Dr. Boyce: Rapper Nas Has Tax Trouble

by Dr. Boyce Watkins 

Hip Hop Wired is reporting that the rapper Nas is having some serious financial problems. In addition to owing his wife Kelis $44,000 per month in child support, it turns out that the artist also owes the federal government another $2.5 million in taxes. Here are quick thoughts about Nas, love and money:

1) Nas has a complicated life. His decision to marry the "love of his life" is going to cost him for the rest of his life. The rapper's tax situation could be due to irresponsibility (as appears to be the case with Method Man and Nicolas Cage), or it could simply be a matter of using write-offs that were not allowed by the IRS. We can't assume that Nas' tax trouble automatically makes him into a horrible citizen.

Click to read.

Bumping into Jay Z in Nigeria

Dr. Boyce Watkins

http://www.boycewatkins.com/

I just returned from an awesome speaking event in Lagos, Nigeria. Pastor Poju Oyemade, a visionary leader in the Nigerian community, created a semi-annual event called “The Platform”, which is one of the most respected economic empowerment venues in the country. The Pastor invited me and some other business leaders to discuss the entrepreneurial spirit and how it can be best used to unleash the awesome potential of the Nigerian economy.

The event organizers met us with Barack Obama-like security, complete with serious looking brothers with dark suits and even darker sunglasses. I felt completely safe in a country that has been falsely presented to the world as a haven of danger. Nigeria is not nearly as scary as the media depicts it: like any other nation, there is both good and bad. Unfortunately, the bad has gotten more attention than it deserves.

I arrived in my hotel, a swank and comfortable spot right on the beach, ready to sleep off the jet lag. I was ready to take a nap in the hallway if necessary, since I was as tired as you can get. I crawled toward my bed with my last ounce of energy, shocked at who would be greeting me in my room: It was Jay-Z.

Well, it wasn’t the real Jay-Z, just his face on the cover of a magazine. Here I thought I’d escaped the Jiggaman by heading across the world, and there he was, diamonds blinding me with his undeniable floss. The megastar “bling-aholic” was being featured in a Nigerian magazine promoting the very same thing I was there to discuss: the power of entrepreneurship.

I respect Pastor Oyemade, the organizer of the event, for the same reasons I respect Jay-Z: they have both learned that Black men and women are strongest when we are economically free. I am not always in favor of everything that the Jiggaman does, but I certainly appreciate the progress he has shown throughout his career. He makes megadeals behind the scenes that will ensure that he is getting paid well into old age. When I addressed my audience in Nigeria, I talked to them about a few things:

1) The value of ownership – it’s difficult to get wealthy in America if you don’t own anything. I know a lot of doctors, lawyers and professors with high incomes who still have not yet learned how to let their money work for them.

2) Entrepreneurship should be taught to our children – every Black child in the world should be taught how to create a job, not just how to go out and get one.

3) Start your business around your passion – if you love what you are doing every day, you will get a paycheck even when you don’t make any money.

I didn’t just go to Nigeria to teach, I also went there to learn. I learned a long time ago that you can never be a good teacher if you are not also a good student. So, here are some things I learned from our Nigerian brothers and sisters across the sea:

1) We are really blessed as Americans. While we might feel that we don’t have as much as we deserve, we’ve actually got quite a bit to work with.

2) You can overcome a great deal if you put your mind to it. There are people in other parts of the world who endure things on a daily basis that we can’t possibly imagine.

3) The best investment opportunities are now in Africa. A smart investor with solid, honest contacts can make more money in Nigeria than they could almost anywhere else. Africa is the next China.

I enjoyed my trip to Nigeria, but I was as much student as professor. I learned from Jay-Z and his success in hip hop, and I also learned from my Nigerian family. All in all, I can say that this trip helped complete me as an investor, a professor, a Black man and a human being. I look forward to my next trip already.

Dr Boyce Financial Challenge

The Dr. Boyce Challenge for this month is simple: Create a budget which includes the steady elimination of credit card debt. That means you should list every single expense you have for the entire month on one piece of paper or a spreadsheet.

Don’t leave anything out. Count the money you want to use for getting your hair done, your nails, paying your mortgage, car note, whatever. Count everything. That will be your first step toward obtaining financial fitness.  

As you create the budget, allocate at least 10% of your monthly income toward reducing credit card debt. So, if you earn $3,000 per month after taxes,$300 per month should be allocated toward removing credit card debt, not including interest. So, if you owe $5,000 in credit card debt, you can remove this debt in a year and a half. It’s easier to negotiate with creditors if you don’t need them so much. Take small steps toward finding your financial freedom.

Trusting The Government With Your Money

Dr. Boyce Watkins
www.BoyceWatkins.com

Please visit our sponsor, GreatBlackSpeakers.com to find top quality African American speakers for your Black History Month Event.
Can we trust the government to protect our money?

By Dr. Boyce Watkins
www.BoyceWatkins.com

Media reports show that many Americans are not quite sure of what to do with their money. Watching banks fail left and right, people are logically afraid of what might happen to their savings. This fear is justified, as we are seeing our accounts beaten and stomped by the global financial meltdown.

