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November 19, 2022

The crypto crisis, the impact of interest rates on pensions, and where to allocate an inherited IRA.

On this week’s Money Matters, Scott and Pat explain why the current crypto crisis was bound to happen. A Texas man with a pension wants to know whether he should retire at the end of the year. You’ll hear advice for a caller who says his company “medically retired” him. Plus, help for a Missouri man who just wound up with an inherited IRA worth $115,000.

Join Money Matters:  Get your most pressing financial questions answered by Allworth's CEOs Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here.  You can also be on the air by emailing Scott and Pat at

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Man: Would you like an opinion on a financial matter you're dealing with, whether it's about retirement, investments, taxes, or 401ks? Scott Hanson and Pat McClain would like to help you by answering your call to join Allworth's Money Matters. Call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.

Scott: Welcome to Allworth's Money Matters. I'm Scott Hanson.

Pat: I'm Pat McClain. Thanks for being with us.

Scott: That's right. Glad you are joining us as we talk about financial matters. Both myself and my co-host, both practicing financial advisors for over three decades, doing this program for 27 years.

Pat: That long.

Scott: Where you make wise choices about your money. We've been through lots of market cycles.

Pat: Yes. Many, many, many.

Scott: Lots of...

Pat: Yes. I was at the gym the other day and someone says to me, "Ah, you must be going crazy." I said, "Not really." He said, "Well, how could you not?" And I said, "Well, first of all, we talk about these down markets with clients on a regular basis, even though you're not in a down market, because it's how they react to down markets, is really important. So you prepare them for down markets.

Scott: Well, I had a doctor's appointment this week. This doctor I hadn't seen in about 15 years. And, he says to me, "Scott, I don't know how you do your job." I said, "What do you mean?" He said, "Well, a few weeks ago, I'm looking at my statement, everything's down. And then I read that we only have 25 days left of diesel supply chain problems." And he said, "I started thinking we, if there's not diesel, the economy's gonna shut down." He said, "I almost sold everything out. And he said, I'm glad I didn't it 'cause the market said it rallied after that point in time. So I don't know how you do what you do." And it was kinda funny because it was a... You've heard me say this quite a bit, but I think one of the greatest values a good advisor brings is keeping people from making mistakes from which they cannot recover.

Pat: Yeah. And this is a doctor that tells people bad news all day long about their health, which is by the way, more important than money. And then he's asking you like, how do you do your job? You gotta be thinking, how do you do your job?

Scott: I'm sorry. You got three weeks.

Pat: Yeah. Right. I mean, yeah. I don't care what kind of a doctor you are, you deliver bad news.

Scott: I mean, I did kind of explain to him. I said, well, our approach is let's look at when you're gonna need your money. It's invested for the future. So when's that gonna be? And based upon that time horizon and how much you can withstand the ups and downs, we'll build the right kind of portfolio. I said, I have no idea what the markets are gonna do next week. I don't try to make guesses based upon...

Pat: But we will actually, we can tell you with some degree of certainty how your portfolio will bounce around between here and then.

Scott: Oh yeah, yeah.

Pat: But I can't tell you when, but we know that at some point in time, if you've got a portfolio that's 60/40, you're gonna be down 25%. But I don't know if it's in the first year, the fifth year, the seventh year. But if you need money, we'll build a portfolio. Speaking of needing money, I wanna talk a little bit about GoFundMe pages for people that have lost their life savings in the FTX and now are posting GoFundMe pages, having other people, asking other people to give them money.

Scott: And by the way, we'll spend the latter part of this program talking just kind of our take. 'Cause we didn't last week. FTX, there's some other crypto. It's just the start.

Pat: It certainly feels that way.

Scott: It is.

Pat: We'll talk about...

Scott: Just the start.

Pat: And what I haven't read much, which we'll talk about, is the way that these companies issued coins, they didn't issue shares in the companies, they issued coins. And then they used, Alameda bought the coins, right?

Scott: Yes. Yes. We'll talk about that.

Pat: Anyway, we'll get into that. And then we're gonna bring it back to some historical things that happened in the US banking system before regulations took place. Which will give you the ability to contrast what is happening today and why it's happening. And why, if you've been a long time listener of this show, we have told you to stay far, far away from not only Elvis Plates, Beanie Babies, and Cryptocurrencies, as well as...

Scott: You don't like my Elvis Plate collection I've got in my dining room?

Pat: No, quite frankly, I do not.

Scott: And the President's Dolls.

Pat: And the NFTs, the non fungible tokens. So, but the GoFundMe, oh, we're gonna take, let's take some calls first and then we'll go to the GoFundMe. Okay. Can we do that?

