01 Oct 2008 Finding Financial Security Through Old-School Wisdom, by B.B. Robinson, Ph.D.

Isn’t it rich when something that was drilled into your head when you were a child starts making perfect sense?

For me, it was Proverbs 4:7 – “Wisdom is the principal thing, therefore get wisdom: and with all thy getting, get understanding.”

During the current economic crisis, this advice is especially relevant.

Black Americans appear to have been disproportionately affected by the subprime loan crisis.  Consider that,  according to a study by the National Community Reinvestment Coalition, subprime mortgage loans were more prevalent than prime loans among blacks in 98.5 percent of 331 metropolitan areas surveyed in 2003.

Why were subprime loans so prevalent?  Where were the warnings?

Passage of the Community Reinvestment Act – which essentially required increased diversity in lending – and other easy money lending policies were catalysts for increased subprime lending.  Motivated by profit, mortgage companies aggressively marketed subprime loans to financially-questionable Americans, black and white, who snapped them up.

Business is about contracts, and subprime mortgages were contracts stacked against the uninitiated and unaware. 

After becoming sick due to the consumption of subprime loans, the nation is now turning to economists for healing.  If economists are supposed to be able to prescribe a cure, why didn’t they warn us about them at the outset?  Specifically, where were the black economists?  Why didn’t they sound the alarm so that black Americans could avoid the subprime loan trap in the first place?   

For many black economists – and white economists for that matter – it was not a case of knowing and not telling.  It was more a case of not realizing the problem until it was too late.

Like other disciplines, economics is compartmentalized.  Unless one specializes in financial economics, one wouldn’t necessarily be familiar with or focusing on developments in the financial markets.  Too many black economists instead specialize in labor economics and focus on employment discrimination. 

These black economists do a lot of getting, but they aren’t getting a balanced understanding.

Subprime mortgages were a creation of the financial sector.  As a member of the National Economic Association, an association of black economists, I know that the number of black financial economists is miniscule.

Black economists missed the warning signs.  Now, who’s responsible for saving those harmed in black America?

How about individual responsibility?  Those in trouble should fend for themselves.  Don’t look for black economists to come to the rescue.  They didn’t in the past, so why expect them now?

Thankfully, there is a means to get out of this crisis.  It’s easy to say, “That stuff is too complicated – only the experts understand it.”  How, then, did the experts learn it?  They either taught themselves or were taught.  But, even with good teachers, it is often better to do your own research and develop your own methods of problem solving.  

The idea that one should not practice on their own behalf  – that is, serve as your own doctor or lawyer – does not necessarily apply to financial matters.  Learn the basics.  Keep to simple practices.  Avoid complex investment schemes such as derivatives and subprime loans unless you completely understand them.

If you follow sound economic and financial principles, you can help solve any financial crisis you may face.

Avoid the “suffering servant,” “victim” and “I-need-an-expert” mentalities.  Endeavor to learn the basics of the financial system, as it will give you a better chance of weathering the storm.  Not only will this course allow you to gain knowledge, but also get you the proper wisdom and understanding necessary to survive and thrive economically.

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B.B. Robinson, Ph.D. is a member of the national advisory council of the black leadership network Project 21.   You can visit his website at www.blackeconomics.org.  Comments may be sent to [email protected].

Published by The National Center for Public Policy Research. Reprints permitted provided source is credited. New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21 or the National Center for Public Policy Research.

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