This grave concern is magnified by the fact that those we’ve trusted are the ones who’ve left us vulnerable. Our most cherished financial experts handled our retirement accounts like flashy vehicles on a Nascar speedway. Our elected officials allowed executives in the banking industry to run rampant like 3-year olds with dirty diapers. Then, when the crash came, a massive bailout package was created for those most responsible for the damage, while the rest of us were left holding the tax bill.

This begs the question: Why in the hell should we trust the government?

I recall that during the failure of Enron, one of the most respected companies in America at the time, the firm made several statements designed to create confidence in the company’s financial condition. Like captains of the Titanic, company leaders explained that there was nothing to worry about, even as they themselves were preparing their lifeboats. When the company failed, those who did not protect themselves reminded us of one grim and fundamental truth: when the “you know what” hits the fan, it’s every man for himself….and every woman too, in case you’re wondering.

In response to such sentiment, the American consumer has been working overtime to protect his/her resources: people have (against my advice) moved their money away from the frightening stock market, they are diversifying money into different banks, and some are taking their money out of banks altogether. All of these actions are occurring in spite of government calls for calm in a world on the verge of financial panic.

The honest to goodness truth is that I don’t blame Americans for being afraid. I don’t blame them for not trusting the government right now. Trust must be earned in any relationship, whether it is a tough marriage of the relationship between a government and its citizens. Our government must work to regain that trust through sound and efficient financial management. It will NOT regenerate the public trust through excessive spending on meaningless wars, selfish pork-filled bills being passed through Congress and budget deficits that strain the resources of Americans everywhere.

I can’t tell you if the government is lying to you, but I can tell you this: There was a time when government guarantees such as FDIC insurance were as pure as the driven snow. There was a time when the United States Federal Government had pockets and resources so deep that even God himself could be bailed out with our cash. The sad truth, however, is that no empire lasts forever, and there is destined to be a day in the future when we are no longer the unquestionable economic super power that we once were. A country that can’t even afford its social security obligations is hardly a nation that has risen beyond economic risk.

Another sad truth is that if the financial world really were coming to an end, the citizens would be the last to find out about any such crisis. We would, simultaneously, be the first ones asked to suffer the burden of irresponsible behavior by our leaders. If that doesn’t justify a bit of skepticism, I am not sure what does.

Dr. Boyce Watkins is a Finance Professor at Syracuse University. He does regular commentary in national media, including CNN, ESPN, CBS and BET. For more information, please visit www.BoyceWatkins.com.

Black Money: The Stock Market's Recent Roar Explained

Dr. Boyce Watkins

www.BoyceWatkins.com

The financial markets experienced a recent rise of over 900 points, nearly double the one-day record. Just that morning (before the increase), I was asked by the Tom Joyner Morning Show whether or not investors should shy away from the market when prices are down. I explained the following:


1) When the market declines, that is not the time to run away. It is the time to run TOWARD the market. You don't buy when prices are high, you buy when prices are low.


2) The key words to remember for stock market investing are BUY and HOLD. That means that you buy a diversified portfolio (spread your money out, as in a mutual fund) and let your money grow. You are not out to try to pick the right stocks at the right time, since that will drive you insane and cause you to lose money.


3) Historically, when the market goes down, it has always come back up. So, I told Tom that I was not changing my portfolio one bit, and I was even going to over-invest in the market while it was low. In the financial research I've been doing for the past 15 years, one thing is true: the stock market tends to reverse itself over short, medium and long-term horizons. Typically, if the market declines a great deal during one week, the next week, on average, tends to be strong positive. This is due to investor overreaction, which can occur during a panic like the one we've had this past week. But remember: your goal as an investor is not to spend your time trying to predict the stock market, your goal is to build wealth.

Visit www.DrBoyceFinance.com for more information. You can also check out some of our videos at YouTube.com/DrBoyceFinance.

Remember to always own the land on which you stand. You are now the teacher, so please share this message with others.

Black Financial Speaker Boyce Watkins on Managing Credit

Dr Boyce Black Money: Credit Bureaus Part 1

By Dr. Boyce Watkins

www.DrBoyceFinance.com

Where do Credit Scores come from?

Unlike babies, credit scores do not come from a financial stork. There are 3 major credit bureaus in the United States: Experian, Trans Union and Equifax. Companies subscribe to their services to obtain information about you to decide if you are credit worthy or not. Under the old system, the credit scores ranged from 375 to 900. Under the new VantageScore system, they range from 501 to 990. The new system is more consistent among various credit bureaus, so you don’t end up with scores that go all over the place.

How can I get a copy of my report?

I personally go to a site called Myfico.com, where you can order reports from all 3 bureaus or just one. You can also go to freecreditreport.com (you know, the site with the really funny commercials). The law says that you are entitled to at least one free credit report every year. Also, if you are denied credit for any reason, you can write the bureaus, sending along a copy of the rejection letter, and request a copy of your credit report. If you choose to pay for your report, it will likely cost you about $8 dollars.

What factors go into calculating a credit score?

The factors that go into calculating a credit score are a little vague and it’s protected like the recipe for KFC chicken. While the formula is well-guarded, we do have some guidelines on what factors are theoretically used to determine whether or not someone should loan money to you.

The factors are broken into what they call “The Four C’s of Credit”: Character, collateral, capacity, capital and conditions.

