Don McNay's Column: Money, Medicine and the Magic Pill

By Don McNay Posted: July 29th, 2010



Money, Medicine and the Magic Pill

One pill makes you larger and one pill makes you small.
And the one that mother give you, don't do anything at all.

-Jefferson Airplane

I was talking to a person in the medical profession who said, "It seems like some patients are looking for a magic pill that will solve all their problems."

I said "welcome to my business." The same analogy holds true in finance.

People want one simple idea that will make them rich.

Preferably while they are lying on the couch watching television.

I've tried losing weight while lying on the couch, munching on potato chips.

I can tell you that it absolutely doesn't work.

If you read The Millionaire Next Door or any book that studies how people become financially independent, they all basically say the same thing.

Spend less than you make. Don't get into needless debt. Make a budget. Have a long term goal and be prepared to take years to get there.

The same thing holds true in living a healthy life. Eat less than you burn up. Count your calories or measure your progress. Plan to live to an old age and stay healthy until you get there.

The key on both health and money is focusing on the long run. There is not a "magic pill."

The reason that Wall Street collapsed is that too many companies were looking for their own "magic pill." They were focused on piling up short term profits, so they could get their multi-million dollar bonuses and didn't care about the long term.

Turns out that Wall Street had a magic pill. It was called the bailout. Thanks their friends and lobbyists in Washington, Wall Street was able to screw up and have someone else clean up the mess.

It doesn't work that way for the rest of us. With your health, to coin an old song, "if you play around you lose your life." Same thing holds true with your money. Too many people are dying old and broke because they don't have a long term plan.

All this takes me to the "Move Your Money" movement.

I've been pushing it hard and you can read more about it at http://moveyourmoney.info/

The concept is simple. Move your money from a "too big to fail" bank and deposit it in a bank or credit union in your community.

Then get the charities you support to do the same. They get the college you graduated from to do the same.

Then get your neighbors and your friends.

Right now, the top six "too big to fail" banks control about 70% of the wealth in America. That is WAY out of whack.

They got the "financial reform" bill watered down. The next time they get in trouble, they will just call their buddies in Washington and get another bailout.

Unless we dilute their strength.

If more of our money is in local banks and credit unions, the Wall Street banks won't have the same power in Washington. They might not get another bailout.

Better yet, Congress might get the backbone to actually regulate Wall Street so that they don't really need a bailout again.

I wasn't for the first bailout. I'm certainly not going to be for another one.

Like all good things in life, Move Your Money is not a "magic pill."

But it may be the start of getting us to a healthy future.

Don McNay, CLU, ChFC, MSFS, CSSC is an award-winning financial columnist and Huffington Post Contributor.

You can read more about Don at www.donmcnay.com

McNay founded McNay Settlement Group, a structured settlement and financial consulting firm, in 1983, and Kentucky Guardianship Administrators LLC in 2000. You can read more about both at www.mcnay.com

McNay has Master's Degrees from Vanderbilt and the American College and is in the Hall of Distinguished Alumni of Eastern Kentucky University.

McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery

McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.




Financial Reform: A Boom for Legalized Loan Sharks

At the dark end of the street
That's where we'll always meet

-Gram Parsons


One the insights I got from Gary Rivlin's book, Broke USA, is that people often use payday lenders because they don't have access to traditional banks.

I didn't realize that many banks won't give a checking account to people with bad credit.

Under the alleged "Financial Reform" changes, banking services for lower income people is only going to get worse.

"Too big to fail" banks are racing to charge fees for checking, raise the minimum balance required to get free checking and hitting consumers with a bunch of nickel and dime charges.

Those nickels and dimes will add up to billions in profits for the banks we bailed out only two short years ago.

In reaction to financial reform, Jamie Dimon, whose Chase Bank earned a $4.8 billion profit last quarter, seemed to speak for all of Wall Street when he told the New York Times, "If you're a restaurant and you can't charge for the soda, you're going to charge more for the burger."

The burger is going to come out of the hides of their poorest customers.

As payday lenders and others in the poverty business have found out, it is easy to stick it to poor people. They have the fewest options.

More and more of them will fall out of the traditional banking system altogether.

They will cash their paychecks at Wal-Marts, liquor stores and payday lenders.

"Financial Reform" will be a boom for people in the payday loan business. There will be many new customers who need bank-like services.

