Tip of the hat to Barry Ritholtz.

Kenneth Starr, not the blue dress, Monica Lewinsky one, was indicted on a $30 million fraud charge last week. Like Bernie Madoff, Starr was known as an advisor to the stars with clients such as Al Pacino, Sly Stallone, Martin Scorcese, Diane Sawyer, Henry Kissinger, and others. Also like Madoff, these clients violated the number one rule when working with a money manager or advisor: never let the advisor custody your assets.

What does that mean? You do not want the advisor to control or hold your money. You must require that the money be held at a third party, independent custodian like Schwab, Fidelity, TD Ameritrade or any other regulated brokerage with SIPC coverage. By doing so, you are putting a wall between your money and the advisor. You should only give an advisor a limited power of attorney to perform functions like placing trades in your account and possibly removing their fee from your account. They should not have the ability to move assets from one account to another or change personal information like your home address without having you sign a form. Most custodians will require your signature or permission to conduct these activities.

Another lesson is don’t get caught up in the advisor’s client list. If they manage money for professional athletes or movie stars, don’t get enthralled with the thought of having your money managed by them. Most frauds happen where the advisor is seen as a star or where the client base is a who’s who. Also, don’t just take a friend’s recommendation for the advisor. Do your homework on the advisor. Check the advisor’s background at the FINRA or SEC site. Ask tons of questions including the advisor’s compensation structure. Personally, I prefer a fee-only planner who receives no compensation from commissions, but I am biased.

It is hard enough making money in this investing environment. You certainly don’t need to lose money to fraud to jeopardize your financial future.

I have been following the debate in Congress about a fiduciary standard.  Here is another article from the Wall Street Journal discussing this very topic. The article begins describing the standard, which essentially means a legal requirement to put your client’s interest first, above all others, including your own.

At issue is whether a financial adviser—which nowadays means anybody from a stockbroker or insurance agent to a financial planner or “wealth manager”—should be held to higher standards of conduct.

Many brokers and insurance agents are obligated only to have reasonable grounds for believing that any investment they recommend is “suitable” for you. They need not inform you of conflicts of interest that might bias their judgment; you might never find out, say, that they sold you a particular fund primarily because it paid them a fatter commission than others would have.

Other financial pros, however, bear a “fiduciary duty,” meaning that they must put their clients’ interests ahead of their own and disclose potential conflicts. After the rolling calamities of the past decade, wouldn’t this be an improvement over business as usual?

A measure in the Senate’s earlier reform bill would have imposed a fiduciary duty on all financial advisers. It has been superseded by one that would merely study whether the current standards are adequate. An amendment introduced last week would exempt many insurance agents, and brokers selling their firms’ own products, from being fiduciaries.

What is interesting about this article is it continues to say that maybe Congress doesn’t have the right stuff to grasp this concept. Many in Congress seem to make numerous trades or works with broker who churn their accounts. One Senator discusses how he trades after watching Jim Cramer of  Mad Money fame.

Some members of Congress permit brokers to trade their accounts hundreds of times a year; others trade too much themselves. The accounts of 38 members of Congress or their spouses showed at least 100 trades apiece in 2008, according to public records; 15 had more than 300 trades each.

This isn’t surprising as most people don’t really understand that two worlds of financial planning exist: the broker or salesman and the fiduciary. There are only about 13,000 SEC registered fiduciaries in the U.S. out of 600,000 advisors so it is a small group. Once folks understand the difference, I find they never go back to the “dark side” of financial planning. Here are some videos where I describe how Wall Street really works:

An upsetting article in the Detroit News about folks turning down landscaping jobs so they can keep collecting unemployment. Even more discouraging is this is in Michigan. People should jump over backwards for a job there.

I hope these landscapers find some hard working teenagers to fill these jobs and tell these adults to hit the bricks. I know there are a lot of kids who can’t find summer jobs in Michigan. Maybe this will be there chance.

With the latest information about how Goldman Sachs sold investments of mortgages to clients while simultaneously betting against the investments, I am bringing up the Move Your Money campaign. This won’t be the only story to emerge about unethical practices at the big banks. The government may talk tough, but they have done nothing, and won’t do anything, to reform Wall Street. In fact, Wall Street is more powerful now than before the meltdown.

It is up to us to punish the big banks. How do we do that? Move your money from these banks. I know it is a pain to do it. It is a few hours to set up a new account, change your auto payments, and transfer your money. However, you will save money over the long term as you won’t have to cough up tax dollars to bail out the banks at the next crisis – and there WILL BE another crisis, probably sooner, rather than later. Or, maybe you like to pay for the banker’s home in the Hamptons.

