John Daly, Wall Street Bailout and Bottoming Out

John Daly, Wall Street Bailout and Bottoming Out

One little problem that confronts you,
got a monkey on your back.
Just one more fix, Lord, might do the trick.

-Lynyrd Skynyrd


I saw a pathetic story about golfer John Daly and how he continues to screw up his life. He has blown through millions of dollars, drinking problems, multiple wives and a potentially great golfing career. He is signing autographs at Hooters to make a few bucks.

People in the addiction world say that before an addict can get help, they have to “bottom out.” They have to reach their lowest point. Then they can get help and turn their lives around

John was never able to hit bottom. There has always been another corporate sponsor or another fan to buy him a drink. Hooters is his latest enabler.

It’s hard to come up with a more inappropriate sponsor for John Daly than Hooters. They need to cut John loose and let him bottom out. Or be ready for when he drops over dead in one of their bars. He needs help, but Hooters is not the place to get it.

When I think about John, I also think about the Wall Street Bailout.

We made a mistake in not letting Wall Street hit bottom, too.

I was a fervent opponent of the bailout. Someone called into a radio show I was on and asked me what would happen if we didn’t do the bailout. I said some companies would fail and the S&P 500 would drop by about 50%.

Once we hit that bottom, we could start the process of repairing and climbing back up the ladder.

Just like addicts do. They hit the bottom and reassess their lives. Many go on to productive and wonderful lives.

They just needed to hit the bottom first.

The quicker Wall Street bottomed out, the quicker we could have started the recovery. Instead, we enabled it to the tune of $700 billion.

There was no particular strategy to the enabling. We propped up some companies and let others fail. Instead of letting the stock market drop hugely overnight, it has been dropping over time, with no signs of hitting a bottom. Bad companies with bad management are allowed to make the same mistakes that got them into trouble in the first place.

No one on Wall Street is getting it. Instead of taking the $700 billion and making sure that it trickles down to Main Street, they are using it to buy other banks. They spend a lot of time talking about bonuses for their bigwigs.

A company getting taxpayer bailout money should not be handing out bonuses. A company getting taxpayer bailout money shouldn’t be buying other companies or paying dividends to stockholders.

There is a word for companies that need a government handout: Broke. Why should people get bonuses for managing a broke company? Or for managing a company broke?

If my business in Richmond, Kentucky goes broke, no one gives me a bonus. They tell me to find another job. Creditors take my house, car and cash. It’s the small business version of bottoming out. Very painful, but sobering.

Most of us in smaller businesses have bottomed out several times. Once we hit bottom, we figure out what we did wrong. We don’t make the same mistakes, and we often come back stronger than ever.

Both Wall Street and John Daly need to go through that period of bottoming out and self-examination. Neither one has. If we keep enabling them, neither one will.

At least Daly recognizes that he screwed up. Wall Street doesn’t seem to get it. Many businesses remind me of addicts who think one last fix can cure their problems. More companies, from many industries, are trying to get a piece of the bailout money or get a bailout of their own.

We have to let some companies bottom out. We need to let them truly examine how they got in trouble in the first place. We need for them to shed their bad habits and replace them with good ones.

The alternative is to have the economic equivalent of John Daly - Years of resources being wasted while we hope for a turn around that never happens.

We’ve learned lessons by watching addicts. We’ve learned lessons by watching countries, like Japan, prop up their economies. We know what to do. We just need leaders with the guts to do it.

Its time to let Wall Street bottom out. It is the only way it will truly bounce and rebound.

Don McNay, CLU, ChFC, MSFS, CSSC, is the founder of McNay Settlement Group in Richmond, Ky and an award winning, syndicated, financial columnist. You can write to him at don@donmcnay.com or read what he has written at www.donmcnay.com. McNay is Treasurer of the National Society of Newspaper Columnists and the author of Son of Son of a Gamblers: Winners, Losers and What to Do When You Win The Lottery.

Max Cleland's Chance for Revenge

Max Cleland’s Chance for Revenge

“Maybe next time he'll think before he cheats”

-Carrie Underwood

It’s certain now. Georgia Senator Saxby Chambliss did not get a majority for re-election.
If he wants to hold on to his Senate seat, he will have to defeat challenger Jim Martin in a run off election on December 2.

It will be a day for patriotic Americans to even the score. Chambliss does not deserve to sit in the United States Senate.

The Senate seat previously belonged to Max Cleland. Six years ago, Chambliss got in the gutter to steal it from him.

I’m stunned to see that John McCain is planning to campaign for Chambliss. Cleland ,
(ironically, like John McCain) is a bona fide American hero. His valor during the Vietnam war resulted in his becoming a triple amputee. After a life in public service, he was elected a United States Senator from Georgia.

In the Senate, Cleland served honorably and well. And in 2002, Max was the victim one of the most disgusting smear campaigns in American history.

