Monthly Archives: April 2012

HBCU Money™ Business Book Feature – Confessions With Wall Street


A rare behind-the-scenes look at how Wall Street makes money. The book answers questions people affected by the financial crisis have been waiting for, like how the system works and how to fix it in easy-to-understand language. Confidential conversations reveal what went wrong with the mortgage market and what needs to change from insiders themselves. The book bridges the gap between Main Street and Wall Street and outlines practical solutions for the future. This is the first book in this area to to include observations from firsthand insiders rather than just reporters with third-hand accounts.

Want Faster Economic Recovery? Raise The Cost Of Debt


By William A. Foster, IV

A pound of worry won’t pay an ounce of debt. — John Ray

My business school financial theory professor once gave our class the lesson of perfect arbitrage. A perfect arbitrage, requires zero capital investment, and a guaranteed return within a designated time frame. He loved hamburgers so his exampled involved us buying hamburgers at $0.25 with a loan, being able to sell them at a guaranteed set $0.50 which produces a return of 100% minus the cost of the loan, and of course we pocket the difference. While the numbers I just gave you seem inconsequential imagine that you bought $2 million worth of hamburgers. You just made yourself a $4 million dollars then repay the loan of $2 million and still have $2 million in your own pocket. Risk to yourself? Absolutely none. Upside to yourself? 100%. The bank has all the risk (loan) and you have all of the upside because of the guaranteed ability to sale all of  your hamburgers at a profit in short time frame. My professor also said it would be impossible to have a perfect arbitrage because as soon as the market saw the opportunity everyone would flood into it and the economic pressure would essentially undermine the fundamentals of the arbitrage. As the old saying goes “Oh ye, of little faith”.

Currently, the Federal Funds Rate sits in a “range” of 0.00-0.25 percent but most of us realize that range is more for appearance sakes. Banks have been enjoying basically borrowing at these rates and then buying Treasuries, guaranteed government debt paid by Joe and Jane Taxpayer, which for all intents and purposes currently are paying 300 basis points or 3 percent. Arbitrage anyone? Well, yes and no.  Yes, because the banks are doing as my professor described in arbitrage. Borrowing from the Federal Reserve at no risk and then buying a guaranteed return with the Treasuries while pocketing the difference. No, because in theory what is suppose to destroy perfect arbitrage is everyone would rush and create such a demand on money that it would force interest rates back up. However, the Federal Reserve is artificially keeping the interest rates down despite the demand for capital and more importantly not all banks are able to access the Federal Reserve window. This alone keeps the group small and that group gets even smaller when you factor in the political capital that the largest banks use in their influence through their conduits on K Street in Washington.

Ultimately, this creates a problem. As long as banks can get a guaranteed profit spread that keeps up with inflation, which traditionally runs at 3% per annum, then so to does the value of their profits buying power. That means that there is no incentive for banks to lend because the borrowing cost it would typically take for them to secure capital from the Federal Reserve which banks would then loan out to individuals, small business, corporations, and governments is simply not there. Why risk an uncertain thing when you have the sure thing? They would not and not only would not if they even thought about doing so they would have a shareholder revolt on their hands for taking risk when there is absolutely no need. Despite the fact that it is harming the overall economy.

Right now what many people and institutions are facing is a cash flow shortage. They have too many  bills with too many payments and not enough cash flow to meet them. In the past when debt was more expensive a banker would call you up and ask if you wanted to consolidate all your debt and have one payment. This would allow you to start to build savings or pay down the debt faster because more of your money would then be going to principal. Unfortunately, with interest rates so low in order to even get a bank to look your way you need pristine credit. Something that was long since destroyed for the majority of Americans and many of its institutions thanks to the Great Recession.

It seems counter-intuitive to make debt more expensive but simply put until the Federal Reserve raises the cost for banks to borrow they will see no reason to take on risk and let individuals, small business, corporations, or governments borrow. Chairman Bernanke is an academic so I’m sure even he should be able to do the math on this one.  Unfortunately, we are running at a time when the recovery of the banks and the recovery of the economy seems to be inducing policy decisions that run counter to each other so Main Street will continue to suffer.

Mr. Foster is the Interim Executive Director of HBCU Endowment Foundation, sits on the board of directors at the Center for HBCU Media Advocacy, & President of AK, Inc. A former banker & financial analyst who earned his bachelor’s degree in Economics & Finance from Virginia State University as well his master’s degree in Community Development & Urban Planning from Prairie View A&M University. Publishing research on the agriculture economics of food waste as well as writing articles for other African American media outlets.

Recommended Reading For African American Financial Starters


By William A. Foster, IV

The way to wealth is as plain as the way to market. It depends chiefly on two words, industry and frugality; that is, waste neither time nor money, but make the best use of both. Without industry and frugality nothing will do; with them, everything. – Benjamin Franklin

The HISTORY

Capitalism & Slavery by Eric Williams

Comments – This book is tied for one of the most important books I have ever read period with Miseducation of the Negro. It is by far the most important financial book I have ever read. To understand the history of the system you are engaging is vital. One of the most important lessons I came away with in this book is that capital within the capitalist system will always seek to find the cheapest labor.

