LeBron James opens The LeBron James Clubhouse at an Akron, Ohio Boys & Girls Club on Tuesday (Image: Getty)

• LeBron Restores Boys & Girls Club

On Tuesday, the NBA superstar cut the ribbon to officially open The LeBron James Clubhouse at an Akron Boys & Girls Club, a safe haven for area children that he paid to renovate with $240,000 donated through his family foundation. Back home in Ohio and surrounded by family and friends, the Miami Heat forward felt humbled while giving back to his community.

“It’s unbelievable,” he said. “As a kid, this is one of the places we didn’t want to go. But to see the transformation from what this place used to be to what it is now is amazing, and the only reason we’re doing it is for these kids. They are our future.”

Read more at the Washington Post…

• Fed to Hold Rates ‘Exceptionally Low’ Through Mid-2013

The Federal Reserve said Tuesday that it would hold short-term interest rates near zero through mid-2013 to support the faltering economy, but it announced no new measures to further reduce longterm interest rates or otherwise stimulate renewed growth.

Read more at the New York Times…

• Study Shows 64% of Small Businesses Think Social Media Is Unnecessary

Small businesses don’t seem to be swept up in the social media revolution, according to a new study.

Hiscox, a small business insurance provider, polled 304 decision makers for U.S. businesses with between one and 249 employees in June. Of those polled, just 12% considered using social media a “must” for their business. However, 50% of respondents said they couldn’t do without word-of-mouth marketing. Just 4% said the same about social media marketing.

Read more at Mashable…

• An Analysis of the London Riots

The city of London had received a great boost in popularity this year due to the intense media attention and international interest in the royal wedding of Prince William and Kate Middleton, but this week, the world is being reminded that there is another dimension to the pristine and cosmopolitan image of the region. Last Thursday, a 29-year-old Mark Duggan was shot and killed by police. Officers assert that he was armed and dangerous, but many are suspicious about what really happened that night. Days later, those suspicions, racial tension and economics have led to one of the worst riots and outbreaks of violence that London has experienced in over 25 years.

Read more at The Atlanta Post…

Dow, from 1998 to the present

As the Dow Jones Industrial Average powers through the 10,000-point threshold today, millions of investors are no doubt searching for meaning. But, is there any deep significance here?

For a handful of investors and math geeks, the Dow Jones’s index (DJIA) lost its relevance decades ago. Naysayers question why—in an economy as complex as our own—we bother fretting over the ups and downs of just 30 publicly-traded companies. Why not 50? How about 100 companies—or 500 like Standard & Poor’s less popular (but more comprehensive) S&P 500 index. Beyond the narrowness of its scope, there are legions of finance academics who dislike the Dow for its supposed mathematical flaws, including the index’s failure to account for returns investors garner from dividends issued by its component companies. Suffice to say, the Dow has haters. Even so, the DJIA is what we monitor more closely than our blood pressure. It’s what we talk about at parties. It remains the pulse-check of U.S. business.

Dow 10,000 is a familiar milestone. The DJIA pushed through the barrier for the first time in March 1999, propelled by the dot.com bubble’s final surge. For many market-watchers, the milestone was the crowning achievement of the longest bull market run in history. For some stubborn bulls that year, it meant even more: a counterargument to then Federal Reserve Chairman Alan Greenspan’s 1996 warning that the markets were somewhat overvalued—and that there was too much “irrational exuberance” among investors. (Greenspan sounded that alarm, by the way, when the Dow was around 6,300!) Of course, Greenspan was vindicated the next time we all met 10,000—on the way down in 2000.

Ted Parrish

Far be it for today’s investors to be impressed by Dow 10,000—not after we were lifted to the dizzying heights of 14,000 back in 2007. Still, let’s ponder this: the index is hitting 10,000 in the midst of a rally from the March 9, 2008 bottom of 6,547. That’s a pretty resilient surge—and one that fits the historic pattern of financial markets rebounding well before the actual economy recovers from recession.

