This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Wednesday, April 28, 2010

Reflections on Glass-Steagall

It’s been pretty difficult lately – not impossible, but certainly difficult – to miss the headlines and news stories surrounding what is being called the “Death of Goldman Sachs.” It seems that the powers-that-be in Washington, with ambitions of widespread financial reform, are touting revelations of “conflicts of interest” as the hangman’s-noose for Goldman.

The revolutionary new idea being thrown around now is the novel notion that investment banking (dealing in securities) might need to be separated from commercial banking (taking deposits).

What’s really funny about this startling revelation is that these exact conditions existed for nearly 70 years as a result of legislation passed directly following the Great Depression, in order to prevent such conflicts of interest. Under the Glass-Steagall Act, which was signed into law in 1933, speculation by banks was strictly controlled through the simple division of functions.

What also seems funny is that, in the nearly 70 years operating under Glass-Steagall, which was enacted to limit that kind of speculation that led to the market crash in 1929, the banking system in this country didn’t experience a single major crisis as a result of speculation. Note: There was the Savings & Loan Crisis of the 1980’s, which resulted from a mismatch in bank loans versus deposits, not speculation.

However, in 1999 a Republican-led Congress, spurned by then-Treasury Secretary Robert Rubin, decided to repeal the Glass-Steagall Act, thinking it was outdated. A new piece of legislation, which repealed Glass-Steagall, was signed by President Bill Clinton that same year.

The repeal of Glass-Steagall, with its deep impact in the American financial system, was a long time coming. Since the 1980s the banking industry had lobbied politicians for its repeal, during which time Robert Rubin actually worked in the banking sector. Among other capacities, Mr. Rubin is the former head of (drum-roll please) Goldman Sachs. Surprise, surprise!

Interestingly enough, in 1987, in response to cries from the banking industry to repeal such a repressive law as Glass-Steagall, the Congressional Research Service prepared a report in that concluded with a list of pros and cons of the Act. Given what has happened in the banking world since 1999, they’re definitely worth a read.

The Congressional Research Service, in its 1987 report, listed the following reasons for “preserving” the Glass-Steagall Act:

  1. Conflicts of interest characterize the granting of credit – lending – and the use of credit – investing – by the same entity, which led to abuses that originally produced the Act.
  2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.
  3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.
  4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses…

The same report from the Congressional Research Service found the following reasons for repealing Glass-Steagall:

  1. Depository institutions will now operate in “deregulated” financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act.
  2. Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.
  3. The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them – by diversification.
  4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation

Isn’t it funny that the Congressional Research Center cited, as a reason for repealing Glass-Steagall, that “conflicts of interest can be prevented by enforcing legislation?” As we seen in since 1999, this obviously this isn’t the case. After all, this isn’t the role of regulators; as we’ve discussed previously, the role of regulators is to show up after an incident occurs to clean-up the mess and decide who to prosecute.

It seems so ironic today to hear political pundits discuss the need for sweeping “financial reform,” and nearly every single talking point is straight out an Act that successfully protected the American financial system against excess speculation for nearly three-quarters of a century. Yet, instead of pushing for restrictive banking laws that make sense, like Glass-Steagall, folks on Capitol Hill insist on trying to create new committees and agencies to make sure others are doing their job.

Unfortunately, as we all know, growing government will only make things worse. It’s about time to skip the pleasantries and get down to business with big banks. For 70 years this country had a system that works; and we abandoned it because of some large, well-placed political connections and contributions. It’s just about time we put banks back in their place, and cut the strings they hold in Washington. No more teachers, no more books; no more bailouts, no more crooks.

Monday, April 26, 2010

Dollars & Cents: Hitchhiker’s Guide to Investing

Quite often the biggest problem young people face when beginning to save or invest is simply getting started. As with many things, it’s also true of investing that the first step is the hardest. The financial world can be intimidating, and the prospect of building a portfolio that can last through retirement can be worrisome. To help ease the worries of those just starting out, this week’s column will explore the basics of investing, including some do’s and don’ts.

The immediate question for most beginning investors is this: “How much should I save?” Well obviously the ideal answer is “every penny possible,” a more realistic round-number expectation is to save, on average, 10% of each paycheck. If you find that you can’t live on 90% of your pay, you probably can’t live on 100%, and something needs to change with your spending habits.

