Black America 'gets pneumonia' in cold economic climate

By Natalie A. Thompson and Hazel Trice Edney

WASHINGTON (NNPA) — As the Black unemployment rate leaped another eight percentage points last month — from 10.6 to 11.4 percent — the White unemployment rate actually remained the same, 5.4 percent, less than half the rate for Blacks. In addition, in every other economic category — from the poverty rate to housing loss — African Americans remain historically and consistently at rock bottom. This condition is exacerbated by the national housing and Wall Street financial crisis that forced Congress to reluctantly pass a $700 billion bailout last week.
''We're in a weaker financial position related to the mainstream in the first place,'' said Alfred A. Edmond Jr., editor in chief of BlackEnterprise.com, in an interview with the NNPA News Service. "The saying goes: 'When the rest of America gets a cold, Black America gets pneumonia.'''
Edmond is just one among the Black economic experts across the nation who observe that as America suffers its economic fallout — even after the congressional bailout of lending and investment agencies last week — African Americans must establish creative ways to stay afloat.
"In every relevant economic number, Black people are worse off today than they were in 2000," says National Urban League President and CEO Marc Morial, interviewed after a Black Leadership Forum telephone conference on get-out-to-vote efforts and the economic bailout. "We've lost ground in home ownership; we've lost ground in employment; we've lost ground in wage versus inflation. We have just lost ground economically in the last eight years."
Morial says the bailout was not a rescue, but just something to help stop the bleeding.
"The ramifications of not doing it were worse than the ramification of doing it. For there not to be any credit — obviously, when it hurts big businesses, it hurts small business and it hurts the average consumer: automobile loans, personal finance loans, credit cards, that kind of thing," said Morial. "My position would have been that we have to hold our noses and go forth."
Morial, who predicted the mortgage crisis in the spring of last year, said the bailout will not be enough for Black people and will take many months to execute.
"We have taken the position consistently for six months now that the country needs a jobs-stimulus program. We have offered extensive ideas for such a jobs-stimulus program -— to focus on infrastructure, to focus on an extension of unemployment benefits, to focus on the kinds of things like summer jobs and youth jobs that will put some people to work — because the underlying issue is that we lost 159,000 jobs last year."
The economic climate is hurting Black people from the grass roots to Wall Street. The credit crisis came to a head when two of Wall Street's largest investment firms folded. As top companies are feeling the pressure to survive in a changing marketplace, some Black-owned investment firms are finding themselves in the red.
In 12 months, the Black-owned, Chicago-based Ariel Investments LLC has suffered more than $1.6 billion in losses. The once leading firm totals $2 billion in assets, a decrease from $21 billion four years ago. The company's poor performance has led to a 20 percent downsizing in staff and the sale of holdings in several companies.
"The financial sector has been in trouble for the last year and a half,'' said William E. Spriggs, chairman of the Howard University Department of Economics. ''African Americans lost a disproportionate share of the jobs as financial managers over the last eight months. A lot of the fallout occurred over the issue of the mortgage crisis.''
Since the 2007 mortgage fallout, the market has been struggling consistently. But, as usual, Black-owned businesses are doubly hurt.
''Minority-owned firms will suffer in this environment," said Shawn Baldwin, chairman and CEO of Capital Management Group, a Chicago-based firm. "They're already undercapitalized; they have difficult times getting extensions of credit in any capacity. To get the capital to perform is going to be extremely difficult.''
Leading White-owned companies that traditionally had the capital to perform aggressively in a stringent environment have also seen their shares plummet. Lehman Brothers Inc. and American International Group Inc. (AIG) have lost more than $163 million in the wake of the mortgage collapse.
''This is a loss of capital in the financial sector," Spriggs said. "When the financial sector has capital, they leverage that to make loans, which gives liquidity to the system. If you take a trillion dollars out of the system, that's not a trillion dollars' worth of loans; that's like eight trillion dollars' worth of loans. That means for at least the next two or three years, as firms try to find capital, there's going to be a time period where, unless your firm is on very solid ground, you're going to have a hard time getting credit.''
Not all minority-owned investment firms are struggling in the current market. Atlanta-based Earnest Partners is ranked number-one on the 2008 Black Enterprise List of 100 Asset Managers. The company totals more than $27 million in assets under management and was selected by Hancock Horizon Fund to help manage an international funds project that was set to open Sept. 30.
''Their disciplined investment strategy and proven results truly set them apart from the rest of the competition,'' said John Portwood, chief economic strategist and fund manager for Hancock Horizon Funds, in a press release.
However, according to a study by Ariel and asset-management firm Charles Schwab, African American stock-market participation fell to 57 percent, from a high of 74 percent five years ago.
''We see that the short-term effect has been very negative. It's certainly shaking the confidence of all Americans in regard to economic security,'' said Edmond of BlackEnterprise.com.
The 2007 study, which surveyed the investment habits of 500 African Americans, also reported that 50 percent of African Americans said real estate was the ''best investment overall'' in 2003. That number dropped to 45 percent in 2007.
Despite hard times for the firm, Ariel's president, John Rogers, was named one of Morningstar.com's second-quarter all-star managers last month for not abandoning his ''value approach.'' The company that has lost 23 percent in the last 12 months is up 1.64 percent in the market.
Still, Black Wall Street firms and the Black community in general will feel the crunch the most. The bottom line, says Spriggs, is that ''there's just not going to be as much money out there as there was over the last eight years."

Natalie A. Thompson is an NNPA (National Newspaper Publishers Association) special correspondent, and Hazel Trice Edney is NNPA editor in chief.