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There has been a great deal of discussion on the Banking bailout. Many of the details have been smeared by politics and cloud the real problem. As an expert in business administration and how our fiscal systems work, I feel obligated to add a few words to clarify all the oratory we’re hearing. Here’s the part that the average American should be aware of: What this means to you…
CREDIT CRISIS DEFINED The banks are out of lendable cash! Either banks are in the red because customers are defaulting at a rate higher than the bank can stand….the banks have money to lend, but are afraid to lend because the risk of loss is too high…or…bank investors are withdrawing/ withholding money . No matter the situation, the ability to get credit is grinding to a halt. HOW A CREDIT CRISIS COULD CAUSE CHAOS/ DEPRESSION Let’s start with the basic needs. Many farmers in the US borrow the seed money (literally) to buy corn, wheat, grains, etc. If they cannot get loans…they will not be able to plant crops. In turn only folks with cash on hand will be able to get seeds into the ground and crops to the market place. As a result of low supply, the price of basic food stuff may see out of control inflation. Next, most businesses in the US operate on accounts payable/accounts receivable: credit. Much of the money that keeps these accounts moving come from bank loans. And as mentioned, the banks do not have the money to lend….thereby is no money to pay on these accounts. Companies that have no money coming in from folks who owe them money will be forced to lay off workers. This domino process of can’t get money--can’t pay creditors-- forces to lay folks off… could potentially have catastrophic effects on job rates. MILLIONS WILL BE WITHOUT JOBS: NO MONEY! The residuals from joblessness will be higher crime rates, more foreclosures, homelessness, and hopelessness…dyer straights for many. As these systems fail, the stockholders/ stock trader lose the value of their portfolios e.g. your 401K tanks. You will be left with no money in the bank, no job, no home, and little if any investment money to survive. THE BAILOUT Now I’m not going to tell you that the $700B bailout is perfect or that it will work. What I can tell you however is that if the credit markets are not restarted the cost will be far higher that $700B. History tells us that African-Americans are far more likely to be at the front of the line of those disenfranchised and at the end of the line for those to recover. Of all groups in America, we need to fully understand the proposal. We must understand what to do in the interim and how we will fare if this does or doesn’t work. I hope this helps you better understand what these politicians are trying to tell us. If you don’t know what you should do…when, where, why, and how…I’ve started a BIA investment club and these topics and others will be discussed there. BIA Investment Club As Always, I invite your comments and further clarification on this “MOST IMPORTANT TOPIC OF OUR LIFETIME!
Posted By: Dr. Ahmad Glover
Thursday, September 25th 2008 at 10:54AM
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Please. The idiots got themselves in this position and they know my money will bail them out. Let me default on any bill I owe and they say oh well. I am tired of making excuses for white men (wall street). They messed up, let them solve it. We should have a choice. Thay have not said I can have my tax money back to buy myself a house, but since I messed up your money, give me more to fix it. Brother please....And I thought you were intelligent.
Thursday, September 25th 2008 at 11:56AM
Justin Tomlinson
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I appreciate how you broke it down, thank you.
Thursday, September 25th 2008 at 12:07PM
Vanessa Humphries
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Justin,
Take the emotion out of this. I haven’t challenged your mental prowess. Please don’t disrespect me for giving info…
I agree that Wall Street and banks overextended themselves. I also agree that this same behavior would not be allowed by the average consumer. The problem is that their (creditors) over extension will effect your life in ways you may not have considered. You can either give up some tax money now to try to stave off a complete collapse of the credit markets or you can point fingers and watch as millions become unemployed, broke, and homeless. And I would bet…that far more percentages of Blacks than Whites will be victims of this crisis.
This is not a blog about who screwed up. The Blog seeks to get black folks out of the dark and talking about "the white man". Please know that if this deal does not happen...you...me...we will potentially lose a great deal of money. For those of us who are not in the know…we may lose all the money that we’ve worked for up until this point.
Thursday, September 25th 2008 at 12:09PM
Dr. Ahmad Glover
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Great post Dr. Glover ! I dont always comment on your blogs but I do read them all. I always walk away with feeling like I have a brand new insight , weather I agree or not. Bro. Justin I feel you too! But I think this post was a clarification, not an excuse.