Character is their way of trying to decide if you are a good person or not. I don’t agree with this, since having bad credit does not make you a bad person. It just makes you a person who does not have a good track record when it comes to borrowing money.

Capacity is represented mostly by your income level and how much money you’re expected to earn in the future.

Capital is noted by the amount of cash you have in reserves and other liquid assets at your disposal. If you have capital, that means you can withstand a short-term decline in income and still make payments.

Conditions are reflected by the environment in which you live. It might include the state of the economy, your line of work and other external factors that might impact your credit report. For example, during the liquidity crisis in America, conditions for lending are very, very bad.

Now you know where credit scores come from. You probably have more questions, since there is a lot of ground to cover. To get more information, please feel free to learn along with me and my students by visiting www.DrBoyceFinance.com.

Dr. Boyce Watkins is a Finance Professor at Syracuse University. He does regular commentary in national media, including CNN, ESPN, BET and CBS. For more information, please visit www.BoyceWatkins.com.

Dr Boyce Black Money: Credit Bureaus Part 2

Dr. Boyce Watkins

www.BoyceWatkins.com

As part of our series on understanding credit scores, we can now move into more of the nitty gritty. Understanding credit is an important part of financial planning, and there are even more ways for you to be informed, empowered and financially independent. Below, I continue with my Q&A about credit scores. Hopefully, empowered with this new information, you can work your way to the wealth and financial security you deserve.

How are all of the factors weighted when determining your credit score?

As I mentioned in the prior article, there is no publicly released, verifiable formula for how the various factors in your profile go into defining your credit score. However, there are researchers like myself who spend all of our time learning how these things work. So, based on the existing data, here is one estimate of how aspects of your credit history go into determining your credit score.

35% - Your history of payment on debts from the past

30% - The amount of debt you have

15% - Length and depth of your credit history

10% - The amount of new credit you’ve applied for recently

10% - The type of credit you use (credit cards, student loans, etc.)

Again, while these numbers are not precise, the truth of the matter is that they are probably accurate in a general sense. Reducing your current debt and paying bills on time have been shown to be an important way to improve your credit score.

How do I correct an error on my credit report?

The law protects consumers who feel that their credit report has errors on it. Anything you believe to be inaccurate on your credit report can and should be disputed. You should dispute the information in a formal letter to the credit bureau, not in a phone call or even email. You want formal documentation of your challenge.

The Fair Credit Reporting Act states that any information disputed on your credit report must be verified by the credit bureau within 30 days. If they reach out to the company that claims you owe them money and don’t hear anything back, they must by law remove the negative information from your credit report. Use this vehicle to carefully check on any information in your credit report that you do not believe to be accurate.

When you write the letter, make sure you include the following information:

- Your full name

- Your social security number

- Your date of birth

- Your mailing address

- The name and account number for the debt you are disputing

- The reason you feel the debt is not accurate

- Your signature

Be sure to include all relevant information, because the law says that the bureaus do not have to respond to any disputes they consider to be frivolous (not without merit). You want them to take your dispute seriously.

Here are the addresses to the various credit bureaus:

Experian (formerly TRW)
http://www.experian.com
PO Box 2002
Allen, TX 75013-2002
888-397-3742

Equifax Credit Information Services
http://www.equifax.com
PO Box 105873
Atlanta, GA 30348
800-685-1111

Trans Union
http://www.transunion.com
Consumer Relations Center
PO Box 1000
Chester, PA 19022
800-888-4213 OR 440-779-7200

Dr. Boyce Watkins is a Finance Professor at Syracuse University. He does regular commentary in national media, including CNN, CBS Sports, BET and USA Today. For more information, please visit www.DrBoyceFinance.com.

Black Money Tips: Dealing with Crazy Bill Collectors

by Dr. Boyce Watkins
www.BoyceWatkins.com

One of the groups that was not bailed out during the recent financial crisis has been the American consumer. Congress took care of the firms on Wall Street, but they didn’t take care of the millions of Americans forced to confront the realities of bankruptcy, foreclosure and uncomfortable confrontations with menacing bill collectors. It appears, sadly, that every man and woman must find their own way through this financial tragedy.

Bill Collectors really want their money, like the rest of us. Some of them seem to feel that it’s O.K. to resort to flat out thuggish intimidation to get their money back. That might work on The Sopranos, but it shouldn't work in real life.

Part of the reason abusive bill collectors can have their way with the public is because many citizens do not know their rights. Bill collectors prey on the uninformed in a terrible way: They may threaten to have you arrested, harass your relatives, call all hours of the night, and engage in other types of atrocious behavior to get their money out of your hide.

One woman successfully sued a rogue bill collector after he called her repeatedly with threatening language. The woman, a senior citizen, was told by the man to "Stop with the sob stories and pay your god d*m bill!" This kind of behavior is not acceptable, and bill collector harassment doesn’t have to keep you up at night.

The Federal Trade Commission states that complaints against bill collectors are rising, reaching the highest level they've seen in the past 3 years. Most of the complaints focus on vulgar language, trying to collect more than the amount of the true debt, and extra fees, such as court costs.

You have rights that can protect you from bad and malicious bill collectors. You want to keep these in mind as you work yourself out of debt:

1) There is something called "The Fair Debt Collection Practices Act". If you are not familiar with this document, get familiar with it. You can read it by clicking here.

