Monday, October 27, 2008

$700 billion in taxpayer dollars to kill small banks

$700 billion in taxpayer dollars to kill small banks

“Like a thief in the night, it cuts like a knife”

-Marty Brown

I was opposed to the Wall Street bailout from day one.

We were asked to trust the Bush administration, with no track record for truthfulness, to send $700 billion to Wall Street, not Main Street.

Bush, Paulsen and Wall Street want to stick it to Main Street even further.

It appears that the $700 billion will be used for Wall Street banks to take over small banks, in small towns.

Like the one I live in.

The bailout supporters made two arguments. The $700 billion was supposed to stop a financial meltdown. After we bailed out Wall Street, it was supposed to open a floodgate of credit for Main Street.

It didn’t come down that way.

The meltdown continued, even after the bailout.

I’m waiting for that cash flow to come roaring into small towns. Like mine. It hasn’t happened and, according to a stunning New York Times column by Joe Nocera, the money is not coming soon.

The $700 billion may never see Main Street. Unless you count Wall Street banks gobbling up Main Street banks.

Unlike other countries, such as England, the United States did not REQUIRE that banks taking government bailout money lend it out! Lending is not required, just “encouraged.” The banks can do what they want with it.

If I was a running a bank, my primary “encouragement” is to make money for my shareholders. If I can take government money and use it for something more profitable, I am going to do it.

Like any businessperson would.

The most profitable thing banks can do is take government money and buy up another bank. We saw it happen last week and will see it happen many more times.

It’s what Bush and Paulsen wanted all along. They snuck a provision in the bailout bill that gave BILLIONS in tax breaks for big banks to buy other banks.

Bush and Paulsen want to reshape the banking industry to allow only big Wall Street banks to survive. A tax expert, quoted by Nocera, said “It couldn’t be clearer if they had taken out an ad.”

Nocera, who supported the bailout bill, said that the rationale that the bailout would make banks start lending again, is “Treasury’s version of the weapons of mass destruction.”

I feel duped. I feel deceived. I want to vote against a congressman who supported the bailout, but my congressman saw the bailout’s flaws and voted “no.”

I like small banks. They are an important part of my business and my life.

Starting in high school, I’ve always had a personal relationship with my banker. A small town bank put me in business and another kept me in business. I want to know that the person I’m talking to is a final decision maker. I don’t want a committee or a computer in New York to decide for them.

The gang on Wall Street has lost trillions and put the nation in economic peril. I don’t want to do my banking with them.

I’ll take my chances with a banker who knows me, knows my business and knows my family. It’s worked so far. I suspect if you surveyed other Main Street business people (I am actually three doors from Main Street, but close enough), most would feel the same way.

Small town banks have not been hurt as badly as Wall Street banks. Most were not playing the sub-prime game. None of their officers get million dollars bonuses. And I am sure the officers don’t get tens of millions to leave when they lose their stockholders’ money.

In other words, they are personally responsible for the lending decisions they make. Unlike the people on Wall Street, they can’t screw up and expect a golden parachute at the end.

I trust the small bank business model more than I trust what they are doing on Wall Street. I don’t want Wall Street taking over small town banks. I don’t want them to use taxpayer money to take the bank and I especially don’t want the Wall Street banks to get billions in tax credits to do it.

I want them to lend money to people on Main Street. Someone told me that was what the $700 billion was all about.

People say we can fix it when we get a new President and new Treasury Secretary. That is three months. By then dozens of mergers and takeovers will have taken place.

We need to act now.

Once you allow a bank to be gobble up other banks, just like when you invade a country, it is almost impossible to undo the damage.

Especially when that damage was based on misleading information.

Don McNay is the Chairman of McNay Settlement Group and the author of Son of a Son of a Gambler: Winners, Losers and What to Do When you Win the Lottery. You can write to him at or read other things he has written at

Sunday, October 26, 2008

2008 - The Year of the Outsider

2008 - The Year of the Outsider

“I come from down in the valley, where mister when you’re young, they bring you up to do, what your daddy done”

-Bruce Springsteen

Just like 1932, 2008 is a year when we will realign “Insiders” and “Outsiders.”

Insiders tend to be white, well-educated males from high income backgrounds. Religion, personality and regionalism narrow Insider ranks even further.

2008 will change things. We will either have an African-American President or a female Vice President. Being a Wall Street hotshot doesn’t carry the weight that it did a few months ago. Lobbyists are losing their clout with politicians who can raise money on the Internet.

Outsiders who eventually become Insiders learned to play the game of Life by different rules. They buck conventional wisdom and knock down the doors that are closed to them.

Obama is a good example. He was encouraged to stay in Congress and wait his turn. Instead, he took the risk of running for President after only three years in the Senate.

It was a risk that paid off.

One of the fascinations of Obama’s campaign is that he got the nomination without a lot of Insiders involved.

Win or lose, his campaign changed how modern campaigns are run.

It reminds me of William Jennings Bryan’s presidential campaign in 1896. Bryan ran a campaign that was different from any presidential candidate before him. But every candidate after him copied his style.

Under the new system, there will be a lot of political bosses looking for someone to boss. Candidates can ignore them and still win.

Some people spend their lives trying to be Insiders. They suck up, toe the line and hope that Insiders will tap them to join the ranks.

It’s uncommon for that ‘tap’ to happen. Once earned, power and privilege are rarely given away. Insider status is often handed down from generation to generation.

Unless you want to stay in the same career that your daddy did, you are going to have to buck the system.

Many of my friends are trial lawyers, journalists, and entrepreneurs. Those are natural professions for people who want to change the status quo.

Almost all great musicians are Outsiders. Rock and roll, country and rap have their roots in rebellion.

Outsiders are the driving forces in almost every profession. It took an Outsider like Bill Gates to go against the establishment at IBM. Then Google came after Gates when Microsoft became the Insider.

There is one group that I have never understood -- people who are Outsiders but think they are Insiders.

I know a young, disabled couple who identify deeply with the establishment. The couple has no money and no hope of getting any. They get every kind of government benefit available.

One of their hobbies is to call into talk radio programs. They rail for lower taxes, despite the fact that they don’t pay any. They get incited about estate taxes, although no one in their family has a taxable estate. They vote for political candidates who want to take away their benefits and their right to the jury system.

There are thousands like them, but I suspect that number is diminishing.

Most people do not like to rock the boat. It is easier to act the same way as everyone around you. It takes a crisis to get people to switch.

1932 was our last great economic crisis. It also broke some long standing political habits.

Up until 1932, African-Americans overwhelming supported the Republican Party. The Republican Party has always been seen as the party closer to Big Money, but that really was the case in the 1920’s.

Although few African-Americans in 1932 had wealth, the Republicans were the party of Lincoln. It took the Great Depression to put a dent in that voting pattern.

Bringing in Outsiders does not always make things better. Insiders have experience and knowledge that is difficult to replace. There is also the chance, like in George Orwell’s Animal Farm, that the Outsiders take on so many of the Insiders’ characteristics that it is impossible to tell them apart.

We will soon learn how it plays out.

Don McNay is the Chairman of the Board for McNay Settlement Group and the author of Son of a Son of a Gambler. Winners, Losers and What to Do When You Win the Lottery. You can write to him at or read other things he has written at