Please take a few minutes to visit the Move Your Money site where you can find a local, community bank or credit union that is financially sound in your neighborhood. Let’s put the burden of punishing the big banks on our shoulders, not the government’s cause the government won’t do it.

Having two young daughters, I have made my fair share of trips to the parenting Hades, also known as Chuck E. Cheese. I have personally witnessed, not experienced, some arguments between parents dealing with the games and table selection. When you are in an environment of hundreds of screaming kids, noisy electronic games, and cheap beer, parents are bound to experience higher stress levels, which could lead to inappropriate action. Turns out, this is exactly what is happening at this other dynasty built by a mouse.

The Wall Street Journal profiled the recent incidents at Chuck E. Cheeses. Law enforcement officers claim that more incidents take place at Chuck E. Cheese restaurants than most restaurants and even bars. The WSJ article talks to a psychologist at Temple University who claims this is to be expected.

Stepping in when a parent perceives that a child is being threatened “is part of protective parenting,” says Frank Farley, a psychologist at Temple University and former president of the American Psychological Association. “It is part of the species — all species, in fact — in the animal kingdom,” he says. “We do it all of the time.”

So a Chuck E. Cheese restaurant isn’t only a place where “a kid can be a kid,” but where a parent can be a primitive beast. While the article profiles incidents where the mama bear syndrome was in full effect, other larger incidents seem to be taking place as well. In my hometown of Flint, Michigan, an 85 person brawl broke out recently. The fight was so bad that the cops had to bomb the place with pepper gas to break up the ruckus. I wonder if they checked the invisible ink on all the kids and parents hands when they stampeded out of the restaurant to ensure the children were leaving with their parents. I am sure it was a very orderly exit. Getting doused with pepper spray brings out our rational side as human beings.

Also, I am glad to see my homies in Flint are working hard to stay atop of the nation’s list of most violent cities. We use to be known for building Buicks and murder. Hopefully, we won’t lose both.

At least now, I have an excuse for not taking my girls to Chuck E. Cheese. Now, I just need an incident involving a Ronald McDonald clown pummeling its patrons to avoid the other parenting Hades.

Here is a brief clip from Elizabeth Warren, who has been tasked to overlook the TARP bailout by the government, is talking about how those individuals who file bankruptcy are just like us. They work hard and spend rationally. It is just the debt piles up too fast.

Certainly, there are folks who end up in bankruptcy due to medical expenses, divorce, or other personal issue. Her explanation doesn’t make sense. If you are spending rationally, then you shouldn’t be piling on debt. Warren receives all kinds of love from anti-establishment folks because she is pointing out the ineffectiveness and political shenanigans associated with the TARP. And, I am glad she is.

However, this populism needs a dose of reality. Sure, the banks are bad and should not have been bailed out like they were, but painting folks who mismanaged their finances as victims is wrong. Consumer debt is one of the reasons we are in this mess. You can argue the average Americans are too ignorant or the Madison Avenue marketers entice us to spend, but until all Americans acknowledge their fault (and correct them), we will never get better. Worse, we will experience this again.

I never got any financial education in school (we need to cut useless courses like geometry and add personal finance), and my parents weren’t financial wizards. They were school teachers who figured they just needed to bide their time to get their pensions. However, they imparted two simple rules on me that I have found practically guarantees success:

1. Never spend more than you make.
2. Always save 10% of your earnings.

That’s it. For rule number one, this meant if I wanted a new stereo or tv, I saved for it before I bought it. I never spent more than I brought it unless I had savings set aside. With the 10% rule, that provided me with lots of options.

If we could teach all Americans these simple rules, including our government, life would be much better across the board.

When I first read this story, I thought I could put together the typical article about how professional athletes must manage their money assuming their career is doomed to be short lived. This way they won’t face bankruptcy and foreclosure like so many before them. The professional athlete faces so many financial headwinds such as mooching family and friends, financial sharks looking to scam them or mismanage their money, and, the most detrimental, sudden wealth syndrome.

With Plaxico Burress, I actually feel sorry for him. Sure, he could have set aside a couple years worth of mortgage payments considering the large contracts he had previously. However, I feel like they made an example of him. I don’t know if he really got justice. Granted, he should not have carried a gun into the nightclub, but the only one who got hurt was him when he shot himself in the leg. A stiff fine and suspended sentence seems a more appropriate punishment, not two years in jail. He was railroaded by Bloomberg and other politicians who wanted to make a statement. Now, his family is losing their home. Happy now, Mikey? Maybe Bloomberg could cough up a few thousand from his massive net worth to tide Burress’ family over until he gets out of jail.