Scott: Yeah. If you wanna be part of the program... Poor Joe's been waiting here for...

Pat: What do you mean? We just started.

Scott: [crosstalk 00:05:01.829] people.

Pat: Huh? We just started. Okay. This is our program.

Scott: You just teased it. That's all. So I thought you were gonna talk about it then, but we can't talk.

Pat: I didn't tease it. Not like a radio guy. I guess I did.

Scott: You did.

Pat: I said, okay. Okay. You were gonna talk about it and actually you were gonna talk about it and I teased let's, anyways. 833-99-WORTH. If you got a question for us, you want to participate in our program. 833-99-WORTH. We're in Texas with Joe. Joe, you're with Allworth Money Matters.

Joe: Yes, sir. Hi, good afternoon. Thank you for taking my call. I'm originally from the ShowMe State, so I'm hoping that you guys can show me here kind of on dead center on what to do with regards to a legacy pension that my company now has stopped funding to bring us in line with the rest of the aerospace industry. That's now a cash balance formula that takes into account of the 10 year T-bill rate, and what they call cash credits and interest credits. So that's the subject. So the question is now, with the PBGC rate, this is only gonna show that the informal network at my company is stronger than the formal network. We have a lot of people that it looks like it's a mass exodus of folks that are leaving that have these legacy pensions that are out there. Because the PBGC rate that's gonna be announced sometime in mid-December...

Scott: December 15th.

Joe: Yep. Right now for us it's at 0%. But what's being advertised is that, it's around 2.5, 2.6, around 2.7. And for every base point that goes up, we lose 10% of our lump sum. It only impacts those who have lump sums, a new lump sum cash out.

Scott: Yeah. So there's a few different terminologies that were thrown in here, and just kind of for the rest of us, these pension plans, the traditional pension plan was you work for the company for 30 years, let's say you get your 30 years, they multiply it by some formula, and multiply by your final salary. Right? And so you get 60% of your final salary or whatever the number is. And as time went on, companies realized they really had trouble paying for these things and affording, particularly when there was down markets and they were underfunded. It was really hurting their earnings. So a lot of companies said, let's figure out how to get out of these traditional pension plans. And many move to these cash balance formula. Well, these are, I dunno, 15, 20 years ago. But there's different ways these are structured. Some of the cash balance formulas, the participant is guaranteed that cash balance each year and the cash balance just grows a bit. In others, there's that traditional lump sum where there's still a pension, a monthly pension, and the reason the PBGC impacts the lump sum value is because there's a discount rate that is used. And as that discount rate goes up, the value of the lump sum goes down. So I guess first my question...

Pat: Well, Scott, let's explain what that means. Let's explain why that is.

Scott: I think we did talk about a week or two ago.

Pat: We did talk about it a couple weeks ago. But this affects a lot of of people. By the way, the PBGC stands for the Pension Benefit Guarantee Corporation. And they're probably using the midterm rate, the federal midterm rate. So sometimes they'll use 100% of the PBGC. Sometimes firms will use 120% of the PBGC. But there's a formula driving it.

Scott: And it's based upon monthly pensions.

Pat: So if I had to give someone $100 dollars a month for the rest of their life and they were age 60, we'd look at their life expectancy. I don't have a life expectancy table in front of me, but let's say it's 20 years...

Scott: 30 years.

Pat: 30 years.

Scott: Closer to 30 years.

Pat: So it's 30 years. And how much money would I have to set aside in their name in order to provide that $100 a month so that the day they died, that pot would be empty based on their life expectancy and this rate of return.

Scott: And if you could assume a really high interest rate, you don't need much cash set aside at all.

Pat: If I had 100% interest rate, then I wouldn't have to put that much money in. If I had a 1% interest rate, I'd have to put a lot of money in.

Scott: And zero, you'd have $100 a month times 12 times 30 years.

Pat: Each pension plan actually has their own formula behind it where they actually look at the PBGC rate. Some do them on a quarterly basis, some do it on a semi-annual, and some do it on an annual basis.

Scott: Question Joe, the plan that you have, is that lump sum calculated based upon a monthly pension? Or is it in fact a cash balance plan that will not lose value?

Joe: It's a cash balance plan that won't lose value. But they're going towards a, you know, they stopped funding it at the end of 2021, and they gave us this ultimatum, basically that at the end of this year, in 2022, we're now going over and transitioning to this new formula cash balance.

Scott: Okay. Oh, got it. Okay. Okay. So you're right in this window. Well, your company did it late.

Pat: Yeah. That was a long time ago.

