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Dennis Santiago Headshot

Moving Big Money

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I have to say I've always had a fondness for the State of New Mexico. I envy them the fact that they got to keep Governor Bill Richardson for themselves after the last election cycle. It doesn't surprise me that this state would be one of the first to recognize that there might be a payoff to bringing its operating accounts back inside its borders so the money can more closely support intra-state needs. That's exactly what legislator Brian Egolf proposes to do. And so we see the transition of the Move Your Money concept beyond the small sums game into big money.

What's big money? Big money is essentially any sum over the FDIC insured amount of $250,000. That's the point where the failure of a bank could result in the loss of principal. Uninsured amounts are a lesser pig at the trough. Let's call that "tangible" risk. This encompasses many different kinds of monetary stakeholders. Sometimes it's huge, as in the case of New Mexico's $1.4 billion operations accounts. It also applies to high net worth individuals, churches, 501(c3) organizations, corporate, union and pension accounts and - yes indeed - other state and local governments.

Traditionally when you have a lot of money you get something called Unlimited Deposit Insurance. You pay - big surprise? - a fee either implicitly or explicitly to the custodians of such large accounts. But hey, if you're in this rarefied category you already know those fees are rising and in some cases may cease to be offered. The reason is of course because "real" insurance companies are no dummies. True, actuaries do have some of the oddest senses of humor on the planet, but they know their math and they know that continuing exposures to things like what's hidden beneath the "Temporary" Liquidity Guarantee Program (TLGP) and troubled Commercial Real Estate and Alt-A Option ARM Residential loan assets going deep into non-accrual are systemic plagues still lacking real vaccines. I've talked to a lot of bankers in the last three weeks and there's still a real danger out there that some banks are becoming unwilling REIT's. Solving that one's not for this installment though.

Did you know that churches typically amass between $1 to $3 million dollars each year? Let me translate that. "It's way over that $250K insurance limit." The money is used to fund operations and support civic and religious initiatives. In how many of those instances do you think the money gets deposited into one account? How often do you think a church evaluates the financial soundness and social justice implications of its monetary deployment profile? You'd be surprised.

501(c3) non-profits, unions and pensions are even bigger piles of money. $100 to $300 million dollars is not unusual. At the high end it's billions. These pools fund operating liabilities; meaning, the earnings from the principal are drawn into the entity operating accounts to perform what these organizations actually do in this world. The core principal stays in the hands of the custodian. It's juicy stuff. Traditionally that money went to the tallest most imposing granite tower on the block. That's who would be a custodian worthy of safeguarding such a princely sum. The fees for being the caretaker of such amounts can be lucrative. And what you get to do with these fantastic sums, OMG! Since the demise of the Glass-Steagall Act those towers have become mixtures of bank and casino. The exact proportions of the alchemy differ from glass house to glass house but this is the money that powers the gaming tables all the pundits decrying casino banking trill about.

Corporate deposits? You know you see all these 10-K's and Annual Reports talking in such glowing terms about sustainability and social investing. Isn't it about time you looked at how that cash and equivalents line item on your balance sheet can do more that be a piggy bank?

And every other government in this country should take a cue from New Mexico. The true economic benefit of money lies in the number of times you can get it to circulate locally. If those operating accounts took at least one or two more turns of the crank inside your borders before meandering off to the rest of the larger economy what will that do for your organ grinder?

So you could wait for President Obama to try to resurrect the Glass-Steagall Act with a new name maybe starting with the letter V after battling through the legislative process and its attendant lobby ridden minefields, or you could move the money to create the effective outcome of such an act and change behavior patterns using "tangible" persuasion.

Which path do you think can make something positive happen faster? Think about it. What if all that money flitting back and forth in EFT transfers from Downtown to Midtown went to work on Main Street? If big money moved with the plural force of the American nation, do you think we'd still have 10% unemployment next time Santa visits? I'm just saying thinking out of the box like this is what we Yanks are good at.

Let me put some cream in that coffee for you. Moving that much money around, and it won't all go to small banks, a fair share will move into more stringently corralled accounts at big ones, will take professional quality diligence both in transition and on a going forward basis. There are firms that specialize in assisting just churches. There are others for corporations and governments. And, oh golly, doesn't everyone in the world of funds think they are the world's greatest financiers whether they are or not? Job opportunity people! Perk up already.