"Of Course You Need Money. That's Why They Call It Money!"

The financial mess is troubling. The lack of knowledge of how the American financial system works by the American public is equally appalling-especially for minorities and low-income people. There are many reasons for this and I think blame falls on the system and the people. Access to clear information is a problem, but people have to make it a priority to seek out the information. I think basic personal financial education should be a requirement to graduate high school. The consumerism the United States fashions is part of the problem as well. As a society, especially in the black community, we must look and think about what is really important and what is valuable. I will try to contribute to this conversation and seek out intelligent information.

Here is a synopsis about what is going on:

Investment banks made gambles on bundles of risky mortgage loans.  They packaged these loans into financial instruments (Bonds, etc.) and sold them as investments for banks, municipalities, foreign investors, rich people, and retirement systems. When people could not pay back the risky mortgage loans, the owners of the loans would take back the property, usually at a loss. The loan would default. When the loans defaulted, the bundled financial instruments would not bring any return on the investment for the banks, municipalities, etc. The investment firms were holding financial instruments that became worthless. That is why they failed and the government let some of them (Lehman Brothers) fail. No one wanted to buy them because they had no other profitable businesses (Chase bought Bear Sterns and the government helped because Bear Sterns had some value). All in all this is part of how the free market works, businesses succeeds and businesses fail. The government is involved because of the scale. We are talking about trillions of dollars.

The scary thing is the government bailout of the insurance company AIG. AIG provided insurance for these banks, municipalities etc against this thing happening with these financial instruments. Essentially, with all of these types of financial instruments failing, AIG did the math and realized there could be a run on the insurance companies. AIG did not have the assets to cover all of the policies it was holding. The government had to step if the banks take the losses on these financial instruments or try to re-insure them with other companies, then banks will not lend money to other banks, business, people etc. The cost of insuring or taking the losses would be too much and the flow of money would stop. Moreover, because everything is so intertwined, nobody can really drill down to what exactly makes up these financial instruments or who owns what.

 

This is a very basic synopsis of what is going on. I would suggest these websites to stay informed:

www.bankrate.com-The best consumer finance website. The have education modules for all of your personal financial needs.

www.thebigmoney.com-Slate.com's new offspring dedicated to finance and economic news and issues.

www.smartmoney.com-This is the Wall Street Journal personal finance website and magazine. Good stuff and very helpful with breaking down the macro to the micro.

www.wsj.com-Still the standard for financial journalism. They cover everything. There is a premium charge for complete access to the site. Hey, I'm an MBA so I have to have it.

www.economist.com-For the world view on the U.S., this magazine is great. Plus you can get information on the world markets.

www.blackenterprise.com-This might be the best written magazine for African-Americans. The website is very informative.

If you really get into this stuff, there are thousands of sources for information. I tend to like ready websites or magazines, rather than watch CNBC or other financial networks. The nature of television doesn't let people digest these issues thoroughly in my opinion.  Shout out to Bloomberg media also. There is a reason this guy is a billionaire.