PT 2. – Stop Looking for a Program…

(Sorry, I couldn't decide on which picture to post)

One Monday in May 2008, I was driving from Dallas, TX to Austin, TX and had rented a car with XM satellite radio. I had tuned in to a show that was hosted by an alumnus of the same university that I attended. This talk show host as many do had someone on that was his shows resident mortgage guru. This young lady obviously made her income in the mortgage arena and was very impressive in her knowledge of credit programs and other measures to “get you in the home you deserve…” Now during this interview the interviewer & the interviewee made the statements:

1. The President needs to bring back the Sub-prime Mortgage market & revamp it because it allowed Black folk access to financing to purchase homes.
2. There are still programs that allow purchasers to put No-Money Dow that will allow persons to purchase a home by borrowing 103% Loan-to-Value (LTV)
3. I heard of a Vacation Program…

I listened the next 30 min while yelling at the radio the entire time. If you read Part 1 you will now see the culmination of my financial disdain for those few African-Americans in the financial services arena that spew incorrect information in order to pad their pockets while continuing to fleece our the community… Damn Leaches. I am not attempting to become the Armstrong Williams of the African-American financial community, but if I do then so be it… I will stand proudly in my Frat Brothers Company.

The President needs to bring back the Sub-prime Mortgage market & revamp it because it allowed Black folk access to financing to purchase homes.

Whilst listening to the financial interview I had to yell… “What housing market are they looking at?”

What is Sub-Prime?

In general, subprime lending (also known as B-paper, near-prime, or second chance lending) is lending at a higher rate than the prime rate. However, in US mortgage lending specifically, the term "subprime" simply refers to loans that do not meet Fannie Mae or Freddie Mac guidelines. While often defined or defended as lending to borrowers with compromised credit histories, the Wall Street Journal reported in 2006, 61% of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans.

So with the term defined, I offer this mode of thought… if you have a “Compromised Credit History” You don’t need to buy a house you need to pay your bills and understand that the only thing that can improve your credit is “Time.” Stop Looking for a Program. Any Program that cleans valid negatives from your report is fraudulent and may leave you with a legal issue. Again the only thing that can improve your credit is “Paying your Bills & Time”

Please if you get the chance to rent or see the movie “Maxed Out”… in this movie there is a lady in the movie who is a learned Harvard Professor in the area of finance & economics. She describes a time she was asked to give a lecture to a group of bankers where she described a method they should pursue only lending to the best most credit worthy borrowers. At the conclusion of her lengthy lecture (by her own admission) the main leader stood up and asked her “If we do that how will we make money?” You see, bankers make the bulk of their money by lending to persons they know will have difficulty repaying what is borrowed. They make the majority of their money off of late fees & penalties. So if prime lending is for the best most credit worthy borrowers (reduced rates). Sub prime is for the marginal more risky borrowers (higher rates). It has nothing to do with making money available to minorities. It hast to do with making money on the available minorities.

When a person is on the radio or television touting that they have the secrete answer remember this… there is no secrete of the rich, most people got rich in public. Its just the public was not paying attention.

There are still Programs that allow purchasers to put No-Money Down that will allow persons to purchase a home by borrowing 103% Loan-to-Value (LTV)

On the last post I talked about the balance sheet and the basic formula:

• Assets - Liabilities = Equity

This Program is Stupid… Let’s do the Math and put it back into the basic formula:

• Asset $100,000 Home
• Liability ($0.00 Down) $103,000 mortgage ($100,000 * 1.03%)
• Equity NEGATIVE EQUITY OF $3,000

Not to mention the interest on the mortgage. Have you ever heard of the term Up-side-down. That is it, in other words you owe more that the property is worth.

I heard of a Vacation Program…

I heard of vacation programs (time shares) that ask for $1,500 down and $250 per month to have the ability to vacation anywhere in the world that they have properties. These are spectacular resorts. It is being marketed to African-Americans via well known individuals and commercials. Sounds like a Wonderful Program… Now I don’t fault these individuals for doing the job they are paid for which is selling these to the masses. I do ask why there is not a contrasting view presented? (Oh, I forgot… I’m not famous and getting paid for the truth…)

Let’s do the Math…

If I put $1,500 down and $250 a month in my Financial Calculator for 30 years (the program says 50 years b/c you can will it to your kids…) at 12% that is $927,665. I don’t know of a vacation that is worth $927,665, Do you? This vacation program has stripped the wealth from the family that participates in this. Oh, by the way if you take it out to 50 years and will it to you kids as they suggest, that family just gave up $10, 351,960. That’s a 10 million dollar mistake…

STOP LOOKING FOR A PROGRAM!!!!!!!!!

Next: PT 3 – Protect your Parents & Grand Parents

Pt. 1 - LET'S GET GOOD AT THE BASICS (The Balance Sheet)

(I apologize upfront for this being long & probably boring... But if you grasp the concept you will gain wealth)

I have an accounting degree, but a lot of my practical knowledge was gained by working with a Chartered Accountant from the UK. He taught me a very interesting perspective, American Managers forget a simple accounting concept called “Going Concern” which is a Balance Sheet approach, and they are overly concerned with P&L (Income Statement / Budget) analysis. I observed this when I worked for a French company and in the quarterly finance meetings the French Managers would ask a balance sheet question which US managers would give a P&L answer and the French would rip them a new one, by asking a completely new litany of questions. The Balance Sheet (& Going Concern) ask "Can I keep the Doors Open," the P&L ask can I keep the Lights On... What good is it to keep the lights on if you don't have a building to keep them on in???