Scott: Yeah, most of those were converted. I mean, a lot of 'em were converted in the late '90s to cash balance.

Joe: Yeah. Oh, yeah.

Scott: So what is your... So you have the option of a traditional, if you retire today, could you take a monthly pension?

Joe: I could. I have that option.

Scott: Okay, I'll, yeah, right now I'm getting some clarity here because I was confused. Like if it's a cash balance, you've got....

Pat: It's a monthly pension that's converting to a cash balance.

Joe: Yes.

Scott: But the cash balance, you won't know what the cash balance is gonna be until December 15th, is that how it works?

Pat: Until next year, it's gonna be a lot lower. The lump sum is gonna be a lot lower.

Joe: They're converting starting in January 1st to this new formula, which they would have the monthly payouts now.

Pat: Got it.

Joe: So it's either, now the question is, which I spoke of earlier about this mass exodus of pensioners that are still eligible, is that, like I mentioned earlier, if they have a million dollars, let's say, and we have a base point of 1%, so now we're at like 2%, should be under 3, they're potentially losing 10% per each base point. That's about $200,000.

Pat: I don't know if you could draw. I don't think...

Scott: It's not linear.

Pat: Yeah. But it is substantial. It's substantial. So let me ask you a question.

Scott: Have you calculated it for yourself?

Joe: I tried to, but that's where I'm like you, I'm thinking it's substantial. It may not be, it might be a rom, an estimate, and close to it, but that's what the informal network has been in. Other pensioners have been communicating on their own personal emails aside from the company. 'Cause the company stance is, they really don't know much until it happens in...

Pat: Well, they know.

Scott: Well, you can look at current rates today and you get a pretty good idea. Are you planning on retiring? Were you planning on retiring anytime soon?

Joe: Here's my plan. Initially, I went into this, retiring at my full retirement age, which is March of 2025. I'm a July, 1958. So that means, 68, 6 and 8 months. That puts me right there at March of 2025. But now, since this dilemma...

Pat: It's just two years. Yeah.

Joe: Since this dilemma's come out, it's kinda like I'm so close, at 64.

Scott: How much is lump sum, ballpark?

Joe: 1.3 million.

Scott: How much do you make?

Joe: About 170 per year. That's another question. Can I recover enough? If I do decide not to take it, can I recover enough if I lose that amount of money with a new pension calculations into my salary, will it basically be a wash?

Pat: There we go. That's actually why I asked the question of how much you make, which is of the next two years, and what, five, four months, how much of that would you be working for free versus getting paid for?

Joe: Probably over, based on my estimation, probably over, it might be about 15, 16 months, maybe a year and two quarters. Maybe let's see about six quarters.

Scott: And that's not calculating the lost opportunity.

Pat: That's correct.

Joe: That's correct. Yeah.

Scott: That's correct. And so how old are you now? 65?

Joe: I'm 64. I'll be 65 in July.

Pat: 64 years.

Scott: Any chance they would hire you back as a contractor?

Pat: Scott and I are thinking...

Joe: They changed that policy. They've changed that policy. Used to be six months. They won't hire you back in the same position, but you can come back as a contract worker where your hours are capped.

Scott: To what, 20 hours a week?

Joe: They hire you... Pardon?

Scott: They cap you at 20 hours a week?

Joe: I think they cap you for a certain amount of annual hours per year.

Scott: Yeah, it's typically...

Joe: As a contract worker.

Scott: Yeah. It's typically

Pat: No, no. Every company's different.

Joe: Yeah. So they've reduced it from 6 months now to 90 days. So now the policy has changed because they're in desperate need to hire people. They've changed that policy now where, well, they can't even talk about any promises or anything until you leave the company about being a contract worker coming back.

Scott: So I can just think, so when I was a practicing advisor, I had a lot of clients. I still have a few clients, but back in the day, in Northern California, there was a company close by that had very similar things kind of came down. And I can't tell you how many people that we talked to just like this, couple years away from retirement, and all of a sudden this is thrown at him and like, dang, if I like, I'm not quite to where I wanna go. But now it's not making economic sense for me to stick.

Pat: I have one thing to say, Joe. Congratulations on your retirement. You're leaving, you're leaving.

Joe: Exactly. I'm thinking that because I'm thinking what the interest rates now are at 5%. It's really getting as good right now. I mean, it's at 7% where you can get a higher interest rate if you invest that money, whereas it...

Pat: Joe. It is such a unique opportunity right now, 'cause if you compare, you would've... Are you married?

Joe: Yes, I am.