2) A bill collector cannot contact you at work if your employer does not approve of the contact. Let the bill collector know that this is the case and they must legally stop contacting you at your job.

3) Bill collectors cannot call you before 8 am or after 9 pm. The only exception is if you give them permission to do so.

4) A bill collector can only contact your friends and family if they are trying to find a way to get in touch with you. However, some of them may do this in order to harass or embarrass you. If that is the case, you may want to tell your friends to tell the bill collector, "She does not live here and I do not know how to get in touch with her. Please don't call here anymore." Then, get the bill collector's information from your friend and reach out to them when you can.

5) You can get bill collectors to stop contacting you altogether by sending them a letter telling them to stop. You still must pay the debt, but they won't be calling you during dinner.

6) The bill collector cannot curse at you or use foul language and they must tell the truth about how much you owe. They cannot threaten to sue unless they are serious about it, and they can't touch your 401k or IRA.

7) If the bill collectors call you, you can demand that they send you a written notice of the amount you owe and who you owe the money to. If you do not believe that the debt is yours, you can write a letter to them stating that this is not your debt. They must then send you proof that the debt is actually yours.

If you feel that a debt collector has violated any of these rules, you can contact the Federal Trade Commission at www.ftc.gov. Remember that you are not powerless in this situation.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of Financial Lovemaking 101: Merging Asset with Your Partner in Ways that Feel Good. He does regular commentary in national media, including CNN, CBS, NBC and BET. For more information, please visit www.BoyceWatkins.com. This information does not constitute legal advice. For legal advice, please consult your attorney.

Americans Addicted to Debt

A funny slideshow about the mortgage crisis

I am not completely sure I agree with everything that's being said on this slideshow, but I thought I would share it. One of my students sent it to me, and I it was pretty funny.

You can view the slideshow by clicking here.

Keeping it Real on the Financial Crisis

by Dr. Boyce Watkinshttp://www.boycewatkins.com/

1) FDR had it partially right when he said that "We have nothing to fear but fear itself." While we have other worries as well, the greatest obstacle to economic progress is the HUGE psychological impact of Americans watching the stock market plummet right in front of their faces. This is going to cause consumer spending, lending, borrowing and investing to freeze like a deer in stadium lights. When people stop spending, economies start dying.

2) This crisis was a long time coming. De-regulation pushes down on the economic gas, but increases the chances of an economic crash. The dramatic growth of the past 8 years was a result of the same policies that are leading to the huge challenges we are faced with today.

3) Much of the impact of this crisis is a financial illusion. A large percentage of the devaluation in stock and home prices is driven by the fact that the original value was incorrect in the first place. When prices are out of whack, they must correct themselves. While a crisis may also be a correction, a correction is not necessarily a crisis.

4) Prepare for a period of "Financial McCarthyism" in America. Many baby boomers are closing in on retirement, and scared to death. To boot, many of these individuals have not properly prepared for retirement. When Americans get scared, politicians get nasty. We will likely see some of the most Draconian legislation in history.

5) What makes this crisis such a concern is that even before the meltdown, the economy was already quite fragile. With soaring gas and food prices, the economy was the #1 issue on the minds of most Americans. The decline of many financial services firms was, for the most part, a logical continuation of the fact that many homeowners were defaulting at the start of the year. This crisis is most certainly going to shift the political landscape and might give us our first Black president.

6) Yes, this market drop was the largest in history, 770 points in one day is nothing to sneeze at. But keep in mind that this drop doesn’t even make the top 10 in terms of percentage declines.

7) The American consumer is not off the hook. The “Wall Street Greed” angle of this story completely denies the fact that many American consumers tend to overspend and over borrow. Many Americans were buying homes they could not afford and borrowing against their home equity in order to go on vacation. It takes two to tango and banks rarely forced anyone to take the loans being offered to them. If Obama can tell Black Men to take more responsibility for our economic challenges, then he should be willing to say that to the rest of America.

Dr Boyce on NPR - Financial Crisis - Part 1

I'll also be on "Tell Me More with Michelle Martin" Tuesday at 9 am EST. I'm also going to make a few other appearances....the media usually calls every day and I'll keep you posted.

Boyce

Dr. Boyce on NPR - Part 2 - Financial Crisis 101

Dr Boyce on the Tom Joyner Morning Show

Dr. Boyce Watkins

www.BoyceWatkins.com

Hey peeps,

Tom Joyner and I are going to talk Personal Finance and Money on 10/13 at 6:30 AM EST. I was also invited to discuss the liquidity crisis on Rev. Jackson's show. I've been doing most of my commentary on NPR and non-black media, so I was very happy to have the chance to discuss the Black perspective on this important issue. In fact, the article below addresses something that I feel has been missed: How this crisis impacts Black America.

If you want to join our money group to receive regular commentary on money and finance, please click here.

Valencia Roner, a very talented radio show host, did a thought-provoking show with me on the liquidity crisis. You can listen to the interview by clicking here.

