April 6th, 2006

Brad @ Burning Man

Stocks, (Barry) Bonds, and Real Estate

When the book Game of Shadows came out, the major revelation was not that Barry Bonds took steroids. As The Onion pointed out, that was obvious to anybody who had eyes. Workouts don't do to your body what happened to him in so little time, and everybody knew it. Nor was the major revelation that he was caught, dead to rights, and guilty as sin, including guilty of perjury. We've known that since his suppliers at the Bay Area Laboratory Company, BALCO, started cutting plea deals. Nonetheless, there almost accidentally was one actual revelation in the book, so far as I can tell from the news coverage of it. For the first time, we have multiple eyewitnesses who've come forward to explain why Bonds went from Mr. Clean to a steroid addict when he did, who've said what he told them at the time that he started.

He considered himself, rightly or wrongly, to be twice the baseball player that either Mark McGwire or Sammy Sosa was. He was having one heck of a season. And yet what all the baseball news headlines were about, and for that matter the all headlines on the national news, were this inferior white baseball player and this inferior Hispanic baseball player. And why were they getting all this attention? Because they were cheating in an attempt to overturn a long-standing record, and getting away with it cold even though everybody knew they were guilty as sin. Because (as, again, everybody with eyes in their heads knew) they had so pumped themselves up with steroids that practically everything they hit flew out of the park. So he concluded that if what a black athlete had to do to get the same recognition was to cheat the same way, then he had some serious catching up to do.

Well, guess what. The white guy got away with it. The Hispanic guy got away with it. The black guy who did the same things is now in a whole heck of a lot of trouble. They got out in time. He didn't. And the more I've had time to think about why this is, the more I recognize the pattern, because I saw it before. It was in 1998 and 1999, around the same time, but it wasn't about baseball. It was about the stock market.

Serious stock market analysts were calling what we now know as the Dot Com Bubble by its right name as early as 1994 or 1995. By the time I cashed out in 1996, everybody, including every even halfway honest stock broker in America, was admitting that these dot-com stocks were being bought and sold on pure speculation. That is to say, everybody knew that there was no way to square the price of these stocks with what they were worth. Everybody was buying them based on what investors call the Greater Fool Theory. The Greater Fool Theory says that during a run-up or a bubble, it's okay if you're a fool to pay what you did for an investment, as long as you can count on the fact that a few months or years from now you can find a greater fool who'll overpay even more. Bubbles burst, markets collapse, when they run out of Greater Fools. And by 1996, it was getting pretty obvious that the market was running low on Greater Fools.

So what started happening in early 1998, and ran through 1999? Every bank and every brokerage and every school and every charity and every black church in America made a big push to get Americans of African descent, who have traditionally distrusted the stock market and stayed out of it, to invest. What they were being told, by people at least some of whom were sincere, was that one of the main reasons why the income gap and wealth gap between whites and blacks in America was growing faster in the 1990s that at any other time since Emancipation was that whites had gotten the benefit of the Long Boom, the run-up in Internet stock prices, and blacks had missed out on it. That meant that if blacks were going to catch up, they needed to start right away! So what happened to those people? We didn't hear a word, but it's not hard to guess. These are the people who, years after I sold my stocks, were buying Enron. And WorldCom. And Tyco. And Pets.Com. And on, and on, and on. The whole time I heard them being given this terrible, terrible advice I was screaming at the radio in horror, terror, and rage. But nobody would listen to me, and as has happened predictably approximately every 40 years since Emancipation, every black person who trusted that the American Dream would work for him the way it worked for white people lost everything. Why? Not because the system is designed to do just that, at least I don't think so and I hope not. But because time and time again, whether during the Industrial boom after the Civil War or during the stock market bubble of the 1920s or during the defense industry booms of the 1940s and the 1980s, nobody told them that these opportunities existed until after white people (and a few Asians) had grabbed all the good bits, and had mined those opportunities bare.

On the list of reasons that I think that the collapse of the housing bubble in America is imminent is that those same well-meaning individuals, and the same charities, and the same financial institutions, have spent the last couple of years aggressively marketing the benefits of home ownership to African Americans. Those benefits are real ... if you can get a house at a reasonable price, a price that it's likely to be able to sustain, and under financing terms that allow you to build up equity. None of which circumstances apply. Why? Because just as Mark McGwire and Sammy Sosa did with steroids, because by the time anybody persuaded black Americans to jump on the same opportunities for advancement, white people had committed so many excesses that a crackdown was already looming. And because of the outright scams that are being perpetrated on minorities in home buying (see the chapter on this in Short Changed, which I'm almost done with), when that bubble bursts any freaking year now, they're going to find out that they owe more on their houses than the houses are now worth, and that an awful lot of them will have bought those overpriced houses using financing instruments that don't do anything to build up their credit rating, either. They'll lose their houses, they'll lose every penny they have in the bank because the loan balances are so much higher than the houses will sell for at foreclosure, and they'll have nothing to show for it.

As a result, yet another generation of African Americans will learn that when white people talk about the America Dream, it's like when Lucy used to hold out the football for Charlie Brown to kick. That ball was never going to be there when his foot came towards it to connect, and no matter what fine words or solemn promises she gave to him, other people might kick a lot of footballs, but that football was never going to be kicked by him. And when this discourages them from getting educated and then married, working hard at a job, spending very little, and saving and investing, white people will blame them for their poor work ethic, and never ask where that poor work ethic came from. They'll also spend a lot of time continuing to wonder, when they talk among themselves, why black people seem so angry all the time?