On September 13, 2016, US Census Bureau released three important yearly reports. The first covers US incomes and the poverty rate, the second reports on health insurance coverage and the third is an alternative poverty measure.
The reports show positive increases in incomes and health coverage between 2014 and 2015. However, since 1999 household incomes have been flat or declining. Incomes are 2.4% below the 1999 peak.
The median household income increased by 5.2% from 53,718 to 56,516. It was the first increase since 2007. Crazy huh? 2007! The report also noted that real median income in 2015 was 1.6% lower than in 2007 and 2.4% lower than 1999. Basically, incomes have stagnated for 16 years.
Black household incomes rose 4.1%, Hispanic family incomes by 6.1% and White incomes by 4.4% during the 2014-2015 period. Asian income did not increase.
Men saw their income increase by 1.5% and women by 2.7% percent.
Poverty and Health Insurance Rate
The poverty rate in 2015 was 13.5%. 43 million people in the US live in poverty. There were 3.5 million fewer people in poverty than in 2014. The 8% drop is the largest drop in the poverty rate since 1999.
The poverty rate for families was 10.4% with 8.6 million families in poverty. The poverty line was defined at $24,257 for a family of four. Again crazy.
The racial break down of people in poverty was as follows:
Number (Million) Rate
Whites 17.8 9.1%
Blacks 10.0 24.1%
Hispanic 12.1 21.4%
Health Insurance Coverage
The number of people without health insurance fell to 9.1% from 10.4%. About 29 million people do not have health insurance.
The information is contained in the two US census reports:
Income and Poverty in the US: 2015
Health Insurance Coverage in the US: 2015
Supplemental Poverty Measure
The Census also released a third report which calculates poverty in a slightly different way. It includes additional benefits from government programs but is more realistic about what people spend money on: Food, Clothing, Shelter, and Utilities. The report is a more accurate and detailed way of measuring poverty in the US.
The Supplemental Poverty Measure:2015 (SPM) calculated a poverty rate of 14.3% with 45.7 million people in poverty.
Thursday, September 29, 2016
Saturday, September 24, 2016
The second richest Black person in the United States is...Robert Smith. Who is Robert Smith ?
Robert Smith is supposed to be worth about $3 billion according to Wikipedia, 2nd to Oprah at $3 billion plus. He recently gave gave $20 million to the African American museum.
Robert Smith is the Founder, Chairman and CEO of Vista Equity Partners. The company uses leveraged buyouts to take over specialized software companies that dominate small, specialized software markets such as auto dealers, event management, fleet management, government compliance, and others. None of the companies are large outside of their specific markets. The only widely known company on the list is TIBCO, a data and interface integration company.
Vista Equity buys and/or invests in niche market software leaders. The company then brings in corporate (conglomerate) benefits such as humans resource management, legal, financial reporting, executive development and consulting while letting individual companies handle development, technology, and growth. Strategically, they are moving their portfolio of software to the cloud model of Software as a Service (SaaS).
Vista Partners is also making a lot of acquisitions lately. They are hoping to benefit from the consolidating software market and reduced competition. They buying market share and wiping out competitors.
The Washington Post had a nice story on Robert Smith. Here.
The Washington Post had a nice story on Robert Smith. Here.
Here is a link to Vista Equity Partners. Robert Smith has famously not put his picture on the web site. He is concerned about driving away business. Vista Equity Partners is on it's fifth round
If you want to better understand how Vista works, I recommend looking at their list of software companies, here, and open positions, here. The opens positions are mostly in sales.
Sunday, September 18, 2016
We support the Bank Black Movement !!! And we are moving some of our money from the local credit union to OneUnited Bank. We have long championed Black Economic Empowerment. Now it is time to do something about it. We hope it is a sign of a larger awakening by Black consumers.
Black consumers spend and estimated between $1.1 and $1.2 trillion dollars a year.
The Bank Black movement started when rapper and activist Killer Mike (Michael Render) gave a radio interview after the killing of Philando Castile and Alton Sterling. During the interview Render called for Black people to withdraw their money from banks and corporations that "don't speak on our behalf."
Here is Killer Mike interview on 107.9 in Atlanta. Call to Bank Black starts at 2:07
Eight thousand people heard Mr. Render, took his advice and opened a bank account at Citizens Trust Bank in Atlanta, GA. The call to action moved an estimated $1 million dollars. Other Black banks have also benefited from the #bankblack movement. Ebony has the story.
There are several Twitter accounts and web site discussing the Bank Black movement.
The mainstream press also likes the idea. There has been a lot of coverage. Here are some sample articles. All are supportive.
The Takeaway: Black Banks could help narrow the wealth gap
Forbes (a conservative view)
Quick History of US Banking since the 1980's
Banking has changed drastically since the 1980s when bank deregulation was passed. Banks could no longer lend to their traditional corporate customers, so they began to seek new customers and charge new fees. Many unprofitable banks went under. Larger banks consolidated into the big four large US banks we have now. The big four control 80% of the US banking market.