Many of you have taken business & accounting classes at some point in your career, and these classes tout the benefits of leadership and knowledge or how to effectively manager (ROI) Return On Investment & Expenses. This approach leads common folk to believe that no worthy correlation between this knowledge can be achieved. This could not be further from the truth. The analysis of a Balance Sheet / Income Statement is the same regardless of how many commas are involved. We can get good at the basics by understanding what information these two forms of financial data convey. I will keep my explanations insanely simple so that the masses may understand.

Balance Sheet

The balance sheet shows a long term view of your financial status at a point in time. It communicates the basic financial formula.

Assets = Liabilities + Equity

Thoughts are things & words have power… What is an Asset, Liability, and Equity?

• An Asset is anything that puts money in your pocket (over the long term).
• A Liability is anything that takes money out of your pocket (over the long term).
• Equity is how much that goes in your pocket, stays in your pocket.

ASSETS – An Asset is anything that puts money in your pocket (over the long term).

Statistics show the inequality…Assets create opportunity, assets give you leverage power:

• 1% or less of us have 1mill net worth
• Less than 25 % of us have $25,000 in assets
• 4.3 million of us versus 381 million of them have an IRA or KEOGH.
• 2.92 million of us versus 592 million of them Stocks and mutual funds.

I am sure that you have heard, “The key to wealth is to build assets…” I would like to add, “The key to building wealth is to build strong assets without incurring offsetting liabilities, thereby increasing your equity.” So, the obvious question is “What are Strong Assets?”

Simple listing of “Strong (Financial) Assets”

• Houses – owned free & clear
• Income Producing Stocks, Bonds, Mutual Funds
• Income Producing Annuities, 401k,
• Income Producing Businesses

Simple listing of “Strong (Non-Financial) Assets”

• Education
• Spirituality
• Children

Utilized properly the listing of Strong Non-Financial Assets can yield financial success. Notice, I did not include in either listing:

• Automobiles – Unless it is an antique this is a depreciating asset & typically are acquired in a manner that increase liabilities (auto loan) or leased and therefore do not increase equity. Sam Walton one of the richest men in the world drove an old pickup. Warren Buffet one of the richest men in the world drives a Lincoln town car... Jay-Z by his own admission in an interview doesn't drive at all.
  
• Vacation Time Shares – This is equivalent to a long term lease. Most persons are told “Build Equity… Buy a home… Stop Making Your Landlord Rich, etc.” If home ownership is valued as the “American Dream” why is Leasing your Vacation monthly smart… answer: “It’s Not”
• Stock Options – these are normally issued by corporations as a feel good tactic because they make employees feel as though they own a something. They are also issued when the “strike price” (the price where you will make money by exercising the option) is nowhere near the actual stock price. The transactions work like this (this can be one step or multiple steps):
• The stock has to be trading higher than the “strike price”
  e.g. Stock trading at $15 the strike price is $10
• Individual “Exercises” the option (This is where ownership is achieved)
  eg. Purchases the stock for $10
• Individual sales the stock for $15 and pockets $5 (this is where ownership is lost)
  Preface – I have heard of the millionaire janitor/secretary, as everyone else has, that became that way by taking options in the company as opposed to salary and bonus increases. The majority of persons hold options “Ever” (in other words… so long the “For” gets dropped)

Liabilities - A Liability is anything that takes money out of your pocket (over the long term).

Financial Liabilities are killing our communities. The common thought is to “Get It anyway you can…”

Wealth Killing Liabilities

• Car Loan
• Title Pawn
• Rim Rental
• Credit Cards
• Mortgages
• Student Loans
• Payday Lenders
• Furniture Financing

I know… I know… your mind immediately jumped to the question of “How do I get a car, home, education, or any of the things I want without a loan?” Here’s a novel idea…PUT MONEY TO THE SIDE & SAVE!!! How can you build wealth if you spend or owe every dollar you get your hands on to someone else? Answer… you can’t.

I owe… I owe so off to work I go is the mantra of the poor & liability burdened. Many a New York Times Bestseller have led us to believe that the lies are the truth and the gospel is a lie when it comes to money and finance. As Big Momma says… “The Devil is a Lie…” We need to be sober, conscience, & aware of the traps:

• 90 days is not the same as Cash, Cash is the Same as Cash.
• (OPM) Other Peoples Money is not how the rich get rich
• 0% credit cards contain a back end Gotch in the fine print… That’s how the Bank makes money.

Equity – Equity is how much that goes in your pocket, stays in your pocket.