Unless you live in a cave, you have probably heard about the massive bonuses being received by the big banks this year. To date, the estimate for the top 38 firms is $145 Billion.

This comes at the heels of the biggest handout in history. The U.S. government provided $700 billion to the banks in the initial bailout along with another $247 to smaller banks. Plus, the Federal Reserve has flooded the banks with cash at the expense of savers by dropping its key funds rate to 0%. This is an indirect bailout, but a bailout nonetheless. If that isn’t enough, Congress recently changed the tax law to allow the banks to treat losses (through Net Operating Loss Carryforwards) differently, which provided a benefit equal to the initial bailout. This makes the repayment of TARP money irrelevant because the banks are giving back money that the government will turn around and give back to them through tax breaks.

While we, as American taxpayers, should be furious over these bonuses so soon after the bailouts, we should really be peeved because the banks are setting us up for another round of bailouts. Rather than paying their employees, the executives and corporate boards should be putting this money in a rainy day fund, called bank reserves,  because the banks are still insolvent. How can I say that as the banks are reporting big earnings?

The only reason the banks look good is because the Financial Accounting Standards Board (FASB), after massive government pressure, allows banks to mark the assets on their books to a “model”, rather than to the market price. This means that banks are pricing their assets at a much higher value than they are really worth. In some cases, banks are pricing assets that would sell for 30 cents on the dollar at 90 cents or more.

Additionally, the FASB was suppose to require banks to bring “off balance sheet” assets back onto their balance sheet in November of 2009.  This has been pushed back to the end of the first quarter of 2010. I expect more push backs as this deadline approaches. Extend and pretend, baby! These assets are the toxic derivatives that have crippled the banking system. Once these assets officially come back on the banks’ balance sheet, they will need more capital to meet regulatory capital requirements.

If you believe, as the banks must, that these assets will increase in value over time, then the banks may come out ok. However, if you believe the assets won’t return to the current “model”, then the banks are going to need a lot of money to cover losses. So the banks are essentially breaking their fiduciary role with shareholders because they know those assets aren’t returning to pre-crisis levels. They are going to need more money to cover these losses. Rather than use $145 billion to cover their upcoming shortfall, they are handing it out to employees. Maybe they figure the taxpayer will just cough up more money when the next wave hits. Or, maybe they figure the banks are done if these assets don’t increase in value because the taxpayer won’t go for another bailout. Why not get one more huge payout before the party ends. This bonus should allow a banker to pay cash for that home in the Hamptons.

So my anger isn’t just about the big bonuses coming so soon after the bailout. My anger stems from the fact that they are going to need this money down the road, and they know it. Yet, they are opting for a big payout, rather than doing what is right.

I am an avid reader of George Will. He is one of the few journalists that seems to advocate free market ideals and limited government. However, he penned an article recently that really upset me. He actually defends the Fed and argues they should not be audited. Below is an email I sent to papa George. We will see if he responds.

George,

I was disappointed in your recent article discussing the Fed. I usually side with your thoughtful discourse, but I am surprised that you see the Fed as necessary and, even worse, the savior of the economy. You imply that we have democratic measures in place to minimize the gusts of public passion so the Fed should be protected as well. I wholeheartedly disagree. If Congress were somehow in charge of printing our money, as the Constitution mandates, the public passion would probably rise up and vote out the representatives after a mess like 2008. And, that would be the appropriate measure since the mess would more than likely be caused by a loose monetary policy. The Fed, on the other hand, creates the conditions for a 2008 and will escape any punishment. Oddly enough, people applaud the Fed for putting out the very fire they created. Of course, they probably established the tinder for the next blaze in their corrective actions. Of course, we will never know because they won’t tell us what they did. I guess we will find out the hard way. But, I fear the blame will be placed elsewhere, especially if market oriented journalists defend this banking organization.

For someone who claims to believe in free markets, you are ignoring a key factor that makes markets work: transparency. Aren’t all parties involved in the economy suppose to make decisions based on all available information. The Fed controls an enormous part of the economy, yet that information is not disseminated to the free markets, except by their official statements. But, I am sure they would never try to mislead the markets even though they are not held to account. Finally, the very fact that you believe a small fraction of the free market, regardless of the degrees attained, can control interest rates and money supply better than the markets is disappointing.

I will still read your work with great enthusiasm and tune into the Sunday morning show with the host from Good Morning America, but I was sorely disappointed in your piece on Fed bashers.