In the new, degregulated environment, banks searched for profitability, Some tried sub-prime real estate lending. Other sell investments and insurance. During this time, retail banking exploded and so did the pressure to sell financial products to new customers. Banks shifted to making money from fees and financial products rather than loans. They added or increased fees on account maintenance, overdraft, and ATMs and on debit and credit card use.
Current Bank Environment
Banking today is like any other such mass market consumer business. It is much more like fast food and retailing than traditional banking. The goal is to minimally service the low profit customers using technology and cheap labor while lavishing personal service on high profit customers. Retail banks also use their geographic monopoly to squeeze out competitors. In my small town in New Jersey we have over 10 banks and Chase has three banks with 1/2 a mile.
Banks have another thing is common with fast foods restaurants: low pay. and part-time hours. On, GlassDoor, starting pay was $16.00 for tellers at Chase. The next level job at a bank branch is "Personal Banker." PB's are really salesmen work on low salaries and high incentive sales commission plans. Banks are no longer great places to work. If you want more details, go to GlassDoor, enter Chase, Citibank, Wells Fargo or BOA and read the reviews.
Current Black Bank Environment
There are 24 Black banks in the US according to the FDIC Minority Depository Institutions Program. You can read more about the FDIC program here.
My experience with Black Banks
I have long supported Black banking. The results have been mixed.
I have banked at a number of Black Banks over the years. I have used Citizens Trust Bank, Industrial Bank, City National Bank, Carver Savings Bank, and Amalgamated Bank(Union). And, if I can brag a little bit, one of my ancestors help found the first Black bank, Consolidated Bank and Trust, in Richmond.
However, Black banks have failed to keep up technically with mainstream banks and failed to compete with check cashing and money transfer services. They seem to be one-step behind as competitors, like the RushCard, check-cashing business and Western Union.
Over the years, I have been charged high fees and had limited access to my money at Black banks.. Fees ate up the balance at two locations. And ATM surcharges used to hit me all the time. It was hard to get access to my money or talk to someone at the bank during none working hours.
What do consumer want in a bank ?
Consumer want the traditional bank where the teller knows you along services such as check cashing, easy ATM access, a debit/credit card for electronic payments, low cost banking services, and on-line banking and bill payment. No one expects a free bank with no fees. They do expect reasonable fees.
Investment options are few for Black Banks
In banking, there is a supply side and a demand side. Banks are in the middle trying to make a balance.
Unfortunately, there are limited investment options for Black banks. No bank(Black or otherwise) can hold a full portfolio of mortgages in a community. The number of mortgages would exceed the banks risk/capital ratio. And the loans are too geographically concentrated. Instead bank sell their loan portfolio to other banks. Selling the loan requires the loan meet a certain standard and quality. Many Black home owners do not meet the basic lending criteria. So only by bundling together lots of mortgages can the risk be reduced to meet bank standards
There are also relatively few Black business to invest in. They are concentrated in certain industries such as clothing, restaurants and food service. Those industries are highly risky and unprofitable. Concentration means risk. So even when a Black bank has excess funds to invest, it still may not invest in the Black community.
Hopefully, OneUnited Bank will bring Black banking into the modern age. One United Bank see a market opportunity. One United Bank, is a local and online bank available in all 50 states. They are using the #bankblack movement to increase deposits. The link to OneUnitedBank is below.
EBE proposals for the future of Black banking
1) Recruit top talent and be open to change. Give options to employees and shares to customers.
2) Give long time customers special treatment. Use a CRM to ID "good" customers.
3) Build the brand. Advertise, Marketing and Sell the Black bank brand !!!
4) Tackle check cashing head-on with longer hours
5) Make micro-loans. Make people earn their credit rather than use rating agencies.
6) Give business advice.(Clients can sign a waiver)
7) Look for sub-prime mortgage loans that are really prime
8) Set-up personal banking for sports starts, celebrities, and high net worth individuals
9) Focus on HBUCs and educational loans
I believe in Blacks working together to control their financial future. Black people in the US spend an estimated $1.2 trillion dollars a year. Its obvious we should try to use some of that money to build up the Black community. We support the Bank Black movement.
Tuesday, September 13, 2016
If you want to know where retailing is heading, look at Amazons job postings. Amazon has defined internet retailing in the US and the world for the past 20 years. Their immense profitability means they will continue to denominate.
I was dazzled by the more than 16,000 open positions. The jobs are broken down in 32 different categories. Many are plum jobs in categories you don't see advertised any more such as medical, supply chain management, and quality control. They have 5600 job open in software development. They also have 460 spots in their business intelligence division include 35 jobs for economists.