Pat: Right. So you would've taken a joint and survivor annuity of some sort, right? You would've taken a reduced amount to make sure your spouse continued to have it. Now you have an opportunity. If you said, I wanna take as little risk as possible, my guess is even with treasuries, you can build a bond ladder that would provide income similar to what the joint and survivor pension.

Scott: How much money do you have outside of this lump sum? This 1.3 million?

Joe: Very little because we already moved into our retirement home and we eliminated debt.

Scott: Okay, perfect. Perfect, perfect. You're gonna go back to work.

Pat: We know that.

Scott: You're gonna go back as a contractor.

Joe: Yeah, that's what I'm thinking.

Pat: 'Cause they're gonna have too many people leave at once. I've seen seen this movie before.

Scott: We've seen it three times. I've saw the three different companies. We saw it in the telecommunications industry, which was unbelievable. It was. And there were people that went on contract for... The nice thing about going...

Pat: My stepfather, he retired, he worked for a utility company in Southern California. They had some lump sum buyout thing. Interest rates were changing, he's like, doesn't make sense for me to stick around. And he was a contractor for 17 years after that. 17 years. So, but what happens is once you go back on a contractor, life gets much more flexible. Because I've had clients that went back on contract for six or seven years. They'd work a year, take three months off. They're like, eh, I'm tired of working. I take three months off. After three months they're like, eh, I'm gonna go back to work, but I'm only gonna work 30 hours a week. But the opportunity cost, where we are in the market today, right? You know, you go in and you build yourself a 50/50 portfolio...

Scott: And I know that oftentimes you hear us say that we're not big annuity fans. There are clearly times you'd be better off buying a commercial annuity from an insurance company than taking a monthly pension for most people in this marketplace.

Pat: Yeah. But the best thing to do is to build like a 50/50 portfolio and get a reasonable distribution on it. Congrats on the retirement.

Joe: Okay. Yeah. That's kind of what I figured, especially with the interest rate that I'd be getting now that are really good with the investments that I would with a 65/35 split between bonds and stocks.

Pat: There's a lot of opportunities. A lot of options for you, Joe. So, this is one of these things that's... I don't think this is the company's intention, right?

Scott: Yeah. But it's the change in the interest rates from the beginning of the year because they're using last year's interest rates.

Pat: Its annuals, probably [crosstalk 00:18:27.544] annually. When the rates were zero and now they're four and a half percent.

Scott: Four something. Crazy.

Pat: Good luck to you, Joe. Wish you well. And by the way, go find a good financial advisor to help you transition through this. 'Cause you don't wanna make mistakes at this stage. Let's talk with Tom in California. Tom, you're with Allworth Money Matters.

Tom: Hi guys. I have a question for you. I'm 57 years old. I had a stroke three years ago. I worked for the state of California, and a couple weeks ago, they medically disabled me from the state. They said I could not do the job correctly. So I got my retirement, I guess, from them. My only problem is I only had 12 years at the state at this time. I started when I was 45. I had my own business. I went to the state...

Scott: Are you 10 years? Did you get vested for a pension and medical?

Tom: I'm 12 years into the state.

Scott: Yeah. But you had 10 years full-time employment, right? So you worked 40 hours a week for at least 10 years.

Tom: Yes.

Scott: Okay. So it sounds like you have vested for a... Both lifetime medical and a pension, correct?

Tom: Yes. So they just said they're gonna give me $2,500 a month. And that is at 12 years of doing the job. And I got a spouse supplement after that. So if I die, she gets $1700. I'm also gonna apply to Social Security Disability as well. I looked online, from that I can get $3,000 per month. So my question is, after next year with this retirement, can I make more money? How do I have to pay taxes? And this year, right now, I got my vacation pay from the state as well. So my salary was 145, $140,000 from the state. I got $50,000 extra from vacation this year. So right now I'm at $185,000 from the state.

Scott: Just find some irony. When you have 50,000 here, they say you're too disabled to do the job, but you're obviously able bodied enough to show up for work, which is why you have 50 grand worth of banked vacation days.

Tom: Unbelievable. They basically terminated me. That's the difference. They said, you can't do this job. They gave me a medical examination two times. The first time, the doctor gave me a good note and they said, well, in one sentence it said, well, we didn't examine his brain thoroughly. So after that, I had to go to a six hour medical examination with a PhD doctor, not a medical doctor, a PhD guy. And he wrote another letter and they said because of that, you can't do this job.

Pat: Yeah. So here's the answer to your question. Sorry you're going through this. The answer to your question is, you could go back to work. You could go back to work if they...

Scott: It's not gonna impact your pension.

