stay A-Political on this...) if the President can't describe this protection correctly, whith all his advisors & speach writers, how is Joey six pack on the street going to understand it?
  
  Per this rule your deposits at your respective bank is insured up to $100,000. Now that is not $100,000 per account (ie. You have 75,000 in your savings & 50,000 in your checking for a total of $125,000). That is $100,000 in total deposits at that bank.
  
  When IndyMac bank in California failed and was taken over by regulators persons were standing out infront of the bank to get their money and some had $2-300,000 in one bank. But multiple accounts. They thought that they were protected, and they were not. For anything over the $100,000 insured amoung, you become a bank creditor and may get paid pennies on the dollar during liquidation.
  
  Some of you will have to contend with estates from parrents & loved ones at sometime in your life. I offer this as information for persons who get inheiritances or insurance settlements it is not safe to have more than $100,000 in any one bank, At that level you need an investment advisor (you actually need one before that time).

For all of you conspiracy theorist out there:

• Yes, I know Jesus loves me, and its not going to increase if is send this email to 20 other people. I can get closer if I spend time with him. I don't think he has email.


• I don't need a $100,000 a year job selling items that I don't have to inventory or warehouse.


• The only thing that is going to get rid of those love handles, and get me the six pack that I desire is time in the gym and good eating habits.


• I don't need discount Herbal Viagra. (Men or Women's)


• No, The African Diplomat living in exile in Spain does not need my help to transfer 10 million dollars out of the war torn congo.


• I don't need a special program to wipe away my debt.


• I don't need a special credit report to Maximize my buying power.

Fannie & Freddie needed their A$$’s Whipped… But the Government just gave them Time Out instead.

This will be a Rant… On Personal Responsibility, Cause I don't know where they learned it... Wait a minute, Yeah I Do...

I have a Frat Bro that when we send emails that are out of order he tells us to "Get in the corner" I've got a feeling that I should start walking...

“Don’t whip your kids, ‘cause it teaches them how to hit. Pleeze…It don’t teach them how to Hit, It teaches them how to Sit Down…” Comedian Sinbad circa 1991

I Agree 110% with Sinbad…

When I was young if I did wrong my momma beat my butt. Period, Point Blank, End of Story! She taught me that there were consequences to my Bad (“Stupid” for you Non-PC people) decisions. Those temporary stints of “Intense Pain” and my deafening cry’s of “Momma, I ain’t gonna do it no mo!!!” solidified my character as it is today. Now, it amazes me that as a grown man I watch many of my black peers (many of whom got whippin’s) move to the side of the tracks that condones becoming your child’s “Friend.” My mother was Not my “Friend,” until I became grown, and the critical days of rearing a young black male to survive in this Constitutional Republic, Capitalistic Society that we call America were behind me. This same movement of thinking condones “Time Out.”

Time Out??? As a kid I played Red Rover, Red Light Green Light, Kick Ball, 4-square, Hide & Seek, & the my personal favorite Catch a Girl Kiss a Girl and I was well aware that when someone called “Time Out” that meant either someone got hurt & was crying, they momma called them, or for the times we played in the street, a car was coming. After all cases when the issue passed, the previous mode of play resumed. So In my opinion “Time Out” only means you got a pause from your previous activities, no matter how bad they may have been.

However, due to the respect & love that I have for my mother there are things that I may do or say in my own home that I will not do or say in hers, this is solely because of my mothers preferred method of using whippings versus time out. She overtly let me know that I didn’t own anything in that house & was allowed by her grace and that of the good Lord to occupy the space in which I stood. I now see kids that I consider out of control, ineligible to critically think & solve problems, and believe that things are supposed to be given to them… Could this be a result of Time Out???

I don’t have any kids, nor do I want any, but if I did (and this applies to my niece & nephew) I have & will continue to Whip their A$$. Period, Point Blank, End of Story! I ain’t changing that paradigm…

Sunday September 7, 2008 under what I deem the cover of darkness the federal government made the decision to bail out Fannie & Freddie Mac.

WHAT? DID I JUST TYPE THAT CORRECTLY??? YOU HAVE GOT TO BE KIDDING ME!!!

In my opinion this is the equivalent of putting the Mortgage industry in Time Out. It is a pause so that they can in the future continue the bad behavior that put them in this position to begin with.

A saying that I have used many times is that Black folk get “Half the Good, and Twice the Bad.” In most things that happen in America this is the case.