It's almost like Congress implemented a plan of "Reverse Robin Hood." Rob from the poor to give to the rich.

It is not really a surprise. Reverse Robin Hood is a good way to describe the past couple of decades.

Wall Street made much of its profits sticking it to Main Street.

I wonder what "Financial Reform" actually accomplished. As Paul Volcker noted, the bill is so watered down that it really did little to avoid financial meltdown.

We had a system that worked for 80 years. It was called Glass-Steagall Act. It became law in 1933.

Under Glass-Steagall, banks were banks and brokerage houses were brokerage houses. They stayed in the businesses they knew best. And, more importantly, each was required to stay out of the business of the other.

Glass-Steagall fell during Bill Clinton's administration. The person who championed its fall was Dr. Lawrence Summers.

The same Dr Summers who went on to become president of Harvard and who is now President Obama's chief economic guru.

With Dr Summers whispering in the President's ear, it's easy to see why bringing back Glass-Steagall was not on the table.

I've been championing a concept first proposed by Arianna Huffington and others at Huffington Post: Move Your Money. You can learn more about it at http://moveyourmoney.info/

I'm hoping that two things will happen.

First is that people keep moving their money from "too big to fail" giants to community banks and credit unions.

Second is that the community banks and credit unions have an open door to the segment of society that the big banks are running off.

Being fair to your customers is a great marketing opportunity for community banks and credit unions.

Everyone knows that the Wall Street banks have not played fair. If you need further proof, call Citibank and try to speak to a "customer service" representative.

Making money with small depositors is hard work. But it can be profitable.

It's not the multi-billion dollar casino games that Wall Street has been playing, but it is a money-making, steady business. It provides a service at a decent margin and makes their communities better places to live.

Small banks and credit unions can make or break a community. They can truly add to the quality of life.

I doubt Main Street banks will be looking for a future bailout. Most of them missed out on the first round of handouts.

Banks can make money without squeezing every last nickel out of their customers.

Banks can make money by doing good, just as George Bailey showed us in the movie, "It's a Wonderful Life. "

I'm counting on people to move their money and I'm counting on community banks and credit unions to do the job that Wall Street banks ought to be doing.

If it doesn't happen, I'm counting on it being a big year for the payday lending industry.


Don McNay, CLU, ChFC, MSFS, CSSC is an award-winning financial columnist and Huffington Post Contributor.

You can read more about Don at www.donmcnay.com

McNay founded McNay Settlement Group, a structured settlement and financial consulting firm, in 1983, and Kentucky Guardianship Administrators LLC in 2000. You can read more about both at www.mcnay.com

McNay has Master's Degrees from Vanderbilt and the American College and is in the Hall of Distinguished Alumni of Eastern Kentucky University.

McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery

McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.





Citi Field: Baseball's Bailout Stadium

She's got a ticket to ride and she don't care.
-The Beatles

When I saw that my Cincinnati Reds were playing the New York Mets at Citi Field, I laughed. It reminded me of a visit to Enron Field in Houston.

Selling naming rights to fallen corporations can be embarrassing to an entire city.

Then, when I looked into the Citi Field situation, my laughter turned to outrage.

Citigroup is paying $400 million ($20 million for $20 years) for the ego boost of having a stadium named after it.

Since Citigroup received billions in bailout money, the American taxpayers are actually footing the naming rights tab.

I've never seen evidence that owing naming rights to a stadium improves a corporation's bottom line.

The buildings once called "PSI Net Stadium," "Enron Field" and "MCI Center" all lasted longer than the companies who shelled out millions for their naming rights.

Naming rights are often the result of runaway corporate ego. Big companies have shareholder money to throw around and generally have lapdog corporate boards providing "oversight."

A big motivation for corporate sponsorships is to allow the high-flying executives (and their lapdog directors) to sit in fancy luxury at the ballpark. It's bad enough when corporate executives stick it to their stockholders. The stockholders can choose to dump the stock.

But in the case of Citigroup, they stuck it to the American taxpayers. We don't have the option of asking for our money back.

Congress blew that chance in 2008.

I'm not planning on hitting a Mets game anytime soon. But, if I do, I expect tickets to really good seats.

After all, I'm a corporate sponsor. .

I'm not sure what happens if all 300 million of my fellow corporate sponsors wants to sit in luxury box seats at the same time.