Once some money has been put aside out of each paycheck, the next question, often the most intimidating and over-analyzed, is what kind of account to setup. Today’s laws allow for almost innumerable types of investment accounts, the most common being personal investment accounts, IRAs (Individual Retirement Accounts), and Roth IRAs.

What investors really need to understand about the different types of accounts available is that they have little or no bearing on what investments are being bought or sold. These different types of accounts really only have tax implications, and the best choice for any investors usually comes down to their own circumstances. An accountant is typically a good person to consult on such questions.

However, there are some differences with employer-sponsored plans, like 401(k)s. Many of these plans limit the investments that employees can make, but they might also match employee contributions. All of these things need to be taken into consideration when decided whether to participate. Unfortunately, investors who qualify for an employee-plan are typically prohibited from setting up their own retirement accounts. You can thank the IRS for that little rule.

Another big thing to consider about retirement accounts, like IRAs, is that they usually impose restrictions on funds that enter the account. These restrictions don’t deal so much with what investments can be bought or sold, but when investors can get their money out. For example, if a 30-year old investor has $50,000 in an IRA, they can’t withdraw that money for cash without facing penalties until they are about 60 years old (with certain exemptions).

This leads into our next point: Think with a long-term perspective. It isn’t wise to invest money that you know you’ll need in the next two years. You run the risk of losing money, or maybe you missed the fine print, in which case you might have to pay penalties to get money out of an account.

Typically it’s best to avoid systems that lock-in money whenever possible. IRAs can be beneficial for tax savings, and they still allow for plenty of investment opportunities, but it’s usually best to avoid annuity and insurance products as investments. They typically carry massive penalties associated with early withdrawals.

For additional perspective, look for an advisor, even if you ultimately decide not to use one. Simply meeting with advisors can introduce a lot of ideas you may not have even considered before. Remember that these are people who make their livings in investments.

Whether you end up managing your own account, or relying on someone with additional expertise, the last piece of advice is not to swing for the fences. Hitting homeruns certainly is glamorous, but it’s not a reliable strategy. Getting started young provides investors with years to accumulate the next egg they need to support them through retirement. This is a race for the slow and steady.

Wednesday, April 21, 2010

Trimming the Hedges

Investment vehicles, just like cars, clothes, moves and music, go through fads. In the 1980s leveraged buyouts (LBOs) were the hottest thing on the street. That all ended around the time Drexel Lambert blew up as a result of fraud, thanks to insider trading by Dennis Levine, Ivan Boesky, and Michael Milken (the inspiration behind the movie Wall Street).

[Quick note: The Drexel Burnham Lambert blow-up in the ‘80s was not unlike the current situation for which Goldman Sachs now finds itself making headlines. Both cases involved all-out frauds perpetrated by or through major investment houses, in which securities were structured for the sole purpose of defrauding investors.]

After LBOs in the ‘80s there was the wave of initial public offerings (IPOs) of the 1990s, riding the coattails of the tech and dot-com booms. We all saw how that one ended: the stock market lost around 40% in about two years, waves of bankruptcies ensued for tech companies, fortunes were lost, so on and so forth.

Then, the late 1990s saw the beginning of a new beast, which rose to prominence in the early 2000s: hedge funds. Originally created to allow wealthy individuals to pool large investments while avoiding regulatory oversight, hedge funds use leverage place a large number a ‘hedged’ bets, thereby [theoretically] maximizing returns – thanks to leverage – with limited downside risk.

In order to invest in hedge funds, which operate for the most part outside the control of regulators, clients are required to qualify using guidelines established for the SEC. While many clients include ‘institutional investors’ (banks, pension funds, etc), many are wealthy individuals who meet the criteria established for minimum net-worth and are able to come up with the minimum allowable investment.

When they started out, hedge funds proved to be a great way for money managers to achieve higher-than-average returns – and fees. However, fund managers have, over the years, discovered the difficulty that comes with trying to guard against a wide variety of nearly unforeseeable risks. Those few that have been able to guard against the widest array of risk have had to sacrifice substantial returns in order to do so.