The Liquidity Crisis of 2008: What Black People Should Do Now

By Dr. Boyce Watkins

www.BoyceWatkins.com

Most of you have been watching politicians shuck and jive in predictable ways to try and manage the even more predictable liquidity crisis that has terrorized our financial markets. As a supporter of Senator Barack Obama, I am hopeful that this will serve as the final signal to America that a Harvard graduate with extensive Economics training might be a better choice than a mediocre student who claims to know nothing about the economy. I won’t even mention Sarah Palin, who now makes George Bush the runner-up in the “Unfit to Manage a Burger King” contest. I am not big on Obama-mania, but I tend to be big on common sense. It is also telling that many Americans would sacrifice our nation’s future in order to avoid the discomfort of seeing a Black man in the White House. OK, let me shut up before I say what I REALLY think.

This is not about the pale one called Palin or John McCain’s Black Extermination Plan for criminal justice. It is about USOBA. USOBA doesn’t stand for the “United States of Obama”, rather, it stands for the “United States of Black America”. This is about finding ways to manage, contextualize and internalize this crisis so we can figure out what to do right now. Neither McCain nor Obama is going to take care of you and your family, since politicians tend to take care of themselves (note Treasury Secretary Henry Paulson’s prior affiliation with Goldman Sachs will likely drive his desire to save his Wall Street buddies). The truth is that we are all Presidents of our own households, and as President, your job is to shield your household from the impact of FICA - The Financial Ignorance Crisis of America. Here are some quick thoughts:

1) The government bail-out doesn’t necessarily mean you should bail-out of the Stock Market: If you are invested in the Stock Market, I would strongly consider staying there, especially if you are under the age of 50. In fact, you might want to buy more stocks. Warren Buffett (a man who is sometimes wrong) had it absolutely right when he said that you should “be greedy when everyone else is cautious and cautious when everyone else is greedy.” Drops in the Stock Market can be the best times to invest because the historical data clearly shows that when the US Stock Market declines, it eventually comes back up. Personally, I plan to use this market decline as an opportunity to expand my portfolio. But I am not going to try and pick individual companies: I am going to buy into a diversified mutual fund that spreads my money around the entire global economy.

2) Paying off credit card debt is one of the best investments you can make: Which would you prefer? To possibly earn 10% interest in an investment in the Stock Market or to DEFINITELY save 18% per year on that high interest credit card in your purse? Remember that money SAVED is money EARNED. Get rid of the bulk of your high interest debt before you even consider investing in the Stock Market or anywhere else.

3) Change the game: With all of Barack Obama’s speeches about how Black men need to learn personal responsibility, he may have wanted to save that speech for the rest of America. The typical American consumer has been incredibly irresponsible with spending, saving, borrowing and investing habits over the past 20 years. I grow sick of seeing one article after another attempting to argue that African Americans have a monopoly on irresponsible financial behavior. Don’t believe the hype – ALL OF AMERICA has a problem with financial choices. The goal is not for you to emulate the behavior of the rest of America….it is to set a new standard. Black people can be quite good at saving money. Many of our grandmothers could support a household with two nickels and a hot dog bun. Perhaps we can tap into our natural survival instincts to get us through this mess.

4) This crisis might be the tip of the iceberg: I agree with my respected colleague Paul Krugman at Princeton, who is the only other commentator I’ve heard mention that recent financial problems may be nothing more than a symptom of more serious fundamental issues in the US economy. All I could say when I heard that was “Amen”. Without going into much detail, I can say that it is time to remember that old saying “Learn to save your money, so your money can save you.”

5) Don’t be “scuuuurred” (translation for the uppity among us: “Don’t be afraid”): This is NOT the end of the world. The financial systems are not going to melt down. This is not likely going to be the start of any kind of Great Depression. Truth be told, the Black community has been in a Great Depression for about 400 years! We have survived worse, and just because the economy struggles, that doesn’t mean you have to struggle along with it. Remember that our greatest challenges are usually our greatest opportunities for growth. Learn from this experience, grow from it, and we will continue to move forward.

Your financial liberation is part of your social and spiritual liberation. Let’s use the shake-up as an opportunity to shake ourselves off the plantation. I’m tired of someone else owning me.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of the forthcoming book “Black American Money”. For more information, please visit www.BoyceWatkins.com.

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Sorry Barack, You Can't Blame Bush for the Money Crisis

By Dr. Boyce Watkins

www.BoyceWatkins.com

I am no fan of President Bush. I made fun of the silly man long before it was popular to do so. However, in this case, I have to be one of the first to stand up and say that you can’t put all the blame for this financial crisis on his back. The War in Iraq? Yes. Hurricane Katrina? Absolutely. Damn near everything else? Sure, why not? But this financial mess should not, as our leading presidential candidates want you to believe, be slapped on the political tomb of Mr. Bush. That doesn’t mean he didn’t play a role, but Bush was more of a supporting actor in this horror story, not the star.

The horror story to which I am referring is that little news event surrounding a $700 Billion dollar bailout being sponsored by the Office Underwriting Corporate Hedonism (OUCH), also known as the Federal Reserve. Now, this is a different brand of corporate welfare, as taxpayer dollars are not being given away. At worst, taxpayer resources are being put at risk, as the Federal Reserve is making huge capital allocations to some of the nation’s most troubled financial institutions. As a lender of last resort, the Fed is responsible for investing money where the rest of us certainly would not.