Equity is Ownership and We have little or no Real Equity in our community… outlined in the following statistics:

· 87% of the wealth is owned by Someone else

o When our babies are born into this world they will never gain more than 13% of the wealth

· Business Equity – Less that 10% of us have equity in businesses

o 3500% More of others have equity in businesses

§ 10.4 million of us vs. 789 million

The balance sheet tells us that if we have a loan against our assets we only own a proportional share in the asset. I am describing 100% ownership (Free & Clear). In the past I have sat with many clients (most look like me…) and they have Negative equity positions. Even though from the outside looking in they have the large house, flashy car, finest cloths, & kids in private school. Unfortunately, most of our people look like this or worse:

Asset			Liability
Cash (in Bank)	200.00		Mortgage	247,000.00
House	250,000.00		Auto Loan	30,000.00
Car	35,000.00		Furniture Loan	9,000.00
Furniture	8,000.00		Credit Card	8,500.00
Total Assets	293,200.00		Total Liabilities	294,500.00
			Equity	(1,300.00)
Total	293,200.00		Total	293,200.00

Lets get good at knowing & implementing the Balance Sheet Formula...
Assets = Liabilities + Equity

Pt. 2 – Stop Looking for a Program

Where has all of the Black Businesses Gone?

What subject did Martin Luther King Jr. argue & fight for in his last days???

Economic empowerment/freedom… his last days were spent organizing the march for the black sanitation workers of Memphis, TN. To receive equal rights and equal pay.

Strangely enough this is something we had in a segregated system and lost in our educated integrated system. Now I am not diagramming our re-entrance into segregation. However, I will describe a conscience movement towards economic segregation, building black business loyalty (outside of the barber or beauty salon), spending your $$ with those that look like you. I will also describe the marketing strategy of increasing the belief in quality of goods & services delivered from black businesses. Finally, the movement away from the education systems that engrained the “Black Pride” in us to use facilities by us & for us.

ECONOMIC SEGREGATION

My last post had to do with the fact that when we pool our economic resources we present an insurmountable economic force. Black Wall Street showed that in the early 1900’s we worked together, we spent our money together, we worshiped together, our children were educated together. Our “Family Values” were molded and shaped from the cradle to the grave.

Each & every other community practices economic segregation however we seem to lag in this endeavor. On a normal payday:

· The Asian dollar circulates among Asian businesses 28 days a month before leaving the community

· The Jewish dollar circulates among Jewish businesses infinitely and then only a small percentage ever leaves the community.

· The Black dollar circulates only 15 minutes.

Now how is it that their dollars circulate within their community so many times more than ours? One word… “Pride” Jews believe that “the pursuit of business & wealth is Godly” (Thou Shall Prosper by Rabbi Daniel Lapin) and it benefits the entire community to do business with their own.

Our prevailing mode of thought is pay my bills… pay my credit card, pay my car note. Now I don’t know of a black owned credit card company, do you? That brings me to another quick point, name me a black bank in your city. There are 48 Black banks & Thrifts in the country. That isn’t even one per state. We will store our money & finances with a small credit union but will not patronize a black bank.

BLACK BUSINESS MARKETING

We have a 2 fold issue:

Issue #1 – The automatic default belief that black businesses deliver inferior goods & services.

It needs to be identified that the above noted circulation of dollars falls on deaf ears when discussing the purchase of goods and services, and more specifically who to purchase them from. One of the primary reasons for this lack of circulation is the growth of the mega-mall, mega-retailer, & a brand loyalty that has all but eluded the black business owner. On a smaller scale when we purchase from small businesses we tend to purchase our specialized goods & services from Asians. I tend to hear… “The Korean Lady does better embroidery/tailoring with a faster turnaround”

The largest wholesale clothing market in the United States is Magic held in Las Vegas twice a year. The buyers from most of the major retailers attend this market and miscellaneous markets held in cities around the country. In other words, the same distributors /wholesalers that the big name retailers purchase from is the same market that the black business purchase from. Therefore the belief that inferior goods are provided by black businesses is without merit.

I hold licenses in the financial services industry and was trained by a white gentleman who is very close friend of mine. It always irked me (for lack of a better term) that when I would sit down with potential clients that looked like me, they would question my education, suggestions, training, product offerings, etc. Until the time when my white friend would come in the door. When that would happen, the nature of the transaction completely changed and the deal closed. What changed??? I had more education than my counterpart, my product offering were exactly the same. The difference was skin color and the inherent belief by my own people that I was going to steal their money or get them in a risky investment. Self hate…

Issue #2 – The actual level of customer service delivered by black businesses comes with an attitude. I will agree, if I am spending my money I deserve a certain level of respect, not attitude. I find that we can be treated inferior in a large retailer and continue to spend money with them, but if the same bad service comes from someone that looks like us in a minority owned business boutique, “they should know better.”

Black businesses have to be consistently on a red level of alert forever cognoscente of the customer service that they offer, to their own people. This is because a black business patronized by a black customer only gets one chance, redemption is not an option.

In the words of Dr. Cornel West "You can't lead the people, if you don't love the people. You can't save the people, if you don't serve the people." Many Black businesses are around, exist, thrive & fail, by loving our people, but has our larger community returned the favor or adopted a suburban materialistic stance and fallen into the strategies of the big name store makes it better by default.