Black Titan: A.G. Gaston And The Making Of A Black American Millionaire by Carol Jenkins & Elizabeth Hines

Comments – The biography of arguably one of the greatest business men to ever grace America’s soil. His story of entrepreneurship and building of an empire is worth the read. He owned a bank, insurance company, along with  many other businesses, and before his death was proposing an African American owned stock exchange. His rise from humble beginnings that would make many of us blush today gives one a role model of perseverance.

The 3 TYPES OF INCOME

Comments – Robert Kiyosaki explains the three types of income. He is also the author of Rich Dad Poor Dad. A book that is worth reading but there is much of it that must be taken with a grain of salt. Mr. Kiyosaki, while I respect his opinion in a lot of areas of his book, primarily that your house is not an investment, some of his book is a sales job to get you to buy more of his products so reader beware.

The REALITY

The median net worth for African Americans is $2,170.

The median net worth for European Americans is $97,860

And more can be found here in Men Lie, Women Lie – Numbers Don’t: The Financial State of African America

https://hbcumoney.com/2012/02/13/financialstate-aa/

Black Is entitled STOP: African Americans should NOT be maxing out their 401(k) http://www.blackisonline.com/?p=1986&preview=true

The TECHNICAL

Security Analysis by Benjamin Graham & David Dodd

Comments – This one will put your mettle to the test. Its long. Its boring. Its fundamental. Its imperative. Benjamin Graham was Warren Buffett’s teacher and that alone makes it a must read. Beyond that this book will provide the discipline needed to make you understand the need for long-term value investing and not subject to the whims of the ups and downs of the daily market.

Common Stocks & Uncommon Profits by Philip A. Fisher

Comments – If Warren Buffett is known as the greatest value investor of all-time then Philip Fisher is arguably the greatest growth investor of all-time. Again, focused on long-term investing but this time in growth companies. Mr. Fisher did not believe in diversification investing but finding a few (7 to 10) really good stocks and being dedicated to them over the long-term.

The WEBSITES

These are websites that I check with some frequency on a weekly if not daily basis. Now while I wouldn’t expect anyone to check them at the rate I do these are websites that should at least find your eyeballs at least once a month. Also check newspapers from around the world. This is important because you want to start to see trends. The reality is that geopolitical and geoeconomical events can echo strongly into financial markets at times. No, reading CNN is not enough. You want to read events from others point of view about the world. CNN gives you the world view from European America’s perch. Understanding the difference can and will give you an edge when examining your company if it has a multinational operation.

http://www.hbcumoney.com

http://www.bloomberg.com

http://www.fool.com

finance.yahoo.com

http://www.techcrunch.com

http://www.landreport.com

http://www.foreignpolicy.com

http://www.world-newspapers.com

http://www.tiger21.com

This is just the start of a long road of wealth building but a foundation to begin you on your way. All of these avenues will potentially lead you to other avenues of information. Don’t invest in isolation either. Conversations about companies and their long-term potential with other investors can help you see things you might miss.

MOST importantly – SHARE this information with your family, friends, and community.

Make more money than you spend and don’t spend that much.

Mr. Foster is the Interim Executive Director of HBCU Endowment Foundation, sits on the board of directors at the Center for HBCU Media Advocacy, & President of AK, Inc. A former banker & financial analyst who earned his bachelor’s degree in Economics & Finance from Virginia State University as well his master’s degree in Community Development & Urban Planning from Prairie View A&M University. Publishing research on the agriculture economics of food waste, full-time contributor at HBCU Money, and guest contributor for a number of African American media outlets.

HBCU Money™ B-School: Foreign Exchange Market (FX)


The foreign exchange market or forex market as it is often called is the market in which currencies are traded. Currency Trading is the world’s largest market consisting of almost trillion in daily volume and as investors learn more and become more interested, the market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets. In addition, there is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter. Unlike the stock market, this decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to pass that on to their clients. The spot currency market is open twenty-four hours a day, five days a week, with currencies being traded around the world in all of the major financial centers.

Learn more about at http://www.gocurrency.com/articles/forex-for-beginners.htm

All About The Foreign Exchange Market In The United States http://www.newyorkfed.org/education/addpub/usfxm/

HBCU Money™ Business Book Feature – Outliers: The Story of Success


In this stunning new book, Malcolm Gladwell takes us on an intellectual journey through the world of “outliers”–the best and the brightest, the most famous and the most successful. He asks the question: what makes high-achievers different?

His answer is that we pay too much attention to what successful people are like, and too little attention to where they are from: that is, their culture, their family, their generation, and the idiosyncratic experiences of their upbringing. Along the way he explains the secrets of software billionaires, what it takes to be a great soccer player, why Asians are good at math, and what made the Beatles the greatest rock band.

Brilliant and entertaining, Outliers is a landmark work that will simultaneously delight and illuminate.