Take, for example, Long Term Capital Management (LTCM), which was established in the early ‘90s by about a dozen partners. Among LTCM’s founders were two Nobel Laureates, more than a half-dozen PhD’s, and approximately two centuries of combined experience in finance.

The founders of LTCM were, put simply, the smartest guys in any room they entered. They were the who’s who of academia, Wall Street, and K-street. Yet even this group was totally unprepared for the Russian financial crisis in the last ‘90s, and after losing investors billions – thanks in large part to the leveraged used in their trading – LTCM was forced to fold.

In last week’s article we discussed the fact that people are rarely hit by the truck they see coming. In other words, it’s what we don’t know that can hurt us. Long Term Capital Management was crippled by its inability to predict the exogenous shock from the Russian crisis. In this case, investors were unfortunate enough to have a bad investment. Others are not so lucky.

A common saying we have around the office is that investors can recover from a bad investment. Getting into the wrong investment at the right time can cause losses, even serious losses; but as long as money remains, a portfolio can be built back. Get hooked up with a crook, on the other hand, and investors can lose everything; and unfortunately the only thing to do after a 100% loss is to start from scratch.

It’s a sad fact, but that is what faces nearly all the victims of both Bernie Madoff and Robert Allen Stanford. Once again we see cases of investors failing to protect themselves from risks that were very real and foreseeable, but completely ignored. Bernie Madoff, as the former head of the National Association of Securities Dealers (NASD, now FINRA), was one of the brains behind NASDAQ and was among the financial world’s elite. No one ever would’ve thought he had the audacity, the ruthlessness, to perpetrate the biggest Ponzi scheme in history.

R. Allen Stanford represents a similar case, wherein regulators, namely the SEC, ignored several red flags, even tips from insiders in Stanford’s operation, for nearly a decade. As detailed in “The SEC’s Impeccable Timing” (April 20, 2010, Wall Street Journal), securities regulators dropped the ball repeatedly with Stanford’s case, and there lack of action ultimately cost investors about $8 billion.

Many of the biggest underlying problems with hedge funds can be found in these cases. First and foremost, hedge funds require a hedge fund manager (investment advisor) to have custody of client assets. Once an advisor has custody of those assets, investors are totally unprotected from fraud, as Madoff clients now know. The second biggest concern: Leverage; while specifics can be difficult to digest, suffice it to say that when investing with borrowed money, even a small loss can wipe out an investment.

Another consideration to make with regard to hedge funds, or any investment for that matter, is the fee structure. After a decade a hedge fund prominence in the world of finance, it is safe to say that the only people getting rich through hedge funds are their managers. The management of investments brings us to our last concern with hedge funds and many ‘exotic’ investment products. The last twenty years have seen a growing trend in finance: the use of mathematics in trading. Many traders utilize “black box” systems, which are basically computer programs that track market moves and place trades according to proprietary programming.

What this means for traders is that now they don’t even need to sit at their trading desk, scouring the markets for opportunities. Instead, they can spend more time on the golf course or the beach, while their money machines do the leg work for them. Unfortunately for their clients, markets are not based on numbers, but emotion; trading involves the study of behavior psychology, not mathematics.

Yet, the wave of exotic investments continues, thanks in great part to the great sales pitches employed by hedge funds, collateralized debt obligations (CDOs), collateralized mortgage obligations (CMOs), and credit default swaps (CDS). The problem is that none of these investments are transparent; quite often clients involved in these vehicles have no idea what they’ve just purchased, no more than advisors pushing these products know what they just sold – just ask Lehman Brothers and its clients, namely the pension funds around the world that invested in mortgage-backed securities, only to be wiped out in the crash of 2008.

Perhaps the biggest problem with these exotic investments, both vehicles and strategies, is the inherent trust given to so-called professionals in finance. There seems to be a belief by clients that regulators like the SEC wouldn’t let anyone in finance sell a fraudulent security, much less take off with client assets. The perception is that it’s on the regulators to weed out bad apples.

Did the SEC protect investors from Bernie Madoff? How about Allen Stanford? What about all those debt-backed securities that were sold in the early 2000s to fuel the housing bubble, only to blow up in ’08? The role of regulators is commonly misunderstood to be preventative; it is not. The role of regulators is, in the event of wrongdoing, to come in afterward, clean up the mess, and decide who to prosecute.

