Four Years Wall St. and Business Wednesdays

[Editor's Note: Today we continue with the interview of Publisher Cedric Muhammad "conducted" by viewers via e-mail. In this portion, Cedric answers questions regarding Wall St., Economic, and Business issues.]

Question: Cedric, don’t you think there is a conspiracy directed against African American businessmen and financiers? Look at what happened to Nathan Chapman, and now Marc Morial’s brother being probed?

Cedric Muhammad: And some would point to Alan Bond and Maceo Sloan and John White – the lawyer affiliated with Philadelphia Mayor John Street, allegedly at the center of the FBI’s probe of minority contracting procurement in the city. I do believe that a case can easily be made that the FBI and even the SEC has paid disproportionate attention to economic and financial activity in cities where there is a rising Black network of political and financial power. And you can see that there is this critical nexus of wealth between Wall St. and urban areas where the municipal bond market is concerned – where Black firms have found underwriting to be a profitable undertaking. In addition, Blacks, like Nathan Chapman had just begun to be able to benefit from minority investment goals that state pension funds and other government entities have established. So it is peculiar that just as this occurs – when Blacks begin to directly access capital from Wall St. through straight investments, IPOs, and indirectly through the political process with minority procurement offices and through set asides and municipal bond markets – that major figures would be indicted, investigated, and jailed. So I don’t think it is a coincidence but I prefer to look at it in the context of history, and in the context of Blacks rising in an area of the economy that they were prohibited from entering for years – due to laws and social and industry customs. From that perspective you can see how devastating it is when someone like Mr. Chapman is indicted after he has been on record for years – in the mainstream media and before Black audiences – as being motivated to give Blacks an example of a financier that they have never had before. So, in light of the disproportionately few Blacks that have risen in this field, I can easily defend these Brothers and show where a double-standard is being applied to them. Please read my July 16, 2003 E-Letter To The Baltimore Sun and Jay Hancock Re: Nathan Chapman's Mutual Fund Fees. I used the SEC mutual fund cost calculator to show that the media coverage of Nathan Chapman’s business model has been biased. I have not heard or read another person - Black or White - defend Nathan Chapman in this manner. I think it is a strong defense of not only him, but us as a people.

Question: I feel that economics is very important but I do not know what it really is, if I had to explain it to other people. Thank You BEC for valuing and raising this area. Blacks need to be more involved in the field but I don’t know how we can get over this barrier. Please help?!?!?

Cedric Muhammad: That is one of the reasons why we have Black Electorate Economics University (BEEU). To answer your question, let’s go to the root. Economics comes from the Greek word, oikonomia which means “house management”; and economists were household managers in England according to the usage of the word in the 16th century. It was not until the 18th century that the word and term acquired the meaning that most of us are confused about today. If you go into high schools today that teach home economics you can see how much more accessible the term is. In twelfth grade I had a business and home economics course that only helped to further my grasp and interest in the subject. I say that to say that it is important to think of economics in terms of yourself and those around you, in very practical ways. Leave the fancy models, policy elements and abstract unproven ideas alone, and begin by thinking of economics in terms of how a family budgets its resources. From there, think of a small community. Those two units are microcosms of what we see at the larger scale of nations and international trading movements. If you can grasp the dynamics of the family and small community you can handle anything else; and you are grounded in key areas that economists gloss over today – like the power of customs, social organization, and trust and envy – which cause them to make critical mistakes.

Lastly, I want to add that we, as Black people, were never systematically taught the science of business or economics. And I have newspaper articles from the early 1900s and late 1890s that comment on how of all the elements of business and economics, the greatest efforts were made to deny Blacks the knowledge of banking. This is significant. And I throw it in there to add a dimension to your thinking about why so many of us are intimidated and ignorant on this subject. It is not an accident.

Question: Why do you have so many right-leaning economists at BEEU?