Pat: It's not gonna impact your pension. Now, Social Security, the thing with Social Security, you've gotta be fully disabled to collect Social Security. So if you're able to do any other job, any other job, you won't collect Social Security. But my guess is because you've actually been disabled in the state of California, there's a very, very good chance that you'll be disabled for Social Security.

Scott: That would be my guess as well.

Pat: However, then you can't work. You don't wanna work, right?

Tom: I cannot work at all.

Scott: That's right. If you're on Social Security Disability, you're not working or you're not eligible for Social Security Disability. Is he eligible for unemployment? You got forced out.

Pat: I don't know the answer to that.

Scott: Did you voluntarily leave? Voluntarily leave?

Tom: It's very difficult. I don't know what happened with me. I just...

Scott: I would apply for unemployment.

Tom: They didn't terminate me, they medically disabled me. They didn't fire me.

Scott: They retired you. They medically retired you.

Tom: They retired me. Yes.

Scott: So I would apply for unemployment

Pat: If I were you, I'd apply for unemployment. I'm 56. You're 57. If I were in your situation, I would apply for unemployment. Say, look, I tell the EDD like I think I can find a job. I'm gonna be looking for a job. The State medically retired me and I don't wanna be retired.

Scott: Do you think you could go back to work full time somewhere else?

Tom: I could do easily stuff. I can do... I sell on eBay. I can sell on eBay all day long and make money doing that.

Pat: That's not a job, that's self-employed.

Tom: It's my own self-employment. Can I do that?

Pat: Yes. Well not while collecting unemployment. Not while collecting social Social Security Disability. When you're disabled for Social Security, you're disabled, which means you're not working.

Scott: I mean, my guess is there are people out there that are doing a little side job and putting under a spouse's name or something, but I certainly couldn't recommend that that's how you should...

Pat: Do you think, Scott? So we would tell you...

Scott: You think there's people scamming the government systems? No.

Pat: So you could run a business but you not work in it, and the income could show up for your wife. Take that however you want. But if you were my brother, I'd say file for unemployment. And at the same time, let's go ahead and file for Social Security Disability, and let's expect it to get turned down twice with Social Security Disability. And on the second time we get turned down, we're gonna hire an attorney, and the attorney is gonna help us go through the process. I might even bring the attorney in...

Tom: What process?

Pat: Well, there's a process. You're gonna say, "I can't work. I'm disabled." And they're gonna say, "No, we think you can work." And you gonna say...

Scott: But to your point you brought up earlier, because the State of California medically disabled you.

Tom: They disabled me. They medically...

Scott: Now I understand. No, I understand what you're saying.

Pat: But almost everyone, the first time they apply for Social Security Disability, they get denied.

Scott: They get denied. And your argument is...

Tom: Really?

Scott: And your argument is turn on the television or listen to the radio and you'll hear an ad you know about lawyers that help get Social Security.

Pat: There's a lot of people... I don't really feel like working. Maybe I'm disabled. Yeah, yeah. But I'm disabled. I don't... I'm too depressed to work. The definition of for social security for disabled in the state of California for deployment, may completely different. So I, I agree with Scott. File for the unemployment, take the money they're giving you now. File for unemployment. Start the Social Security Disability. Immediately expect to...

Tom: I already did that. I turned it in. Yes. I turned in last week.

Pat: Expect to be denied.

Tom: I have not done the unemployment.

Pat: Do that. Look, if I were you, I would apply for it and just see what happens.

Scott: Yep. And then expect to get turned down from Social Security and apply again. They turn you down the second time, get an attorney.

Pat: Appreciate you. Sorry. Sorry you've had to go through all this, Tom. I really am. But hope it all works out well for you. We're gonna take a quick break. When we come back, we will talk about some crypto stuff and take your calls. This is Allworth Money Matters.

Man: Can't get enough of Allworth's Money Matters? Visit to listen to the Money Matters podcast.

Scott: Welcome back to Allworth's Money Matters. Scott Hanson.

Pat: Pat McClain. Thanks for sticking with us.

Scott: We are gonna take some more calls, but we said at the start of the program, we're gonna talk a little bit about what's happening in the crypto world.

Pat: But you sent me yesterday a link to a podcast called Bad Bets.

Scott: Yes.

Pat: Right?

Scott: Yeah.

Pat: And I apologize, you sent it to me yesterday.

Scott: And I don't trade that... We don't trade that many podcasts back and forth,

Pat: But you really enjoyed it. And I feel bad because I had listened to it the week before and I thought, "Scott would really enjoy this." So this one was about...

Scott: Nicola. Nicola, we talked about that program. That was the fake electric chuck that they had rolled down the highway to make it look like it was running.

