Where To Stash One’s Winnings?
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
LONDON — Today’s Europe-wide lottery offers a tax-free, lump-sum jackpot worth about $200 million. When I hand over my winning ticket, though, I will face a dilemma: Where do I stash my luck-gotten gains?
Burning through the first few million won’t be a problem. I’ll turn up for work on Monday morning with a case of champagne and get roaring drunk at my desk before someone calls security and kicks me out of the office. I’ll taxi home, snooze for a few hours to sober up, and then hit the phones. “Hello, NetJets Inc.? I’d like to open an account, please. Oh, and once the funds clear, book me on a Dassault Falcon 7X to Aspen.”
Once I’ve bought the ski lodge, ordered an Audi R8 sports car, and selected my Sunseeker triple-decked yacht, though, I have to find a home for my winnings. In these troubled times, there are few, if any, true havens.
I can’t put my money in a bank. Deposit insurance programs are underfunded, overstressed, and woefully inadequate given the size of my needs. Even with a smaller stash, do I really want to risk finding myself in a line of creditors when the authorities decide to let another institution follow Lehman Brothers Holdings Inc. over the cliff?
Banks still won’t lend to each other, which is why the one-month money-market rate for dollars is at 3.43%, its highest level since January. Why would I risk putting my money into an account, rather than under my mattress?
I’m sure Goldman Sachs Group Inc. and Morgan Stanley would welcome me with open arms, now that they have seen the error of their racy investment-banking ways and dulled down to become deposit takers. Nevertheless, I’m learning the lesson of recent years. Whatever Wall Street is selling, I’m not buying, no matter what Warren Buffett does.
The regulators, meantime, clearly don’t want me to invest in financial markets. They have banned short selling in the stocks of such paragons of economic virtue as credit-rating company Moody’s Corp. and hedge fund GLG Partners Inc. They look poised to regulate the credit-derivatives market out of existence.
Pretty soon, it will be illegal to buy anything that is rising in price — oil and other commodities spring to mind — and it will be forbidden to sell anything losing value. Why would I walk onto a playing field where the goalposts move arbitrarily and the rules are in flux? The mattress option is looking more and more attractive.
Maybe I should blow my wad on U.S. Treasury bills, even if I end up investing at negative yields that mean I’m paying for the privilege of lending to the government. Do I really want to be in dollars, though, when China and other foreign holders of Treasuries look ready to dump the greenback, and the rating companies should be reviewing the American government’s AAA grade?
My lottery win tomorrow, however personally enriching, will be dwarfed by the largess the American government is lavishing on Wall Street. “$700 billion,” the American Treasury secretary, Henry Paulson, says. “$1 trillion,” Barclays Capital says. “$2 trillion,” Tom Sowanick, the chief investment officer for $22 billion in assets at Clearbrook Financial LLC in Princeton, N.J. says.
Mr. Sowanick added together $700 billion for rescuing Fannie Mae and Freddie Mac, the $29 billion Bear Stearns Cos. backstop, the $85 billion loan to American International Group Inc., the $700 billion Paulson plan, $500 billion to the Federal Deposit Insurance Corp., plus sundry other new obligations.
If Mr. Sowanick is correct, the American taxpayer will be on the hook for quadruple the amount that banks around the world have written off so far. That makes America seem like a place to avoid for a lottery winner seeking security in securities.
Mr. Paulson’s aptly named Troubled Asset Relief Program, a tarp being the sheet you spread over the junk in the garage to hide it from critical, prying eyes, has a twist. While the Treasury won’t buy your damaged collateralized-debt obligations directly, there is a way to offload your toxic CDOs — provided they have defaulted and you can break them into their constituent parts.
Standard & Poor’s reckons about $240 billion of the $450 billion of subprime CDOs it rated has suffered an event of default, according to a research note published this week by Royal Bank of Scotland Group Plc. “When a deal is in EOD, the controlling investor can choose to liquidate,” the note says. “The Fed plan makes liquidation potentially the best option, as then the Fed bid can be hit for the underlying bonds.”
There’s a spoof e-mail doing the rounds, aping those Nigerian banking-scam letters. “I am Ministry of the Treasury of Republic of America,” it says. “My country has had crisis that causes need for large transfer of funds of $700 billion. If you would assist me in this matter it would be most profitable for you. After you send me bank account details, I will reply with detailed information about safeguards to protect the funds.”
I think I’m going to need a bigger mattress.
Mr. Gilbert is a columnist of Bloomberg News.