During this entire mortgage boom the status quo for black folk continued in the following manner:
Home Ownership & Borrowing Power

1. Fewer than 50% of African Americans own their own homes compared to more than 75% of white Americans. The truth is we spend & save at the same rates as white America…the only difference is, when they get in trouble they have a home that they can pull money out of if need be

2. African Americans are more that 3.5 times as likely as white Americans to receive a home purchase loan from a sub-prime lender & 4.1 times as likely as whites to receive a refinance loan from a sub-prime lender. Sub-prime is usually 1 to 6 points over the prime rate, and is reserved for lending to businesses that do not qualify for prime rates.

3. In neighborhoods’ where at least 80% of the population is African American, borrowers are 2.2 times as likely as borrowers in the nation as a whole to refinance with a sub-prime lender

4. Upper Income borrowers that live in predominately African American neighborhoods are twice as likely as low income white borrowers to have sub-prime loans.

5. Home Ownership is important however too often we are using our homes as a piggy bank. Removing equity and never achieving ownership, which makes us perpetual renters that happen to get a mortgage interest deduction. Therefore Nullifying any and all Net worth we achieve
(State of the Black Union, 2006)

These were the statistics during the height of the mortgage boom. It has been said that when America coughs Black Folk catch a cold. In this case America has the Flu, black Folk have Double Pneumonia, Hepatitis C, & the Gout.

Fannie & Freddie are not and have not been Government entities since the early 1980’s Congress made them public institutions, traded on the stock exchange. However the public continued to believe that they were backed by the government, their prevailing thought was that “what could be safer than the government & realestate.” I believe, that if a business fails it should go out of business, or at a minimum file reorginization bankruptcy (Chapter 11). Investors may loose, but that is the risk you take when you invest, that is why in finance is is labeled "Investment Risk." Most businesses when they take a balance sheet whipping go out of business. The article that I read said “They are too Large to Fail.” What in the world does that mean "...too large to fail" Black People, lets put this in perspective, I am 6’2” my momma is 5’4” I was not too large to take a whipping or fail. The redeeming quality in all of that is to learn from your mistakes. My fear is that the financial markets, the home buying public, & the government have not learned anything. They never have to learn how to build a strong balance sheet. The government is swooping in with a dollar sign on its chest like "Captain Save-a-…" (Well I can’t say it but you know what I mean…) This is the equivalent to the current trend in Pee Wee sports where “There are no winners or losers, everyone gets a trophy.” As a youth one of the things that helped me figure out that I had better have an A, B, & C plan is the fact that around 9 years old I was on a baseball team that went 0-13. We didn’t get a trophy, we were loosers and everyone knew it. I quickly learned that If baseball was my Plan A I was in trouble. Plan B was Basketball I have always had a great outside shot & great defensive skills, but my lack of endurance hindered my effectiveness. I quickly learned that If basketball was my Plan B I was in trouble. School quickly became my Plan C. I may not be able to beat you in a physical race but I can out think you!

Fannie & Freddie are not regulatory agencies, they are servicing corporations. HUD is a regulatory agency they set standards for the housing markets to operate. Home loans are backed by bonds. Fannie & Freddie package those loans, bundle them together with similar loans and resale them in the Secondary market to Investors, investment banks, Mutual funds, ect. That is why they are called "Mortgaged Backed Securities." Those Investors hold them for the associated payment stream. (i.e. you pay your mortgage the investor receives the principal & interest payments). The main issue that is being cited is that the good loans (15 or 30 year fixed) have been packaged with the bad loans (Interest only, ARM’s, Option Arms, Backend Balloon, ect), and the bad ones make up a greater percentage of the package than the good not only because of 1st mortgages, but Equity Refi’s, HEOLC’s, 120%, etc. Therefore, it is not as simple as stripping out the bad loans because that makes the entire loan package (the bond) worthless (Gee, Thanks Fannie & Freddie). Remember, in my previous post I discussed the importance of building a Strong Balance Sheet?