When the country was recovering from the 2001 attack on the World Trade Center,
Saxby Chambliss ran a campaign that claimed that Max Cleland was somehow helping Osama Bin Laden. He based his convoluted “evidence” on some Senate procedural vote that wasn’t the slightest bit relevant.

In the 2002 climate of fear, Chambliss’s lies and distortion worked. Now it is 2008, it is time for Chambliss to face the music.

I want to hear Chambliss’s explanation now. What he did in 2002 doesn’t work six years later.

It is time for Chambliss to atone for his sins.

One of the biblical 10 commandants is not to bear false witness. Chambliss will have to answer to God someday but on December 2nd, he needs to answer to the people of Georgia.

I’m hoping the rest of the country pitches in to defeat Chambliss. I also hope that John McCain starts to act like the John McCain of 2000 instead of the one we saw this year and puts patriotism over party.

Having a Vietnam War hero like McCain campaign against the man who smeared Max Cleland is an outrage.

I don’t know much about the challenger Martin. I really don’t need to. I would vote for Larry the Cable Guy or Homer Simpson if they were running against Saxby Chambliss.

Chambliss got in the Senate with a dirty trick and he needs to go home.

Cleland’s loss was a low point in American politics. How you can question the patriotism of a man who left several body parts in Southeast Asia? Why did voters go for it?

It inspired candidates in other states to pick out phony charges and run negative ads. If you can get away with smearing Max Cleland’s patriotism, you could get away with anything.

2008 is the time to make it stop. Once and for all.

Cleland is a real hero, with real accomplishments, who dedicated his life to serving his country. He was brought down by a guy who smudged the truth.

Actually he wasn’t brought down, he just had to leave the Senate. It takes more than Saxby Chambliss to bring Max Cleland down. I met Cleland after his Senate career, when he was traveling the country, helping like minded candidates. It can't be easy for a triple amputee to be barnstorming the country. It would be simple for Max Cleland to sit home and let others lead the charge.

That is not Max Cleland’s style.

Chambliss cheated to get his Senate seat.

I want Chambliss, and every other politician, to think before the next time they cheat.

Don McNay is the founder of McNay Settlement Group in Richmond, Ky. He is the author of the Unbridled World of Ernie Fletcher. You can read his award winning column at www.donmcnay.com or write to him at don@mcnay.com. He is Treasurer of the National Society of Newspaper Columnists.

Credit Cards in the world of taxpayer-owned banks

“meet the new boss. Same as the old boss.

-The Who

The American people ponied up $700 billion to supposedly bail out some big banks on Wall Street. So far, we have not seen the banks what banks are supposed to do, lend people money. Instead they are doing the thing that Wall Street raiders do, take over other companies.

Bush and Paulsen encouraged bad behavior in their bailout bill. They gave big banks money and tax incentives to gobble up small banks. They made sure that their buddies on Wall Street were taken care of.

Most big banks didn’t need bad behavior encouragement. They’ve been able to do harmful things long before the government started subsiding them.

Some of the biggest abuses come in the way that banks have handed out credit cards. Now that I, like every other American taxpayer, indirectly owns part of the Wall Street banks, I want to talk to them about how they have been acting.

I want to do is to throw credit card companies off every college campus. Is it any wonder that the banks needed a $700 billion bailout? What kind of business gives huge lines of credit to students who don’t have jobs?

I always thought that you had to have a job to get credit. Not anymore. I have a college student in my household. He has minimal income, no assets and big student loans. However, the credit card companies love him. He gets ten times more mail than I do. All of them “pre approved” credit cards. All go straight in the trash.

Its bad for the college students to run up debt before they have jobs. Its bad for the nation to have a generation of college graduates paying off high interest credit cards instead of saving money to buy houses and cars.

Giving cards to college students couldn’t have been that great of a business or the banks wouldn’t have needed a bailout.

I saw an article in the New York Times that said that credit cards were the next problem area for the banks.

DUH!

We’ve had years of students, people coming out of bankruptcy and people with no income getting tons of credit cards. Usually with interest rates and fees that would make a loan shark blush.
Since they are getting multi million dollars bonuses, executives at Wall Street banks should have figured out what most of us know. Broke people don’t pay loans back.

You can charge them all the interest and fees that you want. If they don’t have any money, they are not going to give any to you. Especially if you are an unsecured debtor like a credit card.

People will make an extra effort to hang on to secured debts, like their houses and cars. The credit cards will be last in line.

We are now in an economy where a lot of people who were barely hanging on will get closer to the edge. You see people losing their jobs or going from high paying jobs to minimum wages. You see people who counted on the value of their house or 401k plan being suddenly disappointed.

We see a lot of people worried about feeding their families and keeping a roof over their heads.

When it comes to feeding your family or paying your credit card, the family is going to win every time.

I hope the banks factored that reality in before the came up with the $700 billion figure. They might want to hang on to some of that taxpayer cash instead of using it to buy other banks.

As bad as people are projecting, it will get worse. Recent events will change how people feel about debt.