Investors around the world need to return to self-reliance. Don’t trust regulators; trust common sense and due diligence. Consider each and every possible risk before deciding on an investment advisor, a system, or a security. Remember that all of these are only as transparent as their designer intends. Ask questions, do research, and know that if you want to keep your hard-earned money, then it’s worth your time and effort to do so.

Monday, April 19, 2010

Dollars & Cents: Somebody’s Listening…

It’s safe to say that someone out there is paying attention to this column. Last week we discussed ‘dishonest dealings’ in business, and before the week was out the accusations had been made against the world’s preeminent investment bank – Goldman Sachs (NYSE:GS) – and one of the world’s most influential investors, John Paulson, the President of hedge fund firm Paulson & Co. who made substantial bets against real estate several years ago and raked in billions when the floor finally fell through.

While Paulson has been lucky enough to escape charges [so far], Goldman Sachs has officially been charged by the SEC with securities fraud, a crime that could cripple the firm, or bring it down entirely.

Of course, Goldman Sachs has been the center of much criticism for several years as it has risen to prominence, often through means that would be considered less-than-honorable. It has also been popular among conspiracy theorists, who note that Goldman has been tied in with Treasury officials in every administration in the past several decades.

In fact, two Treasury Secretaries since Clinton have been former-heads of Goldman: Robert Rubin (Clinton) and Henry Paulson (George W. Bush). This fact frequently made headlines in 2008 when Henry Paulson (no relation to John) helped to engineer the Wall Street bailout that helped his ol’ banking buddies, including his former employer.

[Henry Paulson and his cohorts were covered in greater detail in “The Biggest Heist in History,” which was written in January and is available on the Toledo Free Press website.]

Now, with headlines made the world over, it is almost unnecessary for the SEC to prove the charges leveled against Goldman, who has already been convicted in the court of public opinion, as has John Paulson. Meanwhile, the worry has just begun for a good deal of Wall Street firms, who are likely to be the next focus for SEC investigators.

What remains to be seen is just how this is going to affect the general public. It’s important to understand that a good deal of pension funds and public retirement systems are plugged in with Goldman, if not Paulson, in one way or another. Many investors are now learning that when they all took losses in 2008, those losses were due in no small part to fraud on the part of some of the big investment houses.

As a firm, Goldman’s influence webs out across the globe, permeating nearly every aspect of the world economy, and more importantly the financial markets. With a market capitalization of nearly $100 billion, and net tangible assets numbering over $1 TRILLION, Goldman’s operations rival a good deal of the world’s governments.

The charges facing the firm and the difficulties Goldman will face in repairing its credibility and rebuilding its business, once the storm passes, are akin to Russia or Argentina defaulting on government debt, or the Iraqi invasion of Kuwait in 1990.

The impact of Goldman Sachs’ indictment and John Paulson’s apparent complicity in criminal behavior are just beginning to be felt around the world. Since the news was released late last week, Goldman Sachs stock has fallen nearly 15%.

Meanwhile, the hype surrounding Goldman’s illicit activity (read: dishonest dealings) is just what Washington needs to urge its next pet project to follow-up healthcare – financial reform. While the stories continue to come out on Goldman, Paulson, et al, don’t look for things to calm down on Wall Street – or Pennsylvania Avenue – anytime soon.

Wednesday, April 14, 2010

Cynicism and a Return to Rationality

The question we are exploring this week is why people get caught up in frauds and fads that run so rampant in the world of finance. Is it because investors are greedy for higher returns? Do they get caught up in the glamour or mystique of some of the more exotic scams (e.g. Bernie Madoff)? Do investors believe lies about the safety of investments they are being sold, or do they simply not take the time to learn about the people with whom they are dealing?

While investors certainly can’t be completely protected from frauds, there are undoubtedly warning signs that should set off alarms in investors’ heads. Investors need to remember that old saying: “If it’s too good to be true, it probably is.” Be very wary of anything with a guarantee, either explicit or implied.

[Considerable time was given to the subject of honest business dealings in this week’s Dollars & Cents article for the Toledo Free Press Star. It can be found on the Free Press website ( under the title “Dishonest Dealings.”]