Pat: Yes.

Scott: That guy's in prison now.

Pat: Yeah.

Scott: He should be. But the market capitalization was, I dunno, 50 billion. It was worth more than Ford Motor. It was a publicly traded company, it was all a bunch of lies.

Pat: Yeah. As was Theranos. Right? And you think, this is unbelievable. This is crazy. These are big time boys and girls investing in these companies, and they turn out to be complete scams. So listen to the podcast Bad Bets.

Scott: If you're interested in that story,

Pat: If you're interested. And while you're at it, share our podcast with someone else. But the reason I bring this up is the crypto.

Scott: In the crypto world.

Pat: This happens in the United States with big investors, but crypto, there's... What did I see yesterday? 20,000 different cryptocurrencies now, they speculate. No one really knows.

Scott: And there's a few different ways that people can invest in crypto. One is by buying just crypto, like Bitcoin, then it needs to be stored somewhere.

Pat: Cold storage or an exchange, right?

Scott: Right cold storage, whatever that means. Or you can buy tokens in some sort of company like FTX. Instead of shares, they sold their own coins. Or you can say, you know, I've got this crypto and if I put it on deposit at a company like FTX, they're gonna pay me an interest rate for it.

Pat: Sometimes 10. But you're gonna give the ability to lend that to someone else. So you're thinking, how did you start with this, the goal and end up with this?

Scott: It's the same story in my mind. This one's bigger.

Pat: This is bigger. And the reason this is bigger is, it's a 100% global. And by the way, so we watched FTX blow up last week, and then Genesis is blowing up this week. We have just started. Watch what happens to these cryptos and crypto exchanges.

Scott: If you've been listening to this program for a long time, you've heard us talk about the danger of investing in these tokens. 'Cause they look like securities to me. And for whatever reason, the SUC hadn't really done anything until now. Of course they will. But this, Sam Bankman-Fried, looks like a video gamer is what he looks like. He's a little doughy with big poofy hair.

Pat: He was playing World of War, World of War when he was actually presenting to Sequoia on his...

Scott: League of Legends I think.

Pat: Oh, League of Legends.

Scott: While he was presenting to a private equity firm or venture capital.

Pat: One of the big ones. Premiere Sequoia Capital was investor in this FTX thing. And then if you listened to us for a while, we talked about after the football game, the Super Bowl, all the ads they had. And like we said, it felt just like 2000, the year 2000,

Scott: Like, when they had...,, all these other things that were all built on nothing. And here it is, we're seeing this, the, it is... This Sam Bankman-Fried, I will put money on it that he will end up in prison. And he ingratiated himself with all kinds of politicians, regulators, Hollywood elites, professional athletes, I mean, on his payroll, paid for various events or whatnot. Bill Clinton, Tom Brady, and all kinds of different actors and actresses.

Pat: Well, this was just the start. And so we will see in the coming months. And a lot of this reminds me a little...

Scott: They say there are over 1-million creditors. Bernie Madoff was different. Bernie Madoff, some similarities, but he only went after the super wealthy. But this is the everyday person that invested in these things.

Pat: Well, Scott, the reason they're going to blow up, is because of counterparty risk, which is the same reason that happened in the financial crisis.

Scott: Yeah. So here's what FTX did. Okay? So they set themselves out like we're gonna be, think of us like a Charles Schwab, but for crypto instead of traditional securities. So you're gonna be able to buy and sell other crypto here. And you can have an account here at FTX.

Pat: And you could buy a margin.

Scott: Yeah. Do all kinds of different things. And then...

Pat: And we could pledge some of your, your coins to other firms.

Scott: But this Sam Bankman-Fried just said, why don't I set up this other company, side company, and we'll have FTX loan money to this Alameda company. And Alameda, what they will do is they will buy FTX tokens. So we're gonna create these tokens and we're gonna have one main buyer, ourselves. Right? So, right. So when you control...

Pat: The supply and the demand.

Scott: Yeah. You could set the price, which worked out just fine.

Pat: Until one of his competitors actually created a little bit of spook in the market and created a run on the bank.

Scott: And someone said, "Hey, guess what? I want my money back." Uh-oh. We're gonna have to sell some.

Pat: But Scott, it wasn't just that one person wanted the $500 million back, 'cause that wouldn't have done it. It was who it was, and how they did it. So they went on social media and said, I'm taking my $500 million in tokens out right now, 'cause I'm a little freaked out that these guys aren't real, and that they're not gonna be able to support it." And sure enough, it becomes a self-fulfilling prophecy, which would've happened, by the way, anyway.

