by Eldon Khorshidi | @eldonadam
Very seldom do the worlds of basketball and economics intersect. Sure, the NBA, like any other business, is directly affected by economic underperformance. Attendance falters, TV deals decrease and team owners lose money. And when total revenue—or Basketball Related Income—takes a hit, the salary cap lowers and player incomes decrease, too.
But in a general sense, GDP growth or the unemployment rate or the state of the housing market isn’t usually associated with sports. Over the past few weeks, as Barack Obama and Mitt Romney’s economic policies have been discussed ad nauseum, not once has basketball been mentioned. Not as a reference point, to connect any set of imaginary dots, as part of a larger narrative or otherwise.
That’s why Ralph Baker’s new book, Shock Exchange: How Inner-City Kids From Brooklyn Predicted The Great Recession And The Pain Ahead is so unique and, to those who have an interest in both finance and basketball, refreshing.
In Shock Exchange, Baker—a former standout D-III point guard who holds an MBA from the University of Virginia —uses basketball as a tool for financial literacy. In 2006, while working as a day trader in New York City, Baker founded a mentorship program/travel AAU team called the NY Shock Exchange, which essentially taught middle schoolers the basics of analyzing the economy and the stock market. Before and after practice, Baker would hold learning sessions, and through PowerPoint presentations and simplified readings, the kids gradually learned the fundamental principles of economics.
Within a few months, Baker noticed that his players—cognizant of it or not—astutely recognized trends before the outside world caught on. When the coaching staff would be discussing stocks amongst themselves, the kids would increasingly interject their own two cents, and it didn’t take long for Baker to realize his players were onto something.
“It all started with one of the kids coming up to me and saying, ‘Hey Coach, you should invest in Apple. I love my iPod!’” Baker recalls. “And I just laughed him off because, well, at that point I thought Microsoft was going to put Apple out of business, like they did with everybody else. But soon enough, Apple became one of the largest companies in the world, in terms of market capitalization. And it turned out that a lot of the stocks they were telling me about were doing really well—probably better than the ones I was investing in myself.”
Combining the wisdom of his middle-school roster with his own research and knowledge, Baker started to invest real money in real stocks. And lots of it. Along the way, he not only exploited undervalued companies, but also noticed that key economic drivers were faltering, and the U.S. economy would soon fall victim to one of the worst recessions in the country’s history.
“There was severe stagflation everywhere, and a recession was clearly on the way” Baker says. “But no one seemed to notice.”
To get the word out and forewarn anybody who would listen, Baker began writing weekly blog posts on the Shock Exchange’s website. The posts contained stock tips, observations on the economy and also policy ideas to counteract negative growth. By the time Paul Krugman and other notable economists caught on, though, it was too late to remedy the situation. The housing bubble had already burst, Fannie Mae and Freddie Mac had already defaulted on their securities and loans, and the only option left, as Baker says, was to “strap up and endure the pain ahead.”
In short, Shock Exchange attempts to explain the complex causes of the ’08 financial crises in layman’s terms, while seamlessly interweaving anecdotes and experiences from Baker’s travel basketball team.
SLAMonline recently caught up with Baker to discuss the concept of the book, the storyline and lessons within, his motivation for writing it and more.
SLAM: In a nutshell, what is Shock Exchange about?
Ralph Baker: I think the book can be broken down into three different sections.
1) My background — About my family and how I grew up, and what makes me qualified to talk about this stuff.
2) The team — How the New York Shock Exchange was formed, and how we kept it together despite the AAU game changing from a family-friendly environment to a booster-dominated, the-ends-justify-the-means organization. I detail the cutthroat New York City AAU scene that I wasn’t prepared for. Because in Connecticut, where I first started coaching, youth basketball was very laid back and went by the book. But when the NBA began expanding and college coaches started doing most of their recruiting in AAU, the game sort of became a bidding war for these kids. You’d have strangers befriending the kids and trying to take them from our team, and I just wasn’t prepared for that. So, the stories from the Shock Exchange are real interesting and intriguing.