The question investors need to ask themselves when speaking with an advisor is whether they are being fed a sales pitch/gimmick, or if they are getting truthful responses and honest advice from someone who wants to help them, not sell them. The fact is that markets go up and they go down, there is no denying it. Anyone who tries to tell you otherwise is not being forthcoming.

One common method of selling employed by investment advisors is to make clients feel special. Advisors spend considerable time with prospective clients conducting an analysis of a clients’ risk tolerance, which is used to build a diversified portfolio of stocks, specific to individual client circumstances.

The sad fact, my friends, and one of the best kept secrets among advisors, is that the market simply does not care about you. The world’s financial markets, I’m sorry to say, don’t care how many kids you have, or how great your annual tax liability is, or whether you are nearing retirement.

In the early 2000s, the big brokerage houses were among the most progressive thinkers with regard to diversification and modern portfolio theory. Looking at an updated roll-call, we can see that half of these guru-firms no longer exist, either because of insolvency, or because they were forced to sell themselves to another firm in the wake of financial difficulties that resulted from the crisis in’08.

Investments do not care about investors, but about economic circumstances. That fact seems so basic, yet it is more of an afterthought for many investors (and advisors) rather than the basic principle that it should be in portfolio construction. Consider the following questions:

• Why did people ignore the fact that tech stocks were so obviously over-priced in the late 1990s?
• In the early 2000s, how did investors ever come to believe that real state values consistently rise year-over-year, without fail?
• Generally speaking, why do people insist on holding onto popular fads until they crash, and it’s too late?

Maybe paper profits make investors greedy, or perhaps it’s just too difficult for most investors to avoid the terrible effects of groupthink. In many cases, investors seem not to have even considered as possibilities the facts that ultimately led to their downfall.

In the case of Bernie Madoff, many investors trusted him unequivocally, simply because he was the former head of the NASDAQ. His resume, most thought, spoke for itself, and the implicit trust investors had in him discouraged many from doing their due diligence on his system, much less protecting themselves against the possibility that he was running a Ponzi scheme. Likewise, very few people before 2008 recognized how much excess leverage was in the world’s financial system, so hardly anyone had prepared themselves for the terrible crash it caused.

Unfortunately, this phenomenon is just as applicable outside the financial world. Consider 9/11: Before September of 2001 there hadn’t been a notable hijacking of a commercial flight in this country in over twenty years. The risk of such an event occurring was so far from anyone’s mind, that people simply were not prepared.

Along the same line, how many people died in this country as a result of the following so-called ‘epidemics’: SARS, bird flu, pig flu, mad cow disease. All of these ailments were thought to be, in their times, the biggest threats to American people. Yet, based on some brief research, it’s easy to see car accidents killed more people in this country during 2009 than all of these diseases combined, and by no small margin.

In all of the cases outlined here, there is hardly an example where someone predicted a coming-disaster and was still crippled by it. The lesson to be learned is startlingly simple, and, I must apologize, rather graphic: People rarely get hit by the truck they see coming. In other words, it’s what we don’t know, or never considered, that hurts us much more frequently than those risks that we consider, and cause us so much worry.

Monday, April 12, 2010

Dollars & Cents: Dishonest Dealings

One of the most basic human virtues, and the most often overlooked in business, is honesty. Most people, professional or not, develop a cynical view of business, and people involved therein; they base their actions on the belief that businesspeople will, given the opportunity, take advantage of others for personal gain.

Unfortunately, this attitude is sometimes justified, but even more unfortunately, more often it is not. Cases of dishonesty, both in and out of business, and their impacts live vividly in our memories, leading us always to question the motives of others.

These cases, from Bernie Madoff to Tiger Woods, demonstrate the importance of honest dealings. Honesty is, however, a two-way street: Just as it is necessary to ensure that you deal with good, honest people, it is as important to always practice honesty when dealing with others.

Many crooks and criminals focus on the short-term benefits of dishonesty, namely the “quick buck.” Rather than dedicating the time and loyalty to building sound relationships, these crooks prefer to take the easy road, never stopping to consider the ramifications of their actions, even the possibility of prison in the case of those who act outside the law.

