I just look at myself to find I've learned the hard way every time
- Jim Croce
For 27 years, I've worked with people who receive large sums. I also wrote a book (Son of a Son of a Gambler) about lottery winners.
Just like the current crowd on Wall Street, the majority of people who get a large sum of money blow through it in a short period of time.
The key question in both cases is: Why?
It's easy to figure out Wall Street. Greed and ego dominate. The compensation system was set up to pay incredible bonuses for short term results.
Ego and "showing off" can be a problem for lottery winners, but they are not motivated by greed. The winnings usually bring them from poverty to wealth. The hard job is for them to hang on to what they have.
Hanging on to what you have should not be a hard job. However, it's been said that roughly 90% of lottery winners run through their money in five years or less.
Although Wall Street is now running through millions in five seconds or less, they formerly had a good track record for a long time.
Somewhere along the way, Wall Street became the financial version of "Powerball" Jack Whitaker.
Jack is the Hurricane, West Virginia, man who won a $290 million Powerball in 2002 and said he was "cleaned out" four years later.
Along the way, his wife left him. He was sued hundreds of times. His granddaughter died of a drug overdose and he was robbed of $600,000 in cash that he brought to a strip club.
I thought Jack was way out of control until I saw the people at AIG and Citigroup. A more refined version of avarice, but the same out of control factor.
There are other parallels with Powerball Jack and the people on Wall Street. Both thought that the money would never run out. Jack had $290 million. Wall Street companies were "too big too fail."
Both were subject to external pressures. The first thing that anyone getting a large sum of money should do is to keep that news to himself. As my late father, a professional gambler, said, "Don't be flashing your roll in public."
Jack won on Christmas Day of 2002. He immediately held a news conference. The story was carried around the world. Everyone with a hard luck story found his way to Jack's door.
He found the pleas of strippers and liquor store owners to be particularly compelling.
When John Thain at Merrill Lynch dropped over a million dollars decorating his office, he was obviously compelled to "flash his roll" in public.
Powerball Jack had the moral high ground on AIG and the gang on Wall Street. He did a lot of stupid stuff, but it was with his own money.
Wall Street was using money that should have gone back to their stockholders. After blowing that, they are using taxpayer's money.
There are ways to keep people from blowing through a lottery jackpot. People can set up a trust and not draw publicity to themselves. They should take the payments over a period of years or a lifetime. They should make a budget and not deviate from it.
I never liked all the fancy products that Wall Street was peddling. They seemed too risky, especially for people who are getting a "once in a lifetime" lump sum.
The goal is hanging onto the money for the rest of their lives. The best strategy is simple. Put some money in the bank, get monthly income from an immediate annuity, and pay off all debt.
Basically, the same thing our parents and grandparents did when they retired. They wanted to live out their days without stress.
It was a pretty good plan. You don't see foreclosures on houses with paid off mortgages.
Some would try to move my clients to the risky stuff that Wall Street offered.
The strategies were complicated and hard to understand. My dad once asked me, 'Why is options trading legal and betting on the Bengals illegal?" I didn't have a good answer.
Dad didn't live long enough to see stuff like credit swaps and mortgage backed derivatives. He made his money gambling. But he kept it in a local bank.
Which is not such a bad idea.
The key to preserving a lump sum is to put a number of "buffers" and controls in place to keep people from going crazy. You don't want them to have too much freedom.
Powerball Jack is the poster child for what too much freedom can do to you.
It's time Wall Street learned the same lesson.
If the Wall Street compensation system was based on long term returns to shareholders, instead of annual bonuses, it would control some of the craziness. If we made corporate officers personally liable for losses, like those of us on Main Street are, there would be more reasonability and responsibility.
If we made CEO's pay for their own office decorations and private jets, you wouldn't see any more $40,000 toilets.
If the people on Wall Street knew that no one would ever be there to bail them out, ever again, they would be less inclined to gamble with instruments they don't really understand.
After Powerball Jack became the object of ridicule, he seemed to have learned his lesson. The people of Wall Street have become the object of ridicule, too. Maybe they can learn a lesson in humility from Jack.
Don McNay, CLU, ChFC, MSFS, CSSC is the founder of McNay Settlement Group in Richmond, Kentucky. He is the author of Son of a Son of a Gambler: Winners, Losers and What to Do When You When The Lottery. You can write to Don at firstname.lastname@example.org or read his award winning, syndicated column at www.donmcnay.com. McNay is Treasurer for the National Society of Newspaper Columnists and a lifetime member of the Million Dollar Round Table.