3) How the kids predicted the great recession, and how we were talking about this stuff before anybody cared — How I was noticing trends that people either didn’t realize or neglected for a few years. I wrote a post back in April ‘08, about how the economy was heading toward a severe recession, and even included some steps we could take to turn it around. I said we needed to invest in infrastructure, figure out a way to reduce the cost of college, and I spoke on healthcare reform and so on and so fort. But it wasn’t until August ’08, when Fannie Mae and Freddie Mac failed, that [then-Presidential candidates] John McCain and Barack Obama and the rest of the country finally began to take notice.
Also, towards the end, I discuss “the pain ahead.” As in, the steps taken during the Bush and Obama administrations, and how their respective policies affected the economy. So, at the end of the day, it’s a cool way to learn about the economy as well.
SLAM: Besides Apple, what are some other stocks the kids brought to your attention?
RB: Well, Apple was the biggest one, because we rode that for a long time. Another big one was GameStop. It’s funny because the kids were onto GameStop before everyone else, and then they were the first to realize GameStop was going to fall apart because people were shifting to buying and playing games online. The kids would tell us about every stock they thought would do well, and we usually narrowed it down to two or three of their best stocks.
SLAM: But it had to be a little more complicated and thorough than just taking the kids on their word, right?
RB: Yeah, of course. We would first have detailed conversations with the kids and try to pick their brains, and then the team would take trips to stores to examine and experiment with the products in person. We’d take a look at the products, but we’d also talk to employees. And it was crazy, because almost always it was clear the kids realized and recognized trends before adults did.
SLAM: Did your players understand all the economic jargon, such as GDP to debt ratio, unemployment rate, marginal propensity to consume, etc.?
RB: Yeah, we explained all of it to them.
SLAM: Wasn’t it hard to simplify those terms into a way the kids could understand it, though?
RB: At first it definitely was. But we just took it slow, and put in a lot of time with the kids. We explained it, like, ‘This is what’s going on with auto and housing sales, and this why it’s important.’ Obviously, we used a lot of theoretical and real-world examples, and not a lot of mathematical ones, because that would’ve been too much for the kids to grasp. Naturally, some kids were interested and got it, and others were like ‘Why are we learning this’ and were either bored or disinterested.
SLAM: What would you say is the tone/mood/voice of the book? Is it more of an I told you so story, or a What to do now story, or The future is about to be even harsher story, or what?
RB: The tone of the book, I guess, is simply teaching economics through the eyes of the kids. Not in an authoritative tone, but in an informative one. Like the title says, it’s how inner city kids from Brooklyn predicted the great recession and the pain ahead. It’s more of a story, and a journey of how I came to learn economics and teach the kids, and how we began to see what was ahead.
SLAM: Who’s your target audience?
RB: It’s written for anybody who wants to be informed, really, but I do think it reaches a few specific groups. African Americans will probably be interested because it goes into African American history. Basketball people will be interested because of the actual stories about the kids, and I also make references to the NBA and the NCAA, examining how supply and demand trickles down through college and the League. I think SLAM readers would love it. I break down complex terms in way that someone with no background in economics can comprehend and follow along.
SLAM: Why did you decide to write this book now? What makes it relevant at this moment?
RB: In 2009, when the stock market came down, I decided I was going to write the book. So I went back and looked at deals I did in ’93 and ’94. and tried to do extensive research. I procrastinated for a bit, but from February ’11 until March of ’12, I was up till like four in the morning every night just putting in work, doing research and typing away.
SLAM: Is the book solely a work of historical non-fiction? Or are there some main characters, protagonists, and subplots woven into the story?
RB: I go real in depth on several of my anecdotes, and use real scenarios, so there is definitely a sense of a storyline in there. I changed the names of the kids, but everything in the book is from real life. For example, I tell the story of how our AAU team was on the cusp of a national title until it started to get picked apart.
SLAM: How did the cover art come about? It’s a pretty eye-catching image.
RB: That’s the logo for my website. I wanted a symbol for what the NY Shock Exchange stood for, which is youth basketball and economics. So I took my son, who is 17 now, and had him spin a ball on his finger while wearing a suit and gripping a briefcase. I think it captures the essence of it all.
Shock Exchange: How Inner-City Kids from Brooklyn Predicted The Great Recession And The Pain Ahead is available now, both digitally and in print. You can order a copy here.