Is there any irrational exuberance at play? I think so. As I wrote in September, I’m inclined to believe the many experts who sense that this rally is due for a slight pullback this fall or early in 2010. Rather than be a party-pooper, I culled Black Enterprise’s Rolodex for some finance professionals who are more hopeful than myself. I wanted to hear some rationale for the rally blowing past 10,000 and beyond. Ted Parrish, principal and director of investments at Hennsler Financial Group in Kennesaw, Georgia believes this surge has further to go. But he downplays the Dow’s 10,000 breakthrough. “I think the market has forward momentum, and I expect us to get to 11,000 by end of year,” Parrish says. “We have to go up 44% to get back to the high. Those numbers tell you that 10,000 isn’t that important based on where we’ve been. It’s psychologically important but not fundamentally important. We’re down 54% from the top. Hitting the all-time high again is more important.” Parrish says he expects that increasing numbers of companies will report earnings growth in upcoming quarters, powered by projected inventory building and corporate spending increases. “Consumer spending will probably improve too. They will start to loosen those purse strings,” he notes.

Eugene Profit

Eugene Profit, CEO of Profit Investment Management in Silver Spring, Maryland is a bit less giddy about the 10,000 mark. “It’s just a number,” he says. “It’s significant in that we’ve had quite a bounce off the bottom. But if you look at the reason why two-thirds of companies in the S&P exceeded analyst estimates in the third quarter, it was the result of job losses and cost cutting. Unemployment is going over 10%, which is extraordinarily high. It’s not the best economic environment.”

What does that mean for where the Dow goes from here? Says Profit: “We averted the disaster, but I don’t know that this rally is sustainable,” he warns. “It’s still a wait-and-see market. If you start to see companies spend more money in new machinery… I think we’re going to bounce around where we are until you see companies begin to loosen their purse strings. I don’t see a major pullback, but we need to give economic data a chance to catch up to what [stock] prices have done over the last six months.”

So, now that we’re at 10,000 again, should we party like it’s 1999? Probably not. For me, Dow 10,000 will never have the cache it did in the 1990s. Still, it signals investors’ collective need to put the extreme market losses of 2008 and 2009 behind them. In the constant flurry of bad-news numbers we’ve endured over the last few years, we could all use an excuse to celebrate.

John Simons is the senior personal finance editor of Black Enterprise

President Barack Obama revealed Wednesday a series of initiatives that he described as “the most sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.” He outlined the administration’s audacious plan to protect consumers, investors and homebuyers while creating a new structure that would prevent future financial meltdowns.

“A culture of irresponsibility took root from Wall Street to Washington to Main Street. With the reforms we are proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse. We seek to create a framework in which markets can function freely and fairly, without the fragility in which normal business cycles suddenly bring the risk of financial collapse; we want a system that works for businesses and consumers,” Obama asserted in remarks delivered at press conference in the White House framing the program under his “New Foundation” theme.

The planks of the reform call for:

–Creation of the Consumer Financial Protection Agency, a watchdog agency that would regulate consumer lending as well as force lenders to clearly explain loan agreements and offer more “plain vanilla” financial products.

–Expansion of the Federal Reserve’s oversight of all large, interconnected institutions whose failure could jeopardize the financial system. Those firms would be required to meet higher capital and liquidity requirements, and if they are found to pose a risk, the Fed would be authorized to intervene.

–Development of a Financial Service Oversight Council to help fill in the gaps in regulation and identify emerging systemic risks. Replacing the President’s Working Group on Financial Markets, it would be chaired by Treasury and comprised of the heads of other financial regulatory agencies, including the newly-created post of National Bank Supervisor.

–Comprehensive regulation of markets for derivatives, including asset-backed securities and credit default swaps – investment vehicles that were largely cited as one of the leading causes of last year’s implosion of the financial markets.

The President’s financial reform package, which he expects Congress to complete by the end of the year, sparked debate among a number of politicians, economists and experts. Rep. David Scott (D-Georgia), a member of the Congressional Black Caucus who serves on the House Financial Services Committee, believes that the oversight council is the most critical component of the administration’s proposal.

“No one entity can regulate systemic risk because the financial industry is so complex and complicated. This will give us the ability to look around the corners to see what’s coming before it gets on us,” he says. He also urges that the council regularly reports to committees that oversee financial matters as well as Congress as a whole.