Scott: Eventually.

Pat: Eventually. It just wouldn't have happened as quickly.

Scott: And it happened in just a few days. Okay.

Pat: So it happened. So I've been following this pretty close. So Genesis...

Scott: I've been fascinated by it.

Pat: Yeah. Genesis was another.

Scott: Just this last week it suspended withdrawals.

Pat: But with FTX, they did all kinds... Interim CEO, the bankruptcy, they're in bankruptcy. The bankrupt CEO was the same individual who took Enron through bankruptcy. And he said, he's never seen anything like what he's seen here. Well, there was no governance whatsoever.

Scott: There was some regulations in Enron, some regulations. This was located in the Bahamas. And so you see, I've read this article. Someone set up these, they're setting up these GoFundMe pages because they wanna raise money because they were gonna, that this was the money they were gonna buy a car with. Well, this money shouldn't have been in the crypto, but I'm gonna compare it something. Prior to the 1930s, the US financial system wasn't nearly as stable as it is today. No FDIC existed. So your bank was only as good as their ability to repay you.

Pat: And you truly were loaning money to the bank.

Scott: And the bank was loaning money to people, or other banks

Pat: [crosstalk 00:34:28.082] or whatever.

Scott: So the first bank fell in Nashville, Tennessee in the '30s. There was a run on the US financial system for two years. Between 1930 and '32, 1930 and '32. The number of companies of banks that went bankrupt were in the thousands, thousands, thousands. All these little small financial... 9,000 is how many banks throughout the United States closed in the '30s. Imagine, 9,000.

Pat: Is that why you say you think this is just starting, this is the beginning?

Scott: Just starting. Just starting. And then that's when they came around with the FDIC insurance, the Federal Deposit Insurance Corporation, in June of 1933. And that's why people were comfortable putting money in a bank.

Pat: Of course, 'cause the federal government, the same people print the dollars. Worst case, they just go print some more.

Scott: But the chances of you getting your money back at the bank are really, really, really good.

Pat: 100%.

Scott: The chances of you actually putting... First of all, why does the cryptocurrency price go up? Because we're selling scarcity? Because if it was truly a fiat currency, shouldn't it be relatively stable against a stable currency?

Pat: The thing that's so interesting about this, and I've got a friend of mine who's quite bright. He had taken some classes in crypto. So this is like five years ago we're having some debate about this. And he kept going back to the blockchain and how the blockchain's gonna revolutionize the way commerce is done. And I kept going back to, look, I think you're right there. I believe that. But just cause Bitcoin is built on blockchain's technology doesn't mean that Bitcoin's price is going to the moon.

Scott: Yes.

Pat: And maybe it will. I have no idea where Bitcoin's going. And I had that gentleman tell me, you don't understand, Pat. Each blockchain needs its own currency. I'm like, that makes perfect sense. So they're pretty easy to start. They're pretty easy to start. When the top 100 corporations in the United States decide what that currency is going to be, and then they create it, then I think we got something there. And that there's regulation around it. But this is, believe me...

Scott: And I tell you, these guys were spending hundreds of millions of dollars in advertising and political contributions. So in all seriousness, Pat, I'm waiting because what's gonna happen is through this bankruptcy, people are gonna get pennies on the dollar. There'll be pennies on the dollar. And if you think back to like Bernie Madoff, which was a Ponzi scheme, what ended up happening is the people that were paid out before the bankruptcy proceedings came back and said, "Hey, why don't you need to give us this money back?" I'm just curious about the politicians who took the money, the paid endorsements.

Pat: Yes.

Scott: I mean, if you're Larry David, you don't really need the money. You thought you'd be doing a cute little ad in the Super Bowl.

Pat: He didn't do it for free.

Scott: He didn't do it for free. I mean, see, in all seriousness.

Pat: Yeah. Yes, yes.

Scott: I'm thinking these guys were part of the scam. Whether they realized they were in on it or not, this was a scam.

Pat: Yeah. If I was Larry David, I'd probably actually give it to charity. So here's what they also, this is my part I love. This is when you knew this was when the end, you knew it was closed. FTX relocated to the Bahamas from Hong Kong last year and created a cushy lifestyle, a cushy lifestyle for the employees. The company spent more than $100,000 every week on catering for its headquarters. $100,000 for catering on its headquarters, as well as millions of dollars on housing for executives and exclusive B side developments, according to former employees.

Scott: Man, the Bahamas loved FTX locating there.