Thursday, September 25th 2008 at 12:13PM
Ed King
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So if I understand it correctly, my brother, and this is definitely in the spirit of healthy debate, I either give them half my paycheck now or two-thirds later. So they have me by my proverbial testosterone. Did I spell that right? And this is the government you defend. You want to have an investment club right? How about we invest in ourselves and then we wouldn't have these problems. Just something to marinate on. I understand the few of us that do have stock investments will have problems. But is that the masses of us or just your talented tenth? Let us say no and use this opportunity to invest in ourselves. Again, I enjoy our discussion my brother.
Thursday, September 25th 2008 at 12:38PM
Justin Tomlinson
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Let us all be real. The white house and capital were built by african slaves.....
on land stolen from natives. we are witnessing the death throes of the civilization that succeeded on not paying for labor or land... I say all praises due to god.
Thursday, September 25th 2008 at 12:51PM
robert powell
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Thanks for the enlightening.
Thursday, September 25th 2008 at 1:00PM
Benny Douglas
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Justin,
The issue is either give up half our paychecks now or have no job...no money...be homeless...and last in line for recovery later.
OBTW our financial collapse will have global affects.Specifically, Africa will suffer worst. There will be no us to invest in...there will ne no access to money!
The investment club will show our people the companies that are somewhat recession/ depression proof. For example...I consult for a major company this is making record profit during this recession. These are the companies/ owners that hold the capital that bank need in order to lend. The club will show BIA investors where big money decision makers are moving to next....well before day traders have a clue. We will learn why decisions are made and know where to place the few pennies we have left...to grow dollars.
Thursday, September 25th 2008 at 1:02PM
Dr. Ahmad Glover
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Folks...my post is an attempt to keep us from getting lost/ caught-up in the TV spin. We are often used as pawns because few take the time to break down the issues for us.
There will be plenty of time to debate who burned down your house...when they set their own house ablaze. For right now the issue is how to put out the fire and keep it from spreading to the joint store house that we all need to survive.
Thursday, September 25th 2008 at 1:13PM
Dr. Ahmad Glover
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Peace Brother
This American system is terrible and it's going to fail they will create 700 billion dollars. Where is the money comming from, China, Saudia Arabia, Russia? The money that the federal reserve prints up is not backed by anything not gold or silver, so oil is bought using dollars what will happen if that changes to the euro? can you say recession or white people jumping out of windows again? Remember the Hon. Elijah Muhammad said The Fall of America. When they took America off the Gold and Sliver standard. They made America weaker and right for destruction.
Thursday, September 25th 2008 at 1:20PM
Maurice Muhammad
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Brother Tomlinson's initial comment was acceptable up to the point of his final sentence "And I thought you were intelligent." Keeping our thoughts and words in higher order is necessary during these very emotional times. We should strive for above board feedback as taking the lower ground is often ego's first path. This is all very healthy...we live and we learn. Vote Obama!
Thursday, September 25th 2008 at 1:26PM
Nzingha Asantewa Ali
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Nzingha,
I fully expect folks to get a lot more emotional as the reality of an American credit crisis begins to hit home...
Thursday, September 25th 2008 at 1:41PM
Dr. Ahmad Glover
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Doc you are doin' a fine job. You are absolutely on point with do something now or have no jobs...
I think this is no time to be talkin' about the 'man' afterall we all have to survive and this is no time for me me attitudes. When times are tough, we have to do what we can to help not only ourselves but others including family, relatives, friends.
Carpooling to jobs if we still have them, joining in together to buy gas, and food if necessary. Something needs to be done regardless and soon whether we like it or yes. Guess what there are still a lot of lay--offs coming down the pipe.
Thursday, September 25th 2008 at 6:58PM
Jen Fad
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Dr. Glover I completely understand what you're saying. I agree that it sucks that we have to pay for someone's mistakes but if we don't the economy will fail. We don't need another recession. It's about doing what needs to be done.
Thursday, September 25th 2008 at 7:02PM
Steven Jones
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Like most of you...I wish we were not at current junction in the road...but we are. As a people we would do well to have a plan of action as things gets worse.
I love the carpool and splitting gas payment options. You may want to invite family members who are struggling to move in (short term) to get you both through this rough patch that's coming...