I watched a visionary named Alan Stein successfully build a privately-owned minor league baseball park in Lexington, Kentucky. Generally, I don't have a problem with cities and states financing stadiums.

As ESPN commentator Michael Wilbon pointed out on CNN's Reliable Sources show on Sunday (talking about the Lebron James circus), sports teams are a source of civic pride and identity.

Teams like the Baltimore Colts suddenly become the Indianapolis Colts, and teams like the Cleveland Browns become the Baltimore Ravens when they are offered better facilities, tax breaks and local government support.

Citi Field is an entirely different example. It's not just the City of New York paying for it.

All of America's taxpayers, including many who will never in their lives visit New York, came up with $400 billion of the money because of the Citigroup bailout.

Every time we see bailout money being spent on baseball stadiums or on huge bonuses like the kind that Goldman Sachs employees gave themselves, it slaps the American people in the face.

It reminds us that Wall Street, lobbyists, and our friends in Washington all played us for saps.

Insanity is doing the same thing over and over again and expecting a different result.

Continuing to do business with Citigroup and expecting it to appreciate what America did for it is insanity. People on Wall Street are never going to "get it."

There is only one way to stop the insanity.

Move your money.

Arianna Huffington and others at The Huffington Post started a movement that is catching on like wildfire in getting people to move their money from "too big to fail" banks to banks in their local community.

Community banks lend money to businesses (like mine) on Main Street.

Move Your Money is more than an idea. It is now a tax deductible,501 (c) foundation, raising money to educate people on why Move Your Money is so important for the future of America.

I recently made a contribution to the foundation and am encouraging others to do the same.

You can make a donation, or learn more about Move Your Money, at:

Move Your Money Info

I do business with five locally-owned community banks in Kentucky.

None of them has a baseball stadium named after it.

Houston was able to find a sponsor to replace Enron.

A city as big as New York should be able to find a sponsor that is not funded by the American taxpayers.

When you think about moving your money, think about Citi Field.

And who is paying for it.

It's time to send them a message.

Move Your Money.

Don McNay, CLU, ChFC, MSFS, CSSC is an award-winning financial columnist and Huffington Post Contributor.

You can read more about Don at www.donmcnay.com

McNay founded McNay Settlement Group, a structured settlement and financial consulting firm, in 1983, and Kentucky Guardianship Administrators LLC in 2000. You can read more about both at www.mcnay.com

McNay has Master's Degrees from Vanderbilt and the American College and is in the Hall of Distinguished Alumni of Eastern Kentucky University.

McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery

McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.






Wall Street and Legalized Loan Sharks


I don't give a damn about my bad reputation

-Joan Jett


In my childhood, Northern Kentucky was a hot spot for organized crime. In a town full of hustlers, prostitutes and gamblers, the profession they looked down on was loan sharking.

Loan sharks preyed on the poor and most desperate. The sharks charged high rates of interest for short term loans. The practice was illegal and, often, dangerous.

It wasn't unusual for a loan shark to wind up floating in the Ohio River. One of the biggest names in the business, Frank "Screw" Andrews, (who is a central character in Hank Messick's book, Syndicate Wife) "accidentally fell" out of a 4th floor window.

If Screw was in business today, he would be a captain of industry. Loan sharking is now legalized. Today, we call the loan sharks "payday lenders."

The stock of payday lenders is traded on the New York Stock Exchange and NASDAQ. Many payday lending companies do business with Wall Street's biggest banks.

As Gary Rivlan notes in his book, Broke USA, "the working poor have become big business."

Rivlan's book is a must read. It's a riveting piece of work by a first-rate writer.

As far as flow and writing style, it reminds of Joe Nocera's 1994 classic history of personal finance in America, A Piece of the Action.

A good idea would be to read Rivlan's book immediately after reading Nocera's book.

A Piece of the Action shows how we went from a nation without credit cards to where they are so important in many people's lives. Broke USA shows how the decades of easy credit and loose regulation has created a new business category called the "Poverty Industry."

You wouldn't think that poor people would be a growth market, but businesses make big money off people who live paycheck to paycheck.

Rivlan's book had a personal connection for me. Much of his narrative takes place in Dayton, Ohio, a city I know well. Don Donoher, the longtime basketball coach at the University of Dayton, was best man in my parents' wedding and I am named for him.