This is what Your Balance sheet looks like:

• Asset – Your House (You want to keep your house)
• Liability – Mortgage (You want to get rid of your mortgage)
  

Note: Hopefully, your mortgage owed is less than the value of your home... (loss of value of the underlying asset is another post)

This is what Fannie & Freddie’s balance sheet looks like:

• Asset – The Bonds (Accounts Receivable) – (They want to keep you in a mortgage as long as they can.)
• Liability – Your House (They don’t want your house)

The issue is that there are people that have given up and walked away from their houses pre or during foreclosure due to ARMS, HELOC, 120's, or Interest Only. That essentially gives Fannie & Freddie (via your bank) a bunch of houses. (Or in simple terms a bunch of Liabilities on their books.) If the market is slow & the buyers are scarce the bank is in trouble which means Fannie & Freddie are in trouble.

So with Fannie & Freddie holding these as the loans go into default, they can’t provide new funds (they don’t have the payment streams or the cash flow) at reasonable rates to the primary market (Wells Fargo, Citibank, Wachovia, BofA) which means they can’t lend to the home buying public.

I made the statement that they want to keep you in a Mortgage as long as they can… Here’s the facts:

Word Association Time

What do all these words have in common

• Morbid
• Mortician
• Mortality
• Mortified

They all mean in some way Death. Because they are all derived from the latin root “Mortuus” which means dead, deceased, passed away, gone West, departed.

What about these words
Engage
Baggage
This suffix in latin means to attach, to promise, to collateralize, assurance, surety.

Is this word in any way similar???

Mort-gage – It means A Promise (An Attachment) till Death

Knowing how the mortgage market works I don’t believe that Fannie & Freddie would have failed. I believe like any other Publically traded company they would have file reorganization bankruptcy (Chapter 11) had their bumps, bruises, and scars only to come out on the other end as a company able to make better choices. Now if this caused there to be stricter lending standards then so be it. The markets, individuals, banks & institutions would be better for having learned the lesson. This should be a true exercise in La Se Fair Capitalism… The market should work this out without government intervention.

I guess I need to remember that these companies are now run by people who got “Time Out” & Not “Whipping’s”…

Sometimes we do things & don’t know why we do them… Do you want to go on a Trip or a Vacation?

A TRIP: Is 2-3 days, is decided in a day, usually involves going to see family, driving time is normally 5 hours or less, and you come back more tired than when you left.
A VACATION: Is a week or more, requires planning, someone else takes the initiative in getting you there, & you are pampered and relax.

When I was growing up my family would take a TRIP to my grandmother’s house. It generally lasted a weekend, we normally left on Friday evening or Saturday morning, and we returned on Sunday afternoon. These were wonderful TRIPS. We would see all my mother & father's brothers, sisters, aunts, uncles, cousins, etc. and generally would come back more tired than we were than when we left. We would take 3-4 of these TRIPS a year. I'm sure many if you have done the same thing...

When I got grown, gone, & on my own and began to work my first job, I was given VACATION days (initially 2 weeks a year). I quickly learned to continue the traditions that I was taught, on either the Friday before or the Monday after the weekend I would drive from Atlanta to North Carolina to visit friends, play golf, and come back more tired than I was than when I left. I would take a day here, or a couple of days there until I had exhausted my vacation days. My mentality had not changed...

I was 34 years old before I took my first True VACATION. My wife & I flew to Miami and spent 2 days in South Beach shopping and relaxing. Then we boarded a cruise ship for a 7 night cruise to Puerto Rico, St Thomas, Haiti, & the Bahamas before returning to Miami and spending another night in South Beach prior to returning home. We were gone 10 Days, Now that is a VACATION.

Do most black folk take trips or vacations?

I ask this question as I read a USA Today article entitled “401(k)’s (a) tapped to save homes.” Over my time in the insurance & financial services industry I have fielded my fare share of questions from individuals regarding their use of their 401(k)s to fund their short term desires. The questions range from borrowing from the 401(k) to purchase cars, homes, kids college, etc. People who engage in these self depredating acts normally attempt to justify it with misguided logic.

Normally, I had the hardest time hiding my disgust all the while attempting to convince these black folk to take a VACATION with their money instead of TRIPS. After I explained the benefits of a 401(k), ROTH, SEP or other retirement vehicle, I would receive a cross look from the potential client and the TRIP mentality question would come out, “When can I get my money?”

Preface: Ignorance is having never been taught. Stupidity is having been taught but refusing to implement what you have been taught. Therefore, from this point forward you cannot claim Ignorance… if you take a 401(k) loan you are Stupid.

