Obama's 'trickle-down' financial reform overlooks African-Americans
OPINION - In other words, our ships can't rise with the tide, because some of these ships are not even in the economic water....
I listened in on a White House conference call today being hosted by Dr. Cecilia Rouse, a member of the White House Council of Economic Advisors. I agreed with the reasons for the call, given that African-Americans have been hit the hardest by the economic crisis. Some might argue that we have the most to gain if the financial reforms are actually passed. I agree with that assessment.
One of the biggest motivations for reforming the financial system is the concept of “moral hazard,” which argues that banks who will be bailed out by the government have no reason to properly manage risk. A bank that is “too big to fail” effectively holds the financial system hostage, since government refusal to bail the bank out can lead to even more devastation to the system.
Obama wants to put a cap on the size of banks, as well as the risks that banks can take. He also wants to engage in the very natural act of supervising complex transactions taken on by banks, to make sure they’re on the up and up. The recent SEC investigation of Goldman Sachs appears to be an ironically convenient time for the White House to start rolling out its reforms, since anti-Wall Street sentiment is incredibly high.
WATCH OBAMA’S ADDRESS ON FINANCIAL REFORM HERE:
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But that’s not why I wanted to listen to what Dr. Rouse had to say. My curiosity came from the fact that African-Americans are the most victimized in America by payday lending schemes and predatory loans. We pay higher interest rates than everyone else, and have had entire communities destroyed by foreclosure. According to Dr. Rouse, 57 percent of all home loans taken out by African Americans in 2006 are at risk of foreclosure. My grandfather was among the victims, losing the home he’d lived in for over 40 years.
If I was irked by any part of the conversation, it was that we seem to always go back to this “rising tide will raise all ships,” idea of governing the African-American community. This idea argues that if the president helps all Americans, he will be helping African-Americans. It effectively says, “I won’t give you a ride to your neighborhood, but you can ride in the back seat while I drive these other people around, and maybe we’ll go by your daddy’s house.” The concept of “rising tides raising ships” is as flawed as “trickle down economics” during the Reagan administration (when Reagan felt that helping corporations would automatically help the workers, which wasn’t true).
Obama’s version of “trickle down domestic policy” for African-Americans can be frustrating for people of color who clearly see that we have unique needs that must be addressed. The “Obama trickle down” doesn’t work for those who’ve been marginalized from the economic mainstream of America. In other words, our ships can’t rise with the tide, because some of these ships are not even in the economic water. As I listened to Dr. Rouse dodge the poignant question about Rep. Maxine Waters’ interest in establishing an Office of Minority Affairs, I started to feel that the PhD was feeding us just a little bit of BS. But hey, she’s a politician, so she can’t always tell us what she’s actually thinking.
I am not a politician, just a black finance professor. So I will do my best to give you what I perceive to be the truth. With that said, here is what I hope to see in Obama’s financial reforms:
1) Black folks need to be made part of the mainstream economic system: Every American should be able to get a bank account. We should not have to worry about the bank checking our credit score and deciding that we don’t deserve the right to keep our money in a safe place. A credit score has almost nothing to do with your ability to manage a savings or checking account, and if there is any additional risk imposed by low credit scores, that risk can be managed by controlling how the consumer accesses his/her funds. Russell Simmons’ “Rush Card” manages this risk by limiting the amount of money you can withdraw. A hip hop mogul should not be replacing services that should come from established financial institutions.
2) We must find a way to help people stay in their homes: I receive regular emails from Your Black World Coalition members who can’t get their banks to help them renegotiate their mortgages. African Americans are hit with the double-whammy of high unemployment and massive attacks by predatory lenders. We need relief: Not just the “rising tide” relief that hasn’t worked, but targeted relief that manages our unique challenges.
3) Financial literacy should be taught in the school system: Dr. Rouse mentioned that financial literacy efforts would be undertaken by the administration. I applaud this move, since financial literacy is woefully inadequate for millions of Americans. When asked exactly how these literacy efforts would be implemented, Dr. Rouse didn’t seem to have a clear answer. Let me make a suggestion: Put it in the school system. I am not sure why we force our kids to read old English textbooks that they can’t even understand, but don’t teach them how to buy a home or balance a checkbook. Those who are financially illiterate make the best prey for predatory bankers.
4) African-Americans should receive support to become homeowners: Less than half of all African-Americans own their own homes, compared to 74 percent of whites. This is an important part of the wealth gap between blacks and whites, since most Americans build the bulk of their wealth through home ownership. While short-term reform is important, our long-term objective should be to look economic inequality squarely in the eye and do something about it.
Let’s be clear: Dr. Rouse wasn’t given much to sell to African-Americans in terms of targeted policy. That has become the norm from a White House that doesn’t seem to want to use the words “black people” in public. But they are correct that financial reform might be necessary. The reality is that the White House is probably not going to do much for us, so we need a community-based plan of action. That plan will consist of a strong black agenda being presented to the president, as well as gaining additional financial literacy to protect ourselves from economic predators.
The banks will always try to make money from us, and the beast of capitalism will continue to exploit the poor and uneducated. Neither Obama, nor anyone else, can do anything about that. We must get this done ourselves.
Dr. Boyce Watkins is the founder of the Your Black World Coalition and the initiator of the National Conversation on Race. For more information, please visit BoyceWatkins.com>
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