"Screw" Andrews "fell" out of the window in 1973. He never dreamed that nearly 40 years later, his business would be operating legally in almost every city in the country.

Andrews knew how to bribe local officials with cash payments. He didn't live to the see such bribery legalized in the form of lobbying and political fundraising.

Broke USA makes it clear that the public and those in the media don't care for payday lenders much.

It also makes it clear how many friends the Poverty Industry has made by paying big dollars to lobbyists and giving huge contributions to lawmakers.

They are also funded by Wall Street.

Until I read Broke USA, I didn't realize what a big hand the "too big to fail" banks have in creating the Poverty Industry.

Citigroup, JP Morgan Chase and Bank of America are just some of the big banks that make huge profits, directly or indirectly, from the Poverty Industry.

They have another common bond. They received bailout money from the American taxpayers in 2008.

They are directly or indirectly in the Poverty Industry. Since we bailed them out, that makes us directly or indirectly in the Poverty Industry, too.

Rivlan's book paints a depressing picture of America.

Entrepreneurs who want to be rich and don't care how they do it are matched with people who don't handle money well.

The people peddling poverty products have figured out the there is a strain of Americans who are the financial equivalent of drug addicts. They will pay any price, fee, or interest rate as long as they can get an immediate fix. They don't care about tomorrow. They just want money today.

Just like a heroin addict, a financial junkie will usually die before the addiction runs out.

The uplifting side of Rivlan's book is that a great deal of it is devoted to reformers.

He writes extensively about people like Martin Eakes of North Carolina, who has developed a poverty financing model at reasonable interest rates, and to Bill Faith, an Ohio activist who got that state to pass a restrictive cap on payday lenders' interest rates.

Those who want to fight the Poverty Industry can look at what Eakes and Faith have done and follow their road map.

It's not an easy battle. The Poverty Industry has tons of lobbyists, lawyers, legislatures and "too big to fail" financial institutions backing them up.

Poor people don't have well-paid lobbyists. But as Rivlan's book makes clear, focused and committed lobbyists can make up the difference.

Congress is putting the finishing touches on financial reform legislation and the "too big to fail" banks are fighting tool and nail to prevent a separate consumer protection agency, like the one Elizabeth Warren has been pushing, from seeing the light of day.

If Broke USA did anything, it convinced me why a separate agency is needed.

Without regulation, are people and businesses, who will find new ways to make money off poor people and don't give a damn about their bad reputations.

Don McNay, CLU, ChFC, MSFS, CSSC is an award winning, syndicated financial columnist and Huffington Post Contributor.

You can read more about Don at www.donmcnay.com

McNay has Master's Degrees from Vanderbilt and the American College and is in the Eastern Kentucky University Hall of Distinguished Alumni.

McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery

McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.




Goldman Sachs: Too Big To Jail?


When happily ever after fails
And we've been poisoned by these fairy tails
Lawyers clean up small details
Since daddy had to fly

-Don Henley and Bruce Hornsby


The Securities and Exchange Commission is receiving media kudos after filing a fraud lawsuit accusing Goldman Sachs, the giant investment banking and securities firm. A Los Angeles Times headline trumpeted, "Goldman Sachs case could help Obama shift voter anger." A McClatchy news service headline blares, "Message to Wall Street: SEC is back on the job."

Before I join the chorus of media cheerleaders, I have to ask the Peggy Lee question, "Is that all there is?"

I'm not a lawyer, but my understanding is this: the SEC filed a civil lawsuit. It's a lawsuit, not a criminal action. No one is going to jail. No one is going to be dragged off in handcuffs.

Just because the SEC filed a lawsuit, it doesn't mean it will win. Goldman Sachs could easily prevail. The Wall Street Journal noted how the government might have a difficult time at trial.

Before we start breaking out the champagne, let's look at what is actually going on.

The SEC went from doing absolutely nothing to finally doing a little something. A good first step. The agency had gotten so bad under Bush-appointee, Christopher Cox, that it looked like a public relations ambassador for Wall Street.

After missing any opportunity to lessen the financial meltdown and screwing-up big time on the Bernie Madoff scandal, we knew the SEC was going to make an example out of someone for something, eventually. To its credit, the SEC didn't hit a bunch of "easy to catch" small-timers. The folks at the SEC went after the biggest and baddest firm on Wall Street.

No one has more clout in Washington and on Wall Street than Goldman Sachs.