35 economist positions
Amazon has figured out that economists are the right people to bridge the gap between big data and detailed consumer behavior. They are trained in finding patterns in large and confusing data sets. And Amazon certainly has the data. Their data gathering operation is among the best in the world. The have Pizzabytes of data (a 1 followed by a million zeros made of pepperoni).
If you look at the job postings, the positions for economists are in the area of consumer behavior such as evaluating the success of marketing plans, determine merchandising strategies or forecasting and evaluation.
The jobs pay well. I would guess they pay two or three times what an assistant professor of economics makes when they start their careers. We assume the people at Amazon are smart (and good looking), the data is awesome and the facilities top notch ("hey, it's 6pm, do you want to get some free beer and food in the cafeteria"). How can you beat fairy-tale-data-land,
Well, the good news for the rest of us is that many of the problems the economists might work on at Amazon are boring, and simple and based on selling more stuff. Problems like knowing if Bill, will respond to a 4am coupon on cat toys, or Mandy will abandon her shopping cart after 107 seconds, are not going to lead to great journal articles or books.
Opportunity Costs Wasted
What's concerning is that Amazon may hire a great economist who's work we will never see. Amazon's hiring of economics could lead to a case of opportunity costs wasted. Amazon could scoop up some brilliant Piketty, Friedman or Stiglitz before they construct their initial, core ideas. Before they can discuss and argue with peers, before they can present at conferences or publish. They can deprive the profession of some of it's best thinkers, some of it's "seed corn."
The economic profession is one of the few fields where most of the results are for the public good. We should try and keep it that way.
Airbnb is in the hot seat for facilitating discrimination in the overnight stay marketplace. Many people have complained publicly. An academic study documented discrimination by hosts on Airbnb. Hosts in the study were found to discriminate again customers with African-American names. There was a class actions suit against Airbnb for racial discrimination. The suit claims Airbnb did nothing to correct discrimination by hosts using it platform. And, numerous people posted discrimination stories on twitter at #airbnbwhileblack.
Interestingly, competitors have popped up, such as Innclusive.com, which offer hosts who don’t discriminate.
Airbnb claims they are only a service that links buyers and sellers in a private marketplace. They say they are not subject to anti-discrimination laws.
The federal government prohibits discrimination in public accommodation and faculties under Title II of the Civil Rights Act of 1964. Title II prohibits discrimination based on race, color, religion and national origin in public accommodations (inns, hotels, motels, restaurants, theaters, sporting events and gas stations). There is an exemption for private, owner occupied residences with less than five rooms for rent.
However Airbnb hosts, as private citizens renting private rooms, are not subject to the law. As a result discrimination based on race is widespread.
Airbnb, which fears bad press and possible law suits, has put together a group of lawyers and academics, to make recommendations. The team was led by Laura Murphy from the ACLU and featured Eric Holder, ex- US attorney general. There were also other lawyers and academics. They reported to Brian Chesky, the CEO of Airbnb.
The report was delivered on September 8th, 2016. The full report was not made public, but some of the recommendations appear on the Airbnb web site. The changes include making hosts sign a stronger non-discrimination agreement, reducing the prominence of photos in profiles, allowing booking without host refusal (instant book) and hiring a more diverse workforce. They also created an internal group to handle discrimination complaints and developed anti-bias training sessions for hosts.
Airbnb also claims that their “data science team” will look for “tech tools” to “help enforce their anti-discrimination policy.” Not sure what that means. But it does make you wonder how active they will enforce their new anti-discrimination problem. In fact, Airbnb already has the data to prove discrimination. It could easily look for a racial pattern in host denials.
Airbnb also forces all users to accept “section” 34(see entry below) which restricts class action lawsuits. Class action litigation is an important civil rights tool because it can show a pattern of bias across multiple injured parties rather than the more expensive individual claims.
Overall, it looks like Airbnb is making a half halfhearted attempt at ending discrimination. It looks like a PR campaign. We know it has the data to do way more. It could use it's data to expel blatant racist and thereby publicly send a message to all hosts they will be held to the same standard as title II of the civil rights act.
Airbnb Bad Press
In addition, Airbnb Terms and Policies prohibit class action law-suits
Section 34 of the Airbnb terms and conditions includes the following text.
“You acknowledge and agree that you and Airbnb are each waiving the right to a trial by jury or to participate as a plaintiff or class member in any purported class action lawsuit, class-wide arbitration, private attorney-general action, or any other representative proceeding. Further, unless both you and Airbnb otherwise agree in writing, the arbitrator may not consolidate more than one person's claims, and may not otherwise preside over any form of any class or representative proceeding.”
Sunday, September 4, 2016
Most Middle Class people have one Major Asset: their home. Other people have a car but no home. And it turns out that owning a home is the same as owning a savings account that will make you rich. There, in 10 seconds is the essence of the Black/White wealth divide. More White people own more expensive homes in more desirable neighborhoods. And smaller relative percentage of Black people own fewer homes in less desirable locations which are worth less.