One measure met with opposition was formation of the CFPA, which would regulate, among other financial products, mortgages and credit cards. Wayne Abernathy, executive director of Financial Institutions Policy and Regulatory Affairs at the American Bankers Association, maintains that such an agency could actually be more costly to the consumer. If firms are able to offer only a limited number of products, prices will be higher because less risk would be spread across a given lender’s financial offerings.  He also voiced concerned that other financial regulators would not require the same standard of accountability as banking regulators.

Rep. Mel Watt (D-North Carolina), a member of the Congressional Black Caucus that serves on the House Financial Services Committee,  says the CFPA would actually result in fewer costlier products.

“To the extent that firms have been making products that people don’t understand, that they can’t afford to repay, and that are not beneficial to them when they really understand what they do is the agency’s purpose, from my perspective it shouldn’t be a criticism, but a blessing,” says Watt, who supports the creation of the new agency. He does, however, expect some lawmakers to oppose the idea of funding an agency to assume jurisdictions already held by other regulatory bodies.

Congressman Edward Royce (R-California), another member of the House Financial Services Committee, argues that CFPA wouldn’t be necessary if regulators performed their jobs. If not for the current recession, the Bernie Madoff scandal may not have been uncovered even though the SEC investigated the firm eight times during a 16-year period. “If we had effective enforcement of consumer protection in each of these agencies, you could achieve that goal without adding the expense of a separate institution that in many ways is another layer of bureaucracy,” he asserts.

President Barack Obama presents his plan to overhaul the financial regulatory system.

Some lawmakers and experts question the wisdom of expanding the Fed’s authority, maintaining the body should mainly focus on monetary policy. Moreover, they voiced their disappointment with the central bank’s handling of bailouts thus far.

Says Congressman Edward Royce (R-California), a member of the House Financial Services Committee: “In my view, giving [the Fed] that much authority risks diffusing its focus on monetary policy and keeping the dollar stable. I believe the reason some economists are concerned about this particular provision is because they believe it will lead to a loss of strength in the dollar as you morph the Fed’s responsibility into this competing goal. Bailouts create winners and losers in the marketplace when government pull comes into the decision-making process. I’d like to see that removed from the legislation.”

The “too big to fail” concept also troubles Rep. Spencer Bachus (R-Alabama), who maintains that he agrees with 70% of what Obama outlined in his speech. “Whether a company is big or small, it should be allowed to fail,” says Bachus. “I don’t believe in too big to fail because that means too small to save and you’re unbalancing the playing field if people think big corporations have the government standing behind them.”

Brookings Institute fellow Douglas Elliot disagrees. “It’s clear after this crisis, that there are a number of large institutions that are capable of being the domino that starts the rest of the financial institutions to fall over,” he says, “so it’s definitely useful that the Fed and to a lesser extent the FDIC, will have greater authority to deal with troubled institutions, not just in the banking industry but also other related financial institutions,” Congress, which will have to approve any reforms, will almost immediately begin holding committee hearings. Obama is hoping the legislation will be ready for his signature by the end of this year.

Resources:

White Paper: Financial Regulatory Reform

Fact Sheets:

Requiring Strong Supervision And Appropriate Regulation Of All Financial Firms

Strengthening Regulation Of Core Markets And Market Infrastructure

Strengthening Consumer Protection

Providing The Government With Tools To Effectively Manage Failing Institutions

Improving International Regulatory Standards And Cooperation

Though black investment rates have historically trailed whites, the rate of stock ownership by blacks increased to 34% in 2001, up more than 17% from 1992. Those gains have since diminished 12% between 2001 and 2004, according to the study, “The Decrease in Stock Ownership by Minority Households,” which looks at individual stocks and those within a 401(k) and IRA.

“It may be that white investors are more experienced with the stock market, so they are prepared for the inevitable drops,” says Hanna Sherman, a financial planning professor at Ohio State University, referring to the 2001 recession, which scared off many black investors.