Cedric Muhammad:Economics is neither right nor left, in my view. And Blacks can’t afford the luxury of politicizing a science and system of life. The economists featured at BEEU are people that I know personally who have “donated” their time and knowledge to help give our students a realistic, and not theoretical look at the world of business and economics. Everyone of the guest professors is an adviser to influential political or business persons and institutions; and you could not find any uniform ideological agreement on three subjects among them. In addition to their presence, we cover slavery, African monetary policy, Black banks, access to capital and why small business fail or succeed. So, in two semesters you learn how economics and business work and you get to hear from some of the leading entrepreneurs in the Black world – Russell Simmons and Damon Dash – two Hip-Hop business leaders voluntarily gave us “guest lectures” where they provide detailed insight into the music business and entrepreneurship from the perspective of Black life. A left-leaning economist, even a Black one, influenced by John Maynard Keynes or Karl Marx, or a right-leaning one who claims Adam Smith or Ludwig Von Mises can’t give you what we offered at BEEU.

However, I do not wish to totally dismiss your left-right way of seeing the world, as I think it makes a point. There is an important point to be made which is that liberalism, as it evolved in the New Deal era of President Franklin Delano Roosevelt, while it did express greater government sensitivity to injustices of Blacks and civil rights, it also diminished and downplayed the role of entrepreneurial opportunity. When you couple this with integration you can see that in exchange for social acceptance and civil rights, Blacks have relinquished Black businesses activity and abandoned Black business districts throughout the country. Take a look at Welton Street in Denver for example. What do left-leaning economists have to say about that, I wonder?

Question: You have conducted some very enlightening interviews for the site on economics and finance which are your favorites?

Cedric Muhammad: Because it was such an important story and one of our earliest ones, the July 10, 2000 interview with Johns Hopkins University Professor Steve Hanke is a favorite. I believe it is still the longest interview ever published of him. I will never forget him handing me this humongous yellow folder of his interviews, articles, papers, and columns when we first met in his Baltimore office. I still have it and it has some of the most enlightening information about his version of currency boards. He is very meticulous and I guess the folder was his gentle way of educating me, and showing me the breadth, depth and detail of his thinking and impact. I got the message (smile). But I had already admired his strong stance against the IMF and the powers-behind-the throne who were really working out a coup of Indonesian President Suharto, in my view. A few of the same characters around President Bush today beating the war drums were the same ones involved in working to get Indonesia to fall. Paul Wolfowitz was a major player on that front for years. That is why when Black people wonder why I would be friendly with a “right-leaning” economist like Steve Hanke, or bring him into BEEU, I know they don’t know what they are talking about. Steve Hanke, in my view, made the most courageous stand I have ever seen a single economist make. He took on the IMF and people like Wolfowitz operating behind the scenes, single-handedly, with little more than his pen and mind. A book should be written about those harrowing days in 1998. I think that my June 11, 2003 interview of Provender Capital’s Fred Terrell is exceptionally important because he systematically covered some very important aspects to venture capital and private equity financing as it relates to Blacks. And my August 6, 2003 interview with Professor William Bradford was critical to unearthing the empirical and anecdotal evidence that supports the rise in Black entrepreneurship and minority business enterprises receiving financing and the relatively better market performance they exhibit. I am very proud of the interviews with Professor Bradford and Fred Terrell because I think they were educational, accessible, and ground-breaking on the subject matter of Black entrepreneurship and the paradigm shift that we identify in the Black economy from employment-based dependence to that of entrepreneurship. We do not say that every Black is going to start a business and leave their jobs, but under the radar screen we do believe that Blacks are becoming sensitive to the fact that the American economy cannot make enough jobs for them, and as we have written before - this is inherently the case, if one looks at the structural level of employment that has been historically acceptable to the Federal Reserve. I wrote about this in my Open E-Letter To Federal Reserve Chairman Alan Greenspan dated February 14, 2001. My September 25, 2002 interview with Reuven Brenner of McGill University was my most enjoyable because he was very gracious with his time and I actually visited him in Montreal and conducted it at his home. I also think that it is the longest interview ever published of him in English. If you read that interview and understand it you will realize why so many people think he is the best economist in the world. I think he is a genius, really a scientist more than an economist.