Thursday, September 25th 2008 at 7:20PM
Dr. Ahmad Glover
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i am encouraging everyone to look into doing their own home-based business to create income. it seems like nobody understands how much they can use technology to create income. our country was built on the concept to own your own and not only work for someone else.
i'm working from home now to create part-time income and the potential for residual full-time income is here and not at my job.
we all have got to learn that working 9-5 will never create a large enough income.
Thursday, September 25th 2008 at 7:26PM
stephen futado
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I too would like to thank Dr. Glover for the insite and breaking the situation down. It dosen't matter if we agree with the situation or not, it will affect all of us one way or another.
Thursday, September 25th 2008 at 10:52PM
Willie Deadwyler
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If I stole $700 billion dollars from you would you lend me $700 billion more to pay you back-- "The Wall street Boyz" expect the american public to do just that--you outlined that the banking system has no lending money and as a result farmers and businesses will fail thus effecting overall society and especially minorities--Where has all the lending money gone to??? we have been robbed by the white collar elite and they expect us to kick up more funds to replenish the stolen lending money and they want $700 billion without taking salary cuts--are we crazy--let the chips fall where they may--the famer who can't plant will be replaced with one who can--and the company who needs to borrow to pay his bills he too can file bankruptcy and will be replaced with a company that pays their bills without borrowing--the bail out is a sell out--"the Wall street rip-off"... "the Big heist" without gunz--I say no to a bail out--we need to start a federal banking system overseen by the government so our money and investment will be guarantee and we can stop all the stealing that is going on by the Wall Street pirates dressed in $1,000.00 suits----Holla--
Thursday, September 25th 2008 at 10:56PM
john mitchell
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Dr.
Honestly I appreciate this blog more than your Gut Checks. For those of us that actually rely on the governemnt for our income to understand even a minor portion if their thought process is helpful. All I want to know is how this plan will allow those people you are facing foreclosure keep their house, and those that lost their homes due to the ARM situation get a change to get a "NO FAULT" mortgage based upon what they really can afford.
Friday, September 26th 2008 at 9:09AM
GREGORY GULLEY
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Greg,
Here’s the banking gut check. The system works on smokes and mirrors. There is nothing backing the money other than debt. The more folks owe…the more money there is available to lend: sounds goofy but it’s true. The one thing that can bring the system to its knees is a “run on the banks”. In the 1930s that happened when folks showed up at the doors and demanded their money. Without enough capital in the vaults to lend against, banks tanked. Today that’s happening when folks default on loans and banks are left with bad paper that they cannot lend against.
Until the bad debt gets moved out of the system…banks cannot lend money. That means all the things that are needed to restart the system and/or get the home owner into a no fault loan are on hold: there is no money in the vault to lend against. Once the system starts back up…there are a host of things that can help people who lost their property get restarted.
I would expect to see the FICO system redone. In a few years…I’m sure this period of time in our history will get weighted to have less of an effect on your ability to get a loan.
But for now…something has to be done or our global monetary systems will fail: 401Ks, Bonds, Stocks, Savings, CDs, trade, GDP, Home Ownership, inflation, Supply/demand (turned upside down), college loans, vehicle purchases…complete chaos.
Friday, September 26th 2008 at 9:27AM
Dr. Ahmad Glover
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MJ,
I fully agree. People are like a virus. We will suck the system dry if not put in check. A stop on short sales is absolutely needed. Until we get the system stabilized…there should be no ability to make money from loss.
Friday, September 26th 2008 at 9:37AM
Dr. Ahmad Glover
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All these views are probably right..I bemoan that I don't have the $170,000 I blew in 2005 or even a portion left to invest!!Shopping in a depressed market is wonderful!! Ability to make money from other's suffering? I believe that has alwasy been as American as apple pie..all of this gloom and doom on the media networks, where it is obvious that the talking heads, don't know is going on!! I do not see the glass as half empty..401Ks have been protected..and the big boys will come up with the "ultimate capitalist marketing tool" to take the direction they were planning in the first place. What does all this mean to us? Get money..
Friday, September 26th 2008 at 11:59AM
Marta Fernandez
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Doc,
Appreciate the Bailout for dummies!!!! Business isnt where I make what money I do mak, so TRUST me I've read all these comments and maybe Steve Harvey's show this week was right... just buy a mattress and but your money there... Just kidding...