I then would have to go through the descriptions of “These are the special cases where you are Allowed to Get Your Money…” But in the back of my mind I am screaming “DON’T TAKE A TRIP, TAKE A VACATION!!!” In reality I know they have friends, family, and that one person in the church that took some accounting classes telling them “you got bills, you need your money…” and follow that conversation up with the following Myth:

Myth: If I borrow from my 401(k) it is my money & I am paying myself back…

Fact: This is normally done to satisfy a short term (TRIP) issue or desire.

• I have to pay the IRS… Borrow from the 401k. If you had an emergency fund this would not be an issue.
• I need a down payment for a new car… Borrow from the 401k. Do you really need it? Do you need that level of Auto (why not used)? You knew your car was on its last leg, why didn’t you set money to the side for the future payment?
• I am behind on my Mortgage or Credit Cards… Borrow from the 401k. Collections Agents are putting this misguided logic in people’s heads, and the Ignorant follow, like sheep being led to the slaughterhouse.
• My child is going to college and I can’t afford the tuition… Borrow from the 401k.
  How Dare You, Tell your child to get good grades, and they uphold their end of the bargain. But you chose not to put away the money necessary to uphold your end of the bargain… You Lied, now your retirement suffers or your child suffers… “Thanks Mom & Dad!!!”

(Maybe this is a stupid question… but, Why do I have to Borrow money from my 401k if it is mine??? Sorry, I digress.)
You are Not, paying yourself back. What you have done is halted any future growth on the principal amount that you have taken out. You have created a new bill. You are taking a TRIP,

Ex. You are salaried $50,000 employee. You borrow $5,000 from your plan on a 2 year (24 months) payback schedule. You invest 5% per month ($208.33) into your plan.
If the market grows by 10% over the next 2 years, you will lose approx $537.39 in growth

You have imposed a negative payment stream. In the loan case you are investing 5% per month ($208.33) and you want continue the same investment after you take the loan, you are actually have to increase your payback to $264.56 to truly pay yourself back. That is just to service the loan. You still have not added new investment to stay on track. Therefore, to truly pay yourself back after the loan you have to pay & invest 208.33 + 264.56 = $472.89 to stay even. § That does not take into account the additional loss if your employer matches. § The loan repayment is taken out post-tax not pre-tax

A VACATION requires Planning just as managing your long term investments require Planning. A person with a VACATION mentality knows that if they want to retire and “Not Have To go back to work one day” they have to plan their work & work their plan and let the money produce children & then let money’s children’s children work for them.
Learn What a VACATION is, True Retirement should be similar to a long term Vacation, with reduced stress, and not be a burden to family. I observed that there is a significant difference to how “The other half retires” versus how most Black folk retire.

Do you want Plan A, B, or C?

Plan A: I have personally observed many black folk that have done it right… and they retire to larger homes, better communities, & more money that they had when they were working. There retirement consist of moving to “Active Adult” communities like the following:
http://www.delwebb.com/Default.aspx
http://www.newretirementcommunities.com/?pid=7501


Plan B: In many cases Big Momma moves in with the Sister or Auntee that lives closest and they setup a hospital bed in the formal living room because Big Momma can’t climb the stairs. Is this how you want to retire? I ask this because you may say yes but your children may have another plan…

Plan C: You get to choose from Level A-D based on the amount of money you have…
Level A & B - are run by Hyatt, Hilton, Mariotts
Level C & D - the Social Security Plan… Wait a minute, You are on the Social Security plan (Welfare) “you have to be destitute to get this assistance…” Welcome to level D. Unless you have a family member to take you in which puts you back to Plan B.

What you should do…

• Stop treating this account as “Cross-Town” money. “Cross-Town” money is your checking or savings account at your local bank… because it is going to last you as long as it takes you to get “Cross-Town” and see something that you want. This is for retirement, Period!!! If you never want to retire or plan to live off “Anti-Social Insecurity” take one of the above outlined paths.
• Establish an emergency fund of 3-6 months worth of expenses… this will keep you from considering 401(k) loans as an option.
• Many of us carry blackberry’s, palm-pilots (Treo’s), iPhone’s, etc. and set a reminder on your birthday and your birthday plus 6 months to reallocate your portfolios or at least look at it. In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. Many companies' 401(k) plans also offer the option to purchase the company's stock. The employee can generally re-allocate money among these investment choices at any time. In the less common trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested.
• Invest as much as you can with a goal of 15% and As the market goes down continue to invest, it will come back & your diligence will payoff.
• Never…Ever…Ever… take a 401(k) LOAN. Whether a hardship withdrawal or otherwise.