To put it in layman’s terms, this is like using your savings account to loan money to an uncle who was fired for drinking on the job. Sure, he has been responsible in the past, and will likely be re-employed, but his recent behavior leaves you a little concerned. In the same light, taxpayer dollars in a financial crisis are like little soldiers being deployed to provide stability to the deadliest parts of the world. Many soldiers will come back home, while quite a few are going to be killed. Depletion of our government capital is quite likely in this scenario, for solving a global liquidity crisis with available reserves can be like using a kitchen sponge to soak up the ocean.

With that said, let’s discuss what this crisis is really all about. We must first understand the nature of our financial institutions. Banks and other entities providing credit to the consumer are a lot like drug dealers (both legal and illegal drug dealers are included in this example). Drug dealers give you something that you definitely want and even think you need. The drug (cash) is powerful, makes your problems go away and has a long-term consequence if you abuse it. That’s where the government steps in. The role of government is to regulate our financial drug dealers to ensure that they are not encouraging substance abuse from the users (American consumers), and to also ensure that consumers are relatively well-educated about the consequences of using the drugs (that’s where terms like “predatory lending” come from).

In order to make the economy appear strong, our financial drug dealers were allowed to run wild. Loans were being made to people who could not afford to pay them, causing the prices of homes to be bid out of control (it’s easier to bid a higher price on a home when your banker loans you all the money you need). Ultimately, consequences were felt when millions of Americans suddenly realized that they could not repay the amounts listed on the dotted line. This situation is not much different from what we are now seeing in the pharmaceutical industry, in which drug companies are using ads to encourage patients to walk into the doctor’s office and ask for whatever drug they saw on TV the night before (you hear that Rush Limbaugh?).

Now, before you go and burn down the nearest bank in your neighborhood, realize that it takes two to Tango. As Bill Cosby (perhaps naively) believes, “making good decisions makes everything ok.” We must remember that if all people made good decisions, drug dealers would have no customers. The truth of the matter is that in spite of the fact that our institutions and governmental authorities have failed us, one of the greatest culprits in this mess is the financial greed and myopia of the American consumer. We as Americans are among the most gluttonous and short-sighted consumers in the world. We borrow money to go on vacation without thinking twice, we don’t save for retirement, and we tend to do P Diddy/Paris Hilton imitations on every shopping trip. Money is our drug and we all rejoiced when there were more drug dealers in our neighborhoods.

So while Barack Obama and John McCain want to attack the clearly unqualified man in the White House over this mess, the truth is that we mostly have ourselves to blame. This crisis affects us all, and the corporate problems are nothing more than an aggregated manifestation of very bad individual decisions. Simultaneously, our legislators must be held accountable when ensuring that corporations are given incentives to engage in responsible lending. Perhaps a hybrid of the Cosby model is appropriate here: let’s get the drug dealers out of our neighborhoods, but let’s also make our neighborhoods a bad place to sell drugs.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of the forthcoming book “Black American Money”. He does regular commentary on CNN, CBS and NBC. For more information, please visit www.BoyceWatkins.com.

Your Black Money: Financial Crash and Burn 101

FYI to the fam: I am going to be on the Mike Gallagher Show Friday morning at 10:30 am EST. I don't know much about this guy, but apparently, he is one of the top 10 hosts in the country. The show likely comes on in your city (whatever station the conservatives appear on, I don't listen to them). Monday, I am going to do some commentary for The History Channel on Black Leadership. I'll keep you posted on when that is going to come out.

As I work with my Finance students (you are welcome to hang out with us on our blog at www.DrBoyceFinance.wordpress.com), the economy has been on my mind this week. So, I have shared some thoughts on Financial Leadership in the article below. As I've communicated in the past, strong Financial Leadership in the Black community is the most efficient way for us to fulfill Dr. King's dream. Equality will not come from Capitol Hill....it will come when we have Capital to pay the Bills.


Crash and Burn 101: A Finance Professor’s Take on Our Economy
By Dr. Boyce Watkins

www.BoyceWatkins.com

The United States is respected throughout the world for its powerful economy. We are also, unfortunately, becoming known for our arrogance and financial irresponsibility. During my tenure as a Visiting Scholar with the Center for European Economic Research, one of my colleagues could not understand why American consumers earn more than Germans and pay less in taxes, but have savings rates less than 20% of the average German citizen. Basically, there is a degree of irrational overconfidence and financial carelessness that comes from never having to experience a deep recession first hand. This explains why most baby boomers are not ready for retirement, and why young people spend and borrow like drunken sailors.

American consumers aren’t the only pilots in our crashing economic airplane. U.S. Monetary policy, headed by Federal Reserve Chairman Ben Bernanke, is both art and science, and the apparent success of Alan Greenspan has forced any subsequent Fed Chairman to become a Financial Da Vinci. The saddest part of the Greenspan era, however, is that his choices in the 1990s caused major “speculative bubbles” (inflated asset values in homes and stocks) that have started to burst at the end of this decade. Our leaders create and dictate policies that impact the choices of companies and consumers. Financial leadership has taken the American consumer on a frightening ride, and this is only the beginning.

The US economy saw its financial chickens coming home to roost in 2008, as the recent recession and market downturns have been predicted for years. These “financial chickens” included excessive spending by American consumers, mixed with irresponsible borrowing and lending on the part of both individuals and banks. Personal responsibility is thrown out the window when discussing wealthy and so-called “mainstream” Americans, as financial leaders are called upon to bail out the banks, the consumers and everyone else.

