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Risk is Real

Okay, we are on the threshold of a new year and the economic outlook is anything but bright. Most everyone was blind-sided by the economic downturn of the past few months and left reacting to market developments rather than adhering to a carefully planned strategy. Once it had begun, however, there was little anyone could do to avoid the ensuing damage. This is unfortunately the reality in a capitalistic society; risk exists and it is indeed real. Our financial system is built on the foundation of risk versus return: if you want to go out on a limb you may earn a greater return or you may plummet into the abyss. Until recently, a lot of people forgot about the abyss part.

Most troubling is the thought of achieving some semblance of financial security and then losing it just as your fingers began to close around it. We can all appreciate this to some extent as we read our 401k statements but imagine if you are forced to sell now and make real those losses? The prospect of that occurring is something to keep you up at night.

I was involved in several multi-million dollar cases over the past year that settled for a lump sum of cash only. These cases were settled prior to the economy’s implosion, in fact the economy was humming right along at the time of settlement. The injured plaintiffs in these cases were perfect candidates for structured settlements: one an impaired infant and another a surviving spouse with young children at home. Structured settlements were recommended in these cases by Judges, claimspeople, and both plaintiff and defense counsel. We had prepared plans that provided the injured plaintiffs with an incredible array of guaranteed tax-free future benefits. In each case, after much discussion, the plaintiff’s families decided they could do better by investing their money elsewhere. One shudders now to think…

What could they possibly have found that would be better than the plans we designed? Who in this world could have found a financial vehicle that could outperform the benefits we offered? Hopefully, they had some high-powered financial planner on their side – on the other hand, let’s look at what some of these “experts” in the financial world were doing and saying at the time. 1

On March 27 2008, Richard Band, Editor of the “Profitable Investing Letter” said “A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith”. The Dow Jones Industrial average has marched down 33% since then. On July 14, 2008, Barney Frank, House Financial Services Committee Chairman said “I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They are not in any risk of going under I think they are in good shape going forward.” Two months later the government forced the mortgage giants into conservatorship.

On December 11th 2008, Bernard L. Madoff, businessman and former chairman of the NASDAQ stock market and chairman of the Wall Street firm Bernard L. Madoff Investment Securities LLC, was arrested and charged with securities fraud.2 At the time of his arrest, Bernard L. Madoff Investment Securities (which is now in the process of liquidation) was one of the top businesses on Wall Street (the sixth-largest in 2008).

What really surprises me about the Madoff case is the makeup of the clients he managed to defraud. The list includes Carl J. Shapiro, a 95-year-old Boston philanthropist and the individual who seems to have lost the most - over $500 million. The potential losses of the Royal Bank of Scotland Group PLC, Aozora Bank, and Maxam Capital Management total over $4 billion. Other notable investors apparently defrauded include U. S. Senator Frank Lautenberg's charitable foundation and famed Hollywood Director Stephen Spielberg.

Now if these enormous “financial institutions” and extremely wealthy investors could fall prey to a con artist, how is Joe Plaintiff supposed to find someone to trust in managing their money? You do your diligence, weigh the available options, make what you think is an informed decision - and take it right between the eyes anyway. Ouch. When I am involved in a case where a financial advisor says they can “do better” than a structure, the likes of Richard Band, Barney Frank, and Bernard L. Madoff immediately come to mind.

Just about everyone was thrilled to have a man of Madoff’s credentials managing their money; figuratively they were “lined up around the block” to see him. Now everyone who had the good fortune of not knowing him is all the happier and wealthier. How do you think those claimants who chose a cash settlement to invest in “something that will do better than a structure” are feeling today? I doubt they had a happy holiday.

My point is: RISK IS REAL. Injured claimants need to know that when they turn down a structured settlement proposal in its entirety, they are entering a world absolutely teeming with so-called experts such as these. Proof of my point can be found in the calls I have been receiving lately. Not surprisingly, with the financial news of the day, numerous claimants who did accept our structured settlements have called me to inquire about their money and their future. I have been proud to tell them that their money is secure: no “down market”, no hurried calls to liquidate assets, no indictments.
Do you have a case where the claimant is worried about the economy and looking for financial security? Call Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.

 

1 “The worst predictions about 2008” by Peter Coy 12/29/08 Yahoo News

2 Wikipedia.org/wiki/Bernard_L._Madoff