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Foot note:
(a) The 401(k) plan is a type of employer-sponsored defined contribution retirement plan under section 401(k) of the United States Internal Revenue Code (26 U.S.C. § 401(k)). A 401(k) plan allows a worker to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. The employee elects to have a portion of his or her wage/salary paid directly, or "deferred", into his or her 401(k) account To maintain the tax advantage for income deferred into a 401(k), the law stipulates the restriction that unless an exception applies, money must be kept in the plan or an equivalent tax deferred plan until the employee reaches 59½ years of age.
There are 3 ways money can grow Taxable, Tax-Deferred, or Tax Free. A 401(k) offers Tax-Deferred growth. This means you put the money in pre-tax in many cases and at retirement you have to pay taxes on the growth.

Your Individual situation may vary, Please consult with your financial professional.

"I'm a Grown A$$ Man, Dawg..." Being Proud yet Trying to stay A-political…

I normally am not an emotional person but on August 27, 2008 at approx 5:40pm cst I experienced something as I sat alone on a couch in a hotel room in a suburb of Chicago. I had many machinations of the word “Never” run through my mind. I had pictures of Gov. George Wallace and his famous quote “I say segregation now, segregation tomorrow, segregation forever” in my mind. My visions of the KKK being given a parade permit, and publically marching through the main streets of Charlotte, NC in the early 1980’s. The echo’s of my freshman year in college 1988 and the shouts of “Run Jesse, Run…” on the campus of NCA&TSU. The fear of white folk, my 1st year out of college when Susan Smith killed her kids by strapping them in their car seats and driving the car into a lake. Then telling authorities that a black man car jacked her, stole her car and kids which caused authorities to blindly roundup as many black men as they could arrest via an illegal dragnet search.

Being a post civil-rights child, I remember growing up and being asked “What do you want to be when you grow up?” My rehearsed answer when I was younger was “I’m going to be a doctor…” During my upbringing that was believable. Dr. King & Dr. Lowe were prominent black pediatricians in Charlotte, NC. There were times when my answer was “I am going to be an Architect”… that was also easily believable because my father and most of his associates were architects, also prominent community leaders & friends of the family included Harvey Gant who was an architect (former mayor of Charlotte) were in my circle of people I could reach out & touch.

However, on last night at approximately 5:40pm cst. In a hotel room in a Chicago suburbs, all that was erased, and I was catapulted from the adolescent black kid with rehearsed answers to the question of “What do you want to be when you grow up?” to a Grown Blackman with the full emotional realization of “Damn, It’s Possible…” I have to admit, being A-political (a silent independent, financial conservative & social moderate) my belief that “Change” especially the change Sen. Obama spoke of got the completely disengaged comment of “Yea, Right…” (used in the presence of White folk) or the "N-word Please.." (when with my boys) Now, I will say that I have always voted, but my belief in the truth to power behind that vote was incomprehensible in my A-political view of the world. I always cynically saw the two party system as “one group takes my vote for granted, and the other could care less…” which rode inline with my day one view of “On day one of them swearing in is my life going to change?” The answer always was a resounding “NO!!!” and sometimes “Hell NO!!!” With that said I wanted to keep this Blog A-political as well however, emotion and personal responsibility, will not allow me to stand idly by without declaring a stance, because yesterday I saw something different. I saw one party finally move away from the bygone days of Gov.George Wallace, Freedom Riders, Medgar Evers, Fannie Lou Hamer and the 1964 convention. To the cohesive party question of “What do you want to be when you grow up?” I believe the answer came back “United”

“I am supporting Barak Obama” Because I believe If you remove Belief/Hope from and individual they will fight to find somethinth they can believe in, something that they can call their own. In the same veign, If you restore Belief/Hope to that same individual they will not give you 100%, they will remain cautiously optimistic. So even through my tears, last night I realized that america took a huge step towards their promise that "All Men are Created Equal..."

Now, Emotion has not completely overtaken my financial sensibilities, in other words I have not completely drank the cool-aid although I did take a sip. I will still continue to be critical of his Economic Policy because I believe it overly impacts the burgeoning Black Middle Class & Small Business Owners. If you wonder why read his document “Keeping Americas Promise” http://www.barackobama.com/issues/economy/

Once you finish reading ask yourself just as Econ for the African has, “How will you pay for that?”