What many crooks never ask what they will do when their reputation is destroyed, and their relationships ruined. After all, once someone lies to us, how can we know, at any point down the road, that they are being honest? Once someone has betrayed our trust, how are we ever to take them again into our confidence?

This is, unfortunately, how most marriages break down over time. Most start off with a small lie, which often beget larger, more significant deceptions. Once the first lie is told, it only gets easier to deceive further, often to protect the original lie.

To borrow a common truism, a bell cannot be un-rung. This is even truer in today’s society, with the prevalence of technology. In years past, people could cover-up their transgressions, which often faded into the annals of history. Today, a simple Google search, from anywhere in the world, can resurrect a person’s past. When it comes to our histories, we cannot run, nor can we hide.

The drawbacks to dishonesty are hardly limited to those who do wrong; they also cast a person’s associates, colleagues, and family in the same poor light. Madoff, for example, has hurt the reputation of nearly every person working in the investment field, just as a few crooked politicians have bred skepticism of the whole lot.

For specific examples, look no further than the 2004 Presidential Election, and John Kerry’s highly publicized experiences in Vietnam. Likewise, is it likely that Al Gore will ever live down the reputation he earned for claiming that he invented the internet? Can George W. Bush ever go back and correct some of the comments he made that have become famous on YouTube?

The bottom line here is that everything we do nowadays is extremely well chronicled. We cannot erase our past, or even edit it. As a result, our reputations are likened to first impressions: we only get one. As such, it is infinitely important that we guard it well; and always act in the way we want others to see us, both now and in the future.

Wednesday, April 7, 2010

Tyranny through Taxation: The Power of Few over Many

With April 15th quickly approaching, we thought it appropriate to spend this week discussing taxes and current issues facing government cash flow in this country. We’d like to first preface our argument thus:

Not everyone is going to agree with the opinions presented here, that is for certain. However, it is undeniable that this country is now and has long been headed down a path, a path that leads only one place. This path is not set in stone, but unless we change from current bearing, someday we will arrive at our destination, and it will not be a pretty sight.

As Americans prepare to pay their pound of flesh to the government on April 15th, many government bodies – at all levels – and agencies have begun bracing themselves for the impact to be felt from falling revenue. Some states, New York among them, have been forced to delay tax refunds owed to taxpayers, all in an effort to hoard cash wherever possible.

To fix their budget problems, the federal government, along with many cities and states, has been weighing their options of raising taxes versus making budgetary cutbacks. Many bodies have been combing through their budgets looking for fat to trim. Unfortunately, this equates roughly to the careful application of lipstick to a pig.

The bottom line is that nickel-and-diming simply will not fix the problem. Not long from now we’ll be right back in the same spot we are now. Just look at California, where they’ve been taking small steps to balance their budget for years now. Yet, at one point last year they were paying state employees with IOUs because the state ran out of money.

The problems are now expanding beyond the government itself, to those it employs (often unnecessarily). In an article published on April 6th by the New York Times, it was revealed that a study conducted by Governator Arnold Schwarzenegger’s office that California’s three big public employee pensions were underfunded by an astounding total of more than half a TRILLION dollars.

Unfortunately, the United States is in dire straits. Not because tax revenue fell sharply in the financial crisis of 2008, but because the government of today has strayed away from its original purpose, as defined by our founding fathers.

America has a problem; one that is often shuffled under the rug and no one wants to discuss openly. It can sometimes be heard in hushed whispers, in backrooms frequented by this country’s more astute citizens. It was haply predicted, even described, in a quote attributed to Alexander Tytler, who said the following, back in 1787:

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”

Put simply, the problem with America is thus: We extend voting rights, our most basic mode of representation, to people who, quite frankly, have no stake in America. These include those who do not own property, as outlined in the original US Constitution as a prerequisite for voting (along with several other admittedly arcane and bigoted criteria).

More importantly, voting rights are currently extended to the more than 43% of Americans who, according to an article from CBS, currently do not pay federal income taxes. These people, who contribute nothing to our nation’s treasury, still have the right, under our laws, to vote and ‘help’ shape the policies that affect those who give them a free ride.