People who got stuck with high interest credit cards aren’t going to be in a hurry to pay them off. Even if they can.

Banks had two things going for them in collecting credit card debts. They could shame people by embarrassing them in front of their neighbors and they could threaten to hurt their credit scores.

Its going to be hard for a bank that was bailed out by taxpayers to shame anyone into anything. Since people with good credit can’t get loans, there is no incentive for someone with bad credit to even bother. They can default on their debt and make the banks come after them.

I’ve tried to collect from someone who was determined not to pay me. It was expensive, time consuming and I never did get all my money. Try multiplying that by a few million people. That is what the big banks are going to be dealing with.

From a moral standpoint, I want banks to clean up their act in the credit card department. Since many of the bankers work for me, and the rest of the American taxpayers, I’d like to protect my investment by making sure the credit card issuers get out of the stupidity game.

I can’t afford to give them another $700 billion.

Don McNay is the founder of McNay Settlement Group and the author of the book Son of a Son of A Gambler: Winners, Losers and What to Do When You Win the Lottery. You can write to him at don@donmcnay.com or read other things he has written at www.donmcnay.com . McNay is a cotributor to the Huffington Post and Treasurer of the National Society of Newspaper Columnists.




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$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 don@donmcnay.com or read other things he has written at www.donmcnay.com

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 don@donmcnay.com or read other things he has written at www.donmcnay.com

Don McNay on POTUS 08 on XM Radio

I am taping a segment with Tim Farley on XM radio on Thursday morning. It is on POTUS 08, Channel 130. I am not sure what time(s) the interview will air but you can listen on their web site or download the podcast on ITunes.

I'm on to talk about the only political column I have written in the past couple of months, Mitch McConnell and the 24 year itch

I wrote it on October 5, but it went unnoticed with the economic crisis going on. It was based on research I did while I was in graduate school at Vanderbilt. A producer at XM radio is a fellow Vanderbilt graduate (although she noted it was LONG after I graduated) and spotted it.

As Brian Wilson once said, "be true to your school." I am fornutate that so many Eastern Kentucky University and Vanderbilt graduates have wound up in the media.

When 401k came into our lives

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When 401(k) came into our lives

“Running on Empty. Running into the sun but I’m running behind.”

-Jackson Browne

Internal Revenue Code section 401(k) is the only section of the US tax code that the average people can cite. They know it has something, and often everything, to do with whether or not they can retire with dignity.

The adoption of section 401(k) in 1982 turned out to be one of those big moments that changed everything.

401(k) plan investments are a primary driver of the investment markets. It is the employee retirement benefit that most companies offer.

These plan investments are also the reason that many people are pacing the floors at night, watching their retirement get delayed or destroyed.

Until 401(k) came along, pension plans were usually defined benefit plans.

A defined benefit pension is one that gives you a set number of dollars for set period of time. It usually pays out over the course of your lifetime after retirement.

With a defined benefit plan, the employer takes responsibility for making sure pension money is safe and properly invested.

With the advent of the 401(k), employees with little or no investment experience were required to pick among investment options offered by an employer.

Employees were put in the position to fail. Many have.

It is up to the employer to pick what investment company handles the employee’s money. If the employer picks a dog, with few options, the employee is out of luck.

Even worse, many companies push their employees to use 401(k) money to buy stock in the company they work for.

If the company goes broke, people lose their jobs and their retirement savings, too.

There are a lot of people hurting. It is sad to watch retired people, or people close to retirement, lose 40 or 50% of their 401(k) plan’s asset value in one year. They will never be able to make that back up.

There is a second major problem -- Not putting enough money in the 401(k) to begin with.

401(k) plans give people too much freedom.

I’ve always encouraged people to put the maximum amount into a 401(k) plan. Few do. Many put in little or nothing at all.

Now they are looking at a bleak retirement.

Defined benefit plans encouraged people to stay at the same company. 401(k) plans do not.

I’ve watched tons of people change jobs and then blow the 401(k) money before they started their new job.

90% of people with a lump sum of money will run through it in five years or less. The same statistic holds true for 401(k) rollovers as it does for lottery winners.

I am appalled that both presidential candidates have proposals that will make it easier for people to blow their 401(k) money.

There are a variety of ideas the presidential candidates are completely ignoring.

One would be to make it easy, and cost efficient, for employers to go to defined benefit plan and guaranteed income plans. That would make sure that our retirees have money for the rest of their lives.

Second would be to change the way 401(k) plans are administered. Take them out of the employer’s hands and let employees invest in whatever, and with whomever, they like. Just like they do with their IRA accounts.

When historians study the cause of the economic meltdown, they will see that the change from defined benefit plans to 401(k) plans in 1982 was a factor. It was one of many shifts where dramatic changes were made in people’s lives and liberties. People didn’t realize just how dramatic until years later.

If we are going to keep from running behind, 401(k) is one of those things that we need to fix.

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