Suing Goldman Sachs will definitely attract mainstream media cheerleaders. As Wilt Chamberlain aptly noted, "No one ever rooted for Goliath."

Especially if Goliath is a Wall Street firm that took taxpayer bailout money and paid its employees million dollar bonuses.

I don't have any problems with the SEC going after Goldman Sachs. I just wonder if it is going after the right people and the right situation.

The SEC lawsuit is based on the actions of Fabrice Tourre, a 31 year-old Goldman Vice-President. As Peter Huang, a securities law professor at Temple University told the Wall Street Journal, "The SEC has the tricky job of showing that Goldman was reckless in deceiving investors."

In short, the lawsuit is not a slam dunk.

When you start looking at Goldman Sachs, there are a lot of high level decisions that need to be completely investigated. Many are related to the bailout money it took.

I've been opposed to the Wall Street bailouts from day one. I looked at the cast of characters and decided that the American people were going to get taken, while Wall Street and Washington insiders would make out like bandits.

I called that one correctly.

As Ronald Ricker pointed out in a Huffington Post piece, Goldman was given $12 billion in taxpayer bailout money in 2008. A year later, it paid out $19 billion in bonuses to their employees.

Sounds like a great place to be on the payroll.

The Goldman story gets worse.

One of the most unusual moves during the whole bailout fiasco was the bailout of AIG. AIG is an insurance company. Insurance companies are regulated by states, not by the federal government and, certainly, not by the Federal Reserve Board.

On September 16, 2008, the Federal Reserve, an organization designed to provide liquidity for banks, announced that the Federal Reserve Bank of New York was giving AIG an $85 billion line of credit. AIG has gotten billions more since then.

The Secretary of the Treasury at that time was Henry "Hank" Paulson. His previous job had been head of Goldman Sachs. The Federal Reserve Bank of New York was headed by Timothy Geithner. He took Paulson's place as Secretary of the Treasury.

Shortly before the AIG bailout, Paulson let Lehman Brothers, one of Goldman's biggest rivals, go into bankruptcy. There was no bailout money for Lehman. There was not even a shotgun marriage/merger, like the one Paulson arranged with Morgan Stanley and Chase.

When all the dust settled, Paulson's former rivals and chief competitors at Lehman Brothers were out of the game. All while AIG stayed in.

It gets even worse than that.

A very complicated part of the bailout was related to companies that were "counterparties" to AIG. Counterparties were financial institutions that AIG owed money to. Goldman Sachs and other companies receiving money from government bailouts got even more government money as it was funneled back to fully pay AIG's claims, 100 cents on the dollar.

Taxpayers put up all the money and got none of the rewards. It was a multi-billion dollar windfall for Goldman Sachs and the other AIG counterparties.

In all his previous days on Wall Street, I can't imagine that Paulson ever cut a deal as one-sided.

If he had, he would never have lasted as head of Goldman Sachs.

It was the biggest scandal related to the bailout. And it was swept under the rug. I don't see them dragging anyone off in handcuffs over the AIG saga. I have not even seen a civil charge, until now.

Geithner is now President Obama's top dog at Treasury. His former boss, Bernanke, was re-appointed by President Obama for another term. Paulson is out promoting his new book.

The civil suit by the SEC allows the government to pretend that it is more like Elliott Ness than Barney Fife. They can put all their firepower into getting a positive result out of the lawsuit. It's easier to go after a 31 year-old Vice-President than the current and former Secretary of the Treasury.

The current suit will have little impact on Goldman in the long run. Goldman will still keep racking up hefty profits, still keep paying the employees multi-million dollar bonuses and still find a way for its friends and alumni to work for the government agencies regulating it.

It could be that Paulson and Geithner were truly innocent guys just doing their jobs.

It could be that Ben Bernanke is really a genius and truly deserved to have his picture slapped on the cover of Time Magazine as "Man of The Year."

It could be that everything wrong at Goldman was contained to a 31 year-old Vice-President.

And it could be that the moon is made out of green cheese.

Just don't ask me to believe it.

I'm skeptical of what Washington and Wall Street are doing. After a lifetime of hearing government statements like "Watergate was a third rate burglary," "Oswald acted alone," "Iraq has weapons of mass destruction," and "I did not have sex with that woman," I have a right to be.

We've been told that Goldman Sachs is too big to fail.

Now I wonder if they are too big to jail.
 


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