The government bailout package for 2008 has, thus far, included a massive spending bill, one that featured tax refunds and support to help consumers keep their homes, even if they were the causes of their own demise. Another set of “financial steroids” being employed have been the strong and consistent cuts of the Federal Funds rate by Federal Reserve Chairman Ben Bernanke. Bernanke has become known as “Bold Ben” by members of the media, who are consistently stunned by the Chairman’s massive and powerful attempts to control the economic downturn. The latest moves have included the $85 Billion dollar bailout of AIG, an insurance company that has apparently been deemed “too large to fail”. If only our government had the same compassion for the thousands of small businesses across America struggling to find capital to meet short-term financing needs.

Republicans, known for being fiscally responsible, have created budget deficits our country has never seen. Between the Iraq War and the 2008 recession, spending continues to go up, even when tax revenues are expected to go down. The ready availability of additional government borrowing to support our massive spending bills has our financial leaders behaving like teenagers in possession of a “really awesome” American Express card. Like the “blinged out” athlete who thinks his wallet will never be empty, our country may wake up to a grave financial nightmare.

Continuously cutting interest rates may provide additional stimulation to the economy, but the problem is that cutting interest rates, allowing the value of the dollar to slide and frivolous government spending is a recipe for serious, horrific and uncontrollable inflation. Inflation is a Pandora’s Box that doesn’t close nearly as easily as it opens. You think the economy is bad now, you haven’t seen how bad it can get in the face of stagflation (a declining economy with out of control inflation). It’s hard not to feel that “Bold Ben” and “Big Bad Bush” aren’t gambling with our children’s futures and current taxpayer resources.

Sometimes, when you party too hard, you are forced to deal with the hangover. Americans have been blessed with a financial celebration that has lasted over a decade. For the past 15 years, we drank straight out of the liquor bottle and danced with lamp shades on our heads: not saving effectively, spending like crazy and borrowing to cover our financial insanity. But rather than simply allowing the party to end and letting everyone sober up, our financial leadership has taken on the irresponsible behavioral norms of American consumers. Their excessive rate cuts and spending increases have kept us pumped up on Financial Dope in order to avoid the impending crash.

This is not solid financial leadership, and something has GOT to give. Hopefully our leaders will get it.



Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good.” He is a regular commentator in national media, including CNN, CBS, NBC, BET and ESPN. For more information, please visit www.BoyceWatkins.net or DrBoyceFinance.Wordpress.com.

Why So Serious Son? Is Risky China the Joker or the Hero in the Anxious Quest for Olympic Advertising?

I taught a Financial Theory course at the Shanghai University of Finance and Economics three summers ago. Some Americans perceive China as a horrible place, devoid of human rights, with a machine gun toting policeman standing over every man, woman and child. I found quite the opposite. In some ways, I was more liberated in China than I am anywhere else. My students were polite and less demanding than the externally cold (yet internally warm) Northeastern students I teach in the states, and every meal seemed to cost $2 dollars.

There was also another dimension of the complicated economic soul of this growing country: the dirty skies, the huge wealth disparity, and the fact that every river seemed to smell like a broken toilet on a really bad day. Finally, there’s the politics: I was told to not even say the word “Tibet” when applying for my visa, and I knew that issues in Africa were touchy as well.

Therein lies the multi-billion dollar contradiction that we call China. The Joker/Batman aspect of this country leads to both economic salivation and stomach churning nightmares for any corporate executive looking to take advantage of this growing and powerful market.
The problem with the Olympics in China is that major corporations (and even presidential candidates) can’t miss it. The action and growth are there, as the world scrambles to profit from what will be the largest middle class demographic in the world within just a few years. The Olympics is a “can’t miss” advertising event for several reasons.

First, the fragmentation of media reduces the opportunities to hit really large audiences. The audience for the Olympics during prime time is right up there with American idol, and it’s all yours for a mere $750,000 per 30 second spot (not quite lunch money, but you get the point).
Second, you don’t find an audience of this quality every day. Olympic viewers in the US tend to be wealthier and more highly educated than a typical television audience. With NBC committing to over 3,000 hours of coverage, you’ve got a lot of opportunities to hit your market.
Third, companies who advertise during the Olympics are considered to be innovative and ground breaking trend-setters, much better than their petty competition. Who doesn’t want to be ground breaking?

Sounds like a dream, right? Not so fast.

While every Batman has a Joker, China has not proven which one it actually is.
Sure the Olympics are already political. We can even turn our heads sideways and wonder “How does Iraq have a rowing team?” But the problem is that these Olympics and this country are a bit more political than most. In Finance, political risk is just as nasty as other types of risk when it comes to possibly losing your investment.

First, there is the situation in Tibet and that little human rights thing. While terrorism is always an issue at every Olympic gathering, you can’t help but wonder if you should stay home during this one. In fact, China has told many athletes to stay away, including star speed skater and activist Joey Cheek. There are a lot of people angry at China, including many in their home country. It is times like these when the Chinese government is glad to stomp on individual liberties.