Friday, September 26th 2008 at 12:59PM
GREGORY GULLEY
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Here is a real life excerpt from a Washington Post article that spells out in practical terms how this bailout solution affects you -- The American taxpayer.
The American taxpayers own Yellowstone, Yosemite, the Grand Canyon, dozens of parks, monuments, wildlife refuges, forests, pastureland, government complexes and historic sites. And now, for all intents and purposes, the American people are the major stakeholders in a little townhouse at 14746 Barksdale St. in Dale City.
The titular owner is Fannie Mae, which the U.S. government effectively subsumed this month, though the legal machinations are still ongoing. With the Treasury backing Fannie Mae, taxpayers have a huge interest in the fate of the mortgage giant's assets. They include the 1,296-square-foot, two-level, three-bedroom, 1 1/2 -bath house on Barksdale.
The most recent owner, Phyllis High Jones, refinanced the house through Countrywide Home Loans in 2006, taking out a $208,000 mortgage that would gradually inflate to $226,000. That same year, Fannie Mae bought the loan from Countrywide. Then the housing market collapsed in Prince William County. Jones defaulted this year. The townhouse went up for auction, but there were no takers. Fannie Mae had no choice but to become the buyer of record -- sale price $226,000.
This summer, Fannie Mae tried to sell the townhouse for $149,000. Still no reasonable offers.
The price has now been lowered to $69,900.
Although this modest townhouse is just one tiny entry on the vast balance sheet of the mortgage industry, it offers a glimpse of how a chain of bad decisions, some made by ordinary people, some by overly aggressive lenders, some by huge financial and mortgage companies, have created a historic meltdown in the housing market that imperils the U.S. economy and has led to a frantic bailout effort by the government.
At the base of this vast financial pyramid are actual bricks and mortar -- tangible assets in the form of houses and c*ndominiums. The fate of these properties is now a public concern. No tenant? Roof leaking? Graffiti scrawled on the exterior? Or has someone tended to the house with love and care? Will the mortgage companies drive a good bargain, or perhaps hang onto the property and rent it until the market recovers?
These sorts of issues could ultimately increase or decrease the losses incurred by the Treasury. In some sunny scenarios, the government could turn a profit.
In the past, housing misfortunes affected individual people, individual banks, individual investors. In the new era, everyone is in this together.
Monday, September 29th 2008 at 12:59AM
Roger E Madison Jr
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Thanks Dr Glover for your explanantion and thanks 2 everyone who provided insight. This actually educated me further on the state of things as of today. I had an idea of what was going on but now I'm better educated and I can pass this information along.
As for the comment made about black people being the last to recover, we are going 2 be the last regardless in my opinion. The last in the recovery and the last to get help with the new bailout law. Banks scrutinize us more anyhow because we are black. This is further evidence that we need to really build up the black business infrastructure if u will.
Friday, October 3rd 2008 at 7:04PM
Roland Jenkins
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Why is the only time "MAYBE" is used, it is related the talking about the tax payers and not those who will receive these $___ billions ?
Why will all of the things provided to protect/benefit the tax payers will O-N-L-Y begin after every person envolved in this matter's present term in office is up?
Does anyone besides me have a problem with this as a cure all against the average truck driver not being able to buy gas or the nonexistance Middle Class/non jobs /daily loss of jobs paying even MORE in taxes by next April, 15th?????!!!!!?
Thursday, April 10th 2014 at 6:47PM
ROBINSON IRMA
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Oh, by the way Dr. Glover, I said all of the above to put emphasis on these three quotes:
1. Ron Paul 's, " Every empire falls when it can no longer afford to support itself". I doubt if he was talking about any:race. s*x or creed within that empire/American soil.
2. Chris Rock's,"If anyone knows broke it is the Black folk". "..and,If McCain loose six homes he will still have a home to live in, but Obama only has one home".
3. As for my quote, it is that one day my grandchildren will be able to tell their grandchildren what a major role they played in making America a better place for them to live in by what they did to help save our people from the misguided social /job conditions America was in when they were their age.Much like my self, I can say what "I did" to help bring about change, not how I took for granted what someone else did!
Thursday, April 10th 2014 at 6:47PM
ROBINSON IRMA
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