The world over, only the government would be dumb enough to allow such a concept as this. A person cannot walk into the offices of a charity or foundation, or better yet any home across this great country, where they do not contribute, and try to have a say in the finances of that body. Why then, do we allow the policies of our nation to be impacted by those who do not bear the burden?

Monday, April 5, 2010

Dollars & Cents: Toledo: JustPlay!

From time to time, we’d like to take the time to feature young local businesspeople, all up-and-comers making moves in the Toledo market. This week’s article is the first in such a series, and it features JustPlay Sports Now, a subsidiary company of ESMA, LLC, and the brainchild of Ottawa Hills native Scott Axonovitz and business partner Jessica Jung.

I sat down with Scott and JustPlay’s National Market Manager, Dan Netter – also a product of Ottawa Hills – one afternoon in late March to discuss their budding enterprise. What readers will find here is an overview of JustPlay, plans for the future, and [most importantly] a discussion of just how these young entrepreneurs found themselves at the head of a successful business, with boundless opportunities for expansion, and a bulging bottom line.

First and foremost: the preliminaries. JustPlay Sports Now was founded under a year ago, in the fall of 2009. It is, essentially, a 21-and-over intramural sports organization that focuses on social networking. Despite its focus on sports, JustPlay’s leagues are not overly competitive, but they do provide a chance for young local professionals a place to meet in a less formal setting.

Modeled after a similar firm established by a childhood friend of co-founder Jessica Jung, which is immensely popular in Europe and sponsored by Guinness, JustPlay set up shop in Toledo, not necessarily because it is a favorable market (which it isn’t), but because the area holds a special place in the hearts of its management, and they want to help the local economy in any way possible.

Not to be outdone from a sponsorship standpoint, JustPlay enlisted the support of Treu House of Munch, a distributor for Anheuser-Busch (now Inbev), which helps secure drink specials for members of the group, among other benefits.

From the start, JustPlay has been focused on helping Toledo. They have used Toledo-area lawyers, CPAs, and facilities for those events taking place in Northwest Ohio. JustPlay has also launched leagues in Columbus, Phoenix, and Orlando, yet they continue to focus on supporting Toledo.

After all, it was Toledo that gave these young professional the background they needed to succeed in business; they have a sentimental attachment to this area, and want to see it turn around (and hopefully play a part in the improvement).

Both Netter and Axonovitz credit their upbringing in Ottawa Hills, with both family and friends who owned their own businesses, with helping to mold their entrepreneurial minds, and instilling them with the skills that have gotten them this far.

Speaking with me in my office, Axonovitz clearly recalled a concept that was taught to him from a very early age by his father: “You can either be the one who’s told the rules and gets paid by people, or you can be the one who makes the rules and pays people.”

Neither, even in their mid-20s, is any stranger to risk-taking. Netter, who’s father has been involved in his fair share of ventures, told his son to “Take the risk when you’re young, and take a few of them.” While often used as an excuse by young people for too much partying, seldom is it used as motivation to start a business.

As frequently happens, during our conversation the issue of age came up. Both admitted that being a decision-maker at 24 (Axonovitz) or 25 (Netter), and knowing that those decisions have consequences and effect other people, can be a daunting task; but they wouldn’t have it any other way.

While both Dan and Scott admit they had very fortunate upbringings, they both rightly credit their success to their own hard work in applying the lessons they learned growing up. Among those are to “do something you love” and “never stop moving and doing.”

Asked what has been the key to their success, outside of their upbringing, both men, now executives over a national corporation, responded concisely. “Know more than anyone else,” answer Netter, to which Axonovitz quickly added “and work harder.”

Readers are encouraged to visit the website for JustPlay Sports Now at to check out upcoming leagues and events. JustPlay will be kicking off its Toledo spring leagues with a sand volleyball league on April 25th at 3:00 pm at Gold Medal Indoor Sports in Rossford.

Anyone interested in registering for the sand volleyball league, which has games running every Sunday from April into June, can do so online either as a team (the league is 6 on 6) or as an individual.

Also, since spring can be a particularly busy time, JustPlay offers two additional seasons for sand volleyball; one running from mid-June to August, and the last running from August into September. The individual rate for each season is only $40, and is all-inclusive (except for drinks after the game!). Come on out for digs and drinks!