The rate of stock ownership among white households increased from 1992 to 2001, topping off at 57.5%.  Unlike minority investors, their investment rate dropped less than a percentage point between 2001 and 2004. What’s more, even after equaling out traditionally higher income levels of whites to that of blacks, whites still invest more than African-Americans.

What’s most startling about the survey are the implications for African American’s ability to create and retain wealth. “If you look at high wealth households of all racial or ethnic groups, they tend to either have a lot of stock investments, their own business, or substantial real estate investments, and many of them have all three,” Sherman says. “It’s very uncommon for people to build wealth unless they have one or more of those three types of investments.”

Hanna conducted the analysis using the Federal Reserve’s triennial “Survey of Consumer Finances”  study which recorded data from 4,000 U.S. households. Though the data reflects the Fed’s 2004 report, the most recent survey at the time, modest gains made in the 2007 survey are unlikely to remain constant given the economic climate. “Based on past patterns, I would suspect that bad economic conditions would probably leave a lot of minority households out of market,” Sherman says.

And according to the 11th annual Ariel/Schwab Black Investor Survey, African Americans are on equal footing with whites when it comes to accessing and enrolling in employer-sponsored defined contribution plans, but save far less each month and have a considerably smaller nest egg than their white counterparts.

The Ariel/Schwab survey found that 62% of higher income blacks own stocks or mutual funds compared with 82% of whites.

“My intuition on that is the lack of experience [of blacks],” Sherman says. “When you’re growing up in terms of people you talk to in church, or the neighborhood, you’re less likely to invest in stocks if those people don’t invest. There’s probably been limited marketing by financial companies to African Americans too,” he adds.

But with millions of Americans abuzz about record high stock prices and the instant millionaires of the dotcom boom, African Americans wasted no time getting in on the action, possibly accounting for the steady growth in stock ownership between 1992 and 2001.

“There were five years [1995 to 1999] when the stock market was essentially giving you about 13% to 20% returns,” says Ed Fulbright, CEO and chairman of Fulbright Financial Consulting PA. “When you see people making money hand over fist, everybody wants to get in,” Fulbright adds.

Though many African Americans may be deterred from entering the highly volatile stock market now, many experts still encourage educated investing. “If your employment is stable, I think the best thing people can do is continue to invest in the stock market,” Fulbright says.

Since the interest rate on most savings account barely beat inflation, investing along with saving would mean a greater financial return.

“If you want to build wealth you have to diversity and accept risk,” says Hanna. “If you’re properly diversified you have the ups and downs but over the long run buying stocks is still best way to build wealth.”

Obama takes his $800 billion recovery package on the road to a town hall in Ft. Myers, Florida.

The Obama administration, Federal Reserve, and FDIC introduce the Consumer and Business Lending Initiative to get credit flowing to businesses and communities. (Photo source: White House)

The Federal Reserve struck a blow for many Americans in this fight when it passed new rules to improve disclosure and prohibit unfair interest rate hikes among card companies in December. Specifically, the new rules will:

–Prohibit banks from imposing interest charges using the “two-cycle” billing method

–Require that consumers receive a reasonable amount of time to make their card payments

–Forbid the use of payment allocation methods that unfairly maximize interest charges

–Give attention to subprime credit cards by limiting the fees that reduce the amount of available credit

Provide consumers protection from unexpected interest charges, including increases in the rate during the first year after account opening and increases in the rate charged on pre-existing credit card balances.

“The revised rules represent the most comprehensive and sweeping reforms ever adopted by the [Federal Reserve] Board for credit card accounts,” Federal Reserve Chairman Ben S. Bernanke said in a statement.  “These protections will allow consumers to access credit on terms that are fair and more easily understood.”

There is one drawback: The new rules don’t go into effect until July 1, 2010.

The rules came about after government research and complaints from 60,000 cardholders. Now that’s democracy in action!

If overdraft services offered by your bank have also been a hassle, let your voice be heard. The Federal Reserve is proposing rules to protect account holders by possibly making institutions obtain customer consent before any overdraft fees or charges are imposed on accounts.

Visit FederalReserve.gov and click “Submit a comment on this proposal” under Regulation E to voice your opinion about your financial institution’s overdraft practices.