Did I mention Darfur genocide? People are angry about China’s role in that too. The risk for corporate sponsors ranges from the obvious to the subtle. There is the obvious risk that terrorists can steal the spotlight, and at worst, kill some of your customers and employees. There is the subtle risk of those pesky protesters destroying the value of the Olympic brand and venue with which you’ve paid to be associated. Finally, there is the reality that corporations are the Achilles Heel for any controversial organization: the easiest way for a protestor to undermine a government or organization is to hold its corporate sponsors hostage for their desire to financially support an entity accused of being harmful to others.

At the end of “The Dark Knight”, the Joker explains how he and Batman really need each other. Similar to the popular film, the United States needs China. American corporations need China. Business needs to be in the front row of the billion dollar drama across the sea, and they can’t run away from the risk.

Dr. Boyce Watkins is a Finance Professor at Syracuse University. He does regular commentary in national media, including CNN, NBC, ABC and CBS. For more information, please visit www.BoyceWatkins.net.

I'll be Talking Money on Al Jazeera Today

Dr. Boyce Watkins
www.BoyceWatkins.net

It appears that the Federal Reserve is making big moves to prepare for the possible failure of Fannie Mae and Freddie Mac, two major players in the housing market. Treasury Secretary Henry Paulson speaks of using up to $300 Billion dollars to extend a line of credit to these institutions in order to avert their failure.

I'll be discussing our nation's financial irresponsibility on Al Jazeera, an international news network. I like Al Jazeera, it's a great place to give commentary. Al Jazeera viewers exist mostly in Asia, Europe and the Arab world, so it's audience is much bigger than CNN or networks we are familiar with. What I love most about Al Jazeera is that they love me as a financial expert. Most American shows don't consider black men to be financial types, so they only call me when they want to talk about "black stuff". Al Jazeera understands that a financial expert can also have brown skin.

When it comes to the Fed stepping in with billions to bail out irresponsible home buyers who can't afford their mortgages, I don't want to hear A DAMN THING about black male irresponsibility. Again, as I continue to explain, black people are not the only ones who deserve to be lectured by our leaders. I hope Obama hear's this. Holding Obama responsible doesn't mean you hate him. It only means you are holding him to the same standards he is allegedly holding black men....the last thing we need is another black man not wanting to be held accountable (LOL).

If Obama, McCain or anyone else wants to find someone to lecture about irresponsibility, they only need to visit a frat party on a college campus on a Friday night. Perhaps they can find one of the hundreds of thousands of new alcoholics and rapists created in these embarrassing environments. The next time someone talks about kids in hip hop, you can make reference to the drunken frat boy as a counter model. The point is that irresponsibility knows no racial boundaries, so we need to stop thinking that way.

I refuse to accept racial stereotypes or ostracism of black males. It is wrong and unfair, and what's worse is that many black people continue to buy into the notion that we are more flawed than everyone else. Black people, let's learn to love ourselves, ok? We will never be perfect enough to deserve love from those who see black men as less than human. That's just a fact.

Yes, we've got to do better, but if a conversation starts with "This is what's wrong with you", it's not going to get very far with me. I am getting sick of the self-hate and I refuse to accept it.

Black Money Tip: What We Can Learn from Starbucks

I just did an appearance on Al Jazeera International network about the state of the US economy. While there were many issues discussed, one of them involved Starbucks.

Starbucks is the coffee brand that has addicted most of America, and it's just damn good stuff. In fact, right after the interview, I went and got a cup of Starbucks coffee to get me through the rest of the day.

But Starbucks may as well be called "Starwars" because their expansion goals were out of this world. Store locations were being put on nearly every corner in America and all over the world. They seemed to be suffering from what I call the "Krispy Kreme Effect", which makes a firm feel they can do no wrong because their product is so popular.

Well, the Starwars mentality caught up with Starbucks. Over-expansion, along with a sagging economy, caused the stores to be less profitable than expected. Now, Starbucks is scaling back their operations, closing 600 stores and laying off 12,000 employees.

What are the black money lessons we can learn from this? I will put the lessons within the context of small business, since I believe that every black child and adult in America should learn something about owning their own business.

1) Most small businesses in America that fail end up getting buried due to a lack of cash flow. Weakened cash flow tends to come from expanding too far, too fast. A growing company drains resources, the same way a growing child eats more food. Starbucks was, in some ways, becoming a victim of its own success.

2) Wall Street doesn't care a whole lot about whether you dominate the market and it doesn't always care how much money you make. Sure these things matter on some level, but more importantly, Wall Street pays attention to how fast your profits grow and how well that growth matches expectations. Starbucks has become a firm with huge growth expectations, leading to an incredibly and deservedly high stock price. So, people became confused when the firm was earning money hand over fist, yet seeing a 50% reduction in stock price. The reason for this drop in stock price was that while a great deal of money was being made, it was still less than expectations.

To give you an example, imagine Michael Jordan scoring 21 points when he was expected to score 35. There were a lot of points scored, but not what the world expected. Also imagine Jordan hitting only 30% of his shots, when he usually hits 50% of them. In this case, he not only scores fewer points than expected, he is also less efficient.

Wall Street is run by expectations and profitability. It is also focused on the firm's ability to expand in an efficient manner. Starbucks was failing these Wall Street tests on all counts, which is what led to its demise.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of "Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good". For more information, please visit www.BoyceWatkins.net.