Question: What is the most interesting Business story you have seen emerge since you began covering Wall Street?

Cedric Muhammad: Without a doubt for me it was the existence of the Plunge Protection Team. Right when we launched in April of 2000, the NASDAQ fell dramatically, and then rose suddenly, and there were rumors that Prince Alaweed had jumped into the market and propped up stocks that had fallen precipitously. But in the days following that market drop, we linked to an article written by the New York Post’s excellent business reporter, John Crudelle called, “ How Stocks Turned Back From The Abyss”. Here is the text of the entire article:

SOMETHING happened at around 1 p.m. our time yesterday that pulled the stock market back from the edge of the cliff. Traders say it was almost like divine intervention. One minute the Nasdaq was down 11 percent -- say it out loud, "Eleven percent in one day" -- and then it suddenly rallied several hundred points in the matter of an hour. The Dow followed suit. Down 500 points around mid-day, the blue chip index's decline -- along with the horrible showing of over-the-counter stocks -- was destined to make yesterday's market an unqualified disaster for investors and the country. Then, traders said, someone started buying large amounts of stock index futures contracts through two major brokerage firms -- Goldman Sachs and Merrill Lynch. These transactions are usually done on the QT so we don't really know how many of these contracts were purchased. And unless the brokers tell, there is no way of knowing which of their clients were making the purchases. Goldman wouldn't comment on this and Merrill did not return a call for comment. But traders said enough were bought to catch everyone's attention. In fact, the buyers seemed to want people to know they had an appetite for stocks. Then the market rebounded. It didn't go all the way back. At the end of the day the Dow Jones index had still lost lost 56 points or half a percent on the day. And the Nasdaq lost another 74 points, or the equivalent of a 1.77 percent drop. Yesterday's loss by over-the-counter stocks nearly put the Nasdaq index back to ground zero for the year -- in two days all but 2 percent of its gain for the year was gone. It was real nice of Goldman and Merrill to stick their necks out like that. In fact, it was downright uncharacteristic for Wall Street outfits to put the thought of possible losses aside for the greater good. Because of the purely unselfish nature of what went on, traders are naturally suspicious. Hell, so am I. "I think some one or more persons saved the market today. There was a suspicious urge to buy stocks at an opportune time," says one trader. "Why drive the Dow up 350 points in a half hour? That's never serious buying. That's someone trying to establish prices," he adds. I'm especially suspicious when the market suddenly rebounds at nearly the very same moment that a member of the Clinton administration -- economic advisor Gene Sperling -- is on TV telling investors not to worry. And there's the obvious connection between Goldman Sachs and the administration, the Wall Street firm having given Robert Rubin to the Clinton administration as its Treasury Secretary. Plus, what better way to make investors not worry than by having the stock market recover a lot of the ground it had just lost. That gesture almost makes a guy want to buy some stock -- bottom fish, if you are into sporting analogies. I'm not saying that government intervention in a collapsing market is wrong. In fact -- except for the obvious contradictions with the free-market system -- it is politically and socially a very right thing to do. I've written about this before. And I've mentioned that Washington has had a secretive group call the Working Group on Financial Markets, made up of investment industry and government people, that would be in just the right position to rescue the market. Informally the folks on Wall Street call this the "Plunge Protection Team." In February 1997, the Washington Post did a piece on this team, just in case you don't believe it exists. And while I can't swear that Goldman and Merrill are captains of that team, they sure acted like it yesterday.

Well, I called John Crudelle, later that week, and we talked for about 15 minutes. He gave me a few more details about this “Plunge Protection Team” and told me some very interesting and peculiar things about how the Federal Reserve moves markets and influences traders. I hope to get into more of it this year.

Question: How did you get to know so much about economics?

Cedric Muhammad: The interest and desire has been in me since a child. My older Brother and I lived overseas for a few years and he and I would actually make bets regarding the movement of exchange rates. I must have been 8 or 9 years old. I guess I was an early currency speculator. George Soros had nothing on me in my earlier years (smile). But I can’t begin to articulate how thinking in more than one dimension like that, as a boy, about finance and economics helped my mind. It also gave me an understanding of the economic terminology and I also saw very early how important a currency is to a nation – in terms of its self esteem and pride as well as its ability to sustain life.