Which leads to today's topic, how to own a home (or how to get rich)
People ask me how to get rich all the time. And I say the same thing: "Invest in Real Estate" but I warn them that it takes a long time, it's boring and it's defined by racial and class segregation. Cars on the other hand are fun. They just won't make you rich. But real estate is almost always worth more than what the buyer paid for it. Real estate is the best way to build Black wealth.
Black wealth (or the lack there of) has been the subject of several stories over the past year. All lead to the same conclusion, Black people take a hit financial for living in Black neighborhoods. They all mention lower valuations and growth rates and higher foreclosure rates. They never cover the hyper-segregation of Black people in residential neighborhoods in the US. I live in NJ and can count about 30 or less integrated communities on paper out of about 650 municipalities. Jersey City is a good example. The White, Black, Hispanic (multiple) and Indian communities don't really interact. But on paper, it's integrated.
In 2013, Pew Research says: The average White family has a median net worth of 13 times more than that of the average Black family and 10 times more than the average Hispanic family.
News stories in the media on Black Wealth and Real Estate
There are lots of stories in the popular press.
NPR: For The Black Middle Class, Housing Crisis And History Collude To Dash Dreams
Forbes: The Racial Wealth Gap: Why A Typical White Household Has 16 Times The Wealth Of A Black One
More in depth news stories are available here
Pew Research: Wealth inequality has widened along racial, ethnic lines since end of Great Recession
Demos: The Racial Wealth Gap
And, unbelievably, Forbes has some solutions
Forbes: 10 Proposals For Eliminating The Racial Wealth Gap
All the Forbes proposals are standard liberal proposals that require spending money or helping the poor. The current voting majority of Americans basically oppose such programs.
Tools for Building Wealth: Daily Ambition
The key to being rich is daily ambition. It really is just like in the movies: You have to want to be rich. Then you have to make daily sacrifices. Like working a crappy job you don't like to make extra money. Living around people who may not like you. Moving away from your friends and family or studying hard in school.
If you cannot save at least a $1000 dollars a year toward owning real estate, you should look for a better paying job. Or get a second job. You can also look for places to cut back on spending. It can take a long time to build a down payment. And the key to real estate is to build that first down payment. It should take about 5 years of savings to build a down payment on a condo or apartment.
Investment Returns for Education
Education and Real Estate have the best risk to return profile for each dollar invested. Education multiplies you earning potential. Education grants access to more jobs and hiring paying salaries.
Investing in Real Estate
So we are back to Real Estate. Real Estate is one of the lowest risk ways to build wealth.
With real estate, you will definitely get your money back. Real Estate also provides shelter. You are your own landlord and your rent money is going toward your own pocket.
Real Estate is like anything else, the more you know, the better decisions you make. Grab a couple books from the local library or read up on the internet. Make sure to cover the buying and selling process.
Key Strategies for Investing in Real Estate
Buying distressed property / foreclosure, buying a fixer upper or buying a standard home
The location is the most important thing about a house. Location controls everything.
1. Make the right investment. Research locations over and over. How stable is the area. What do the big trends look like. Look for high growth rates, high turnover and population pressures.
2. Buy in up and coming areas with high growth rates.. Consider a fixer upper in the right area.
3. Be prepared to wait while you build equity (usually about 5-7 years before flipping)
4. Leverage one property to acquire additional properties. Pay down mortgage faster to build equity.
5. Keep an eye on taxes. Low tax jurisdictions may have bad services and schools. High tax locals can eat away your profit.
Basically real estate is a waiting game but if you are in the right location you will get a good return on your investment.
Real Life Examples
I know two guys who are millionaires because of real estate. And a third who is not. One bought a condo in Park Slope, Brooklyn, when the area was dicey. It turned around as people could no longer afford Manhattan. The other bought foreclosed properties in Waldorf and La Plata, Maryland and Fredricksburg, Va. He got rich as people expanded out from Washington, DC. Both cities have high growth rates.
The third person lives in Philadelphia and has basically broken even. His property is in North Philadelphia and the greater northeast. Philadelphia has a negative growth rate.
The two millionaires told me to invest in their areas and I did not listen.
Saturday, September 3, 2016
The Washington Post has a story on the descendants of Madam CJ Walker. We have always wondered what happened to Ms. Walker's fortune. Here is some of the story.
Washington Post: Black wealth, racism and the legacy of the legendary Madam C.J. Walker
Washington Post: Black wealth, racism and the legacy of the legendary Madam C.J. Walker
NPR released a story on September 2nd, 2016 on the the large number of foreclosures in Prince Georges Country, MD.
NPR: For The Black Middle Class, Housing Crisis And History Collude To Dash Dreams
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