But I am basically self-taught on the subject and even when I was with Wu-Tang Clan, I envisioned and saw myself as an economist. I would read the Wall St. Journal and by the way, to this day I tell anybody that if they want to get a clear introduction and an easy-to-read newspaper about business and economics, I advise reading the Money section of USA Today. Every once and a while I will still do it myself and I never cease to enjoy it or appreciate how they work to use clear language on the subject that most people can follow.

An important stage in my development came when I met Andrew Gause a numismatic and gold and rare coin dealer who I heard one day in 1993 on the radio in Philadelphia. He and I have been friends since then, and while I was in college I met him. He is a walking encyclopedia of monetary history and a courageous man, not afraid to tell the truth. He was very generous with his time and I highly recommend that anyone who wants to know about monetary history, economics and their relationship to power should get Andy’s book “The Secret World Of Money”. He is absolutely the best teacher of monetary history - free of ideology - I have met. Conversational with a sense of humor as well.

Then, in April of 1997 I met Jude Wanniski. That was interesting how that came about. While I was doing some management work for Wu-Tang Clan in Staten Island one day I picked up a New York Post and stumbled on the editorial page where I saw a picture Minister Farrakhan. Near it was a letter to the editor written by someone who was defending the Minister from charges made by former New York Mayor Ed Koch, in a column he had written. It was very short but powerful. I saw who it was from, what town he lived in, and that Jude was an influential economist and I called information got his number and left a message. He called back, set up an appointment for me to come by his office, and then I read through his book, “The Way The World Works”, before we met. It is a very, very important book and has helped me understand a great many things clearer. For example, Jude’s theory of what caused led to the stock market crash of 1929 and the Depression is original and compelling. So, meeting him, and learning from him and his model has been a source of insight and understanding. He is an exceptionally lucid writer.

But the key for me is that I know how to learn. And I know how to test people’s theories, models, and propositions. I also understand that much of what passes for new insight or new models in economics is little more that new language. Economists play games with words. I know that from direct contact and experience that most economists cannot give you a precise definition of terms like “capital” or “labor” or “wealth” or “growth” or “development”, and that economics is rife with cultural bias. And because of that lack of precision, bias and the unwillingness of anybody in the media to pin them down on exactly what actual facts or actual effects are; or exactly how they are interpreting data and information, economists are able to sound very smart, when really all they are, in many cases, poets who skillfully use words that they redefine in order to persuade you to intellectually defer to them. That is why people are torn over whether or not economics is a science or not. Some say it is a hard science, others say it is a soft science. And of course, many refer to it as the dismal science. But in my view it is a science that explains an aspect of human nature and social organization. Nothing more or less. Therefore I look for facts and how to interpret them properly. I do not begin with the end already in mind, or for facts that compliment what I would like to believe. I consider human nature first and foremost, then societal patterns and characteristics, then a specific policy, event or transaction. Too many economists are interested in only advancing their particular model or examining situations out of context. They ignore and omit facts; they revise history and reinterpret it according to their narrow disposition, and they prescribe without regard to culture, assuming that what has worked in one part of the world can work anywhere under almost any conditions.

The crisis of economics is the crisis of the intellectual who reaches a plateau of learning and who, after receiving credit and applause for arriving at a key insight, becomes stubborn and arrogant seeking to influence others with their thinking. They stop thinking critically and creatively. If more humility could permeate the culture of the profession I think that economics would assume its rightful place as one of the most important of all disciplines and a system of life that is key to human beings arriving at peace and contentment of mind.

Hopefully and my work as an economist can help rid the profession of what Deirdre McCloskey (formerly Donald) calls the three ‘vices’ of economics – bad statistics, bad theory, and bad applications of statistics and theory to public affairs.

Wednesday, April 7, 2004