Pat: Oh, wow. Well, anyway, just if you've been a long time listener, you've heard us say stay far, far away from this stuff. It produces nothing, it is a complete speculation. It has been sold on a rocket ship to the moon. It is far from that. It is, it is nothing but...

Scott: Had a friend of mine last January, he was pitching me like, what do you think, Scott? And I said, here's how I view things. Let's assume Bitcoin goes to a million dollars, and I don't ever invest in it. Oh, I guess I missed out on that Bitcoin going to a million dollars, but my lifestyle hasn't changed any. But let's say I take a bunch of money and I put it, and Bitcoin goes to zero, or somewhere close to that. Now my lifestyle has been clearly disrupted. So if I miss out on it, I'm fine with missing out on it.

Pat: It's 'cause you don't have the fear of missing out gene, which is the FOMO gene, which is at the end of every runup in the market is the FOMO, the fear of missing out. And people have it. In fact, I read a quote from a private equity that he said, "I have made a terrible mistake. I knew better, but my fear of missing out..."

Scott: No, I don't have that. You're right. I don't have that.

Pat: You don't have that.

Scott: No, I don't.

Pat: You don't have that.

Scott: But I also remember when I first got in this industry, my manager on his desk had a plaque that said, TINSTAAFL. It's an acronym. There is no such thing as a free lunch.

Pat: So that is...

Scott: Enough about that, we're gonna go to the calls and...

Pat: Yeah, let's go.

Scott: But from now on, we're not gonna talk much about crypto except...

Pat: When we do.

Scott: No, once a month, we'll just announce the other exchanges of crypto that have blown up.

Pat: This is Pat McClain's predictions. We just go through the list. I'm telling you it's gonna happen. And half of them we'll never read about....

Scott: I mean, what's gonna happen is, people read first FTX then Genesis, there was another one earlier in there. And so you've got your crypto on the count somewhere, you're like, maybe I should get my money out, my crypto out.

Pat: And then counterparty risk, prices drop, margin calls, you name it. So we won't talk about it anymore other than once a month. We will go through a list of all the ones that are either in bankruptcy or on their way to a federal indictment.

Scott: Let's go back to calls. Hey, we wanna let everyone know that Saturday, December 3rd, Pat and myself will be sitting in the studio for three hours answering your calls. This is what we'll use for building our podcast in the future. Again, Saturday December 3rd from 9:00 AM to noon Pacific, 9:00 AM to noon Pacific Saturday, December 3rd. You can reserve a spot to talk with us at or you can call 833-999-6784. Let's go to Missouri and talk with Rob. Rob, you're with Allworth's Money Matters.

Rob: Hi, my name's Rob and my mom passed away like in October. And she left me an IRA and the people that actually had the IRA, well, she was getting checks from them. And so I called them up and just said that, "Hey, she passed away." And they said, "Well, you need to do something with this money now." And man, I don't know what to do with it. My mom... Huh?

Scott: Rob, how old are you?

Rob: I'm 63 and I still work. I work for the government, for the state of Missouri. And I own my own home. It's paid for. And I'm pretty set for, you know, retirement and I ain't worried about tomorrow either 'cause I know where I'm spending eternity.

Scott: And how much money is in this IRA?

Rob: $115,000.

Scott: And were there any other beneficiaries on this IRA other than yourself? Like any siblings or relatives?

Rob: No. Nope.

Scott: So it was just you. And how was the money invested when your mother was alive? Was it in the bank or was it at a brokerage firm or where was it?

Rob: Well it started off in a brokerage firm, but they sold out to an annuity.

Scott: Okay. All right.

Rob: And the bank's still an IRA. They said it was still an IRA. But Annuity Company has it.

Scott: So here's what... If I were in your shoes, here's how I would handle this, okay.

Rob: Okay.

Scott: This $115,000 has yet to be taxed. If you cashed it out all in one year and took it and put it in your bank account, that 115,000 would be added on to your, at the tax time, to all your other income and you'd be taxed at a higher rate on it. So we wanna try to minimize the tax on this. It used to be...

Rob: Absolutely.

Scott: It used to be, you can stretch this out over your life expectancy. They've changed the rules, but you can stretch it out over the next 10 years. So what you can do is set up what's called a beneficiary account. So it's an account that would say Rob Smith or whatever your last name is for benefit of Myrtle Smith, your mother, right? And so that way it's kept in with her name on it. You are a beneficiary. It's a beneficiary IRA.

Pat: So Myrtle Smith for FBO, for Rob Smith, you had it backwards.

Scott: Okay, thank you. Yes. Anyway, yes. And so once it's titled that way, you essentially have control over the account. You can invest it how you'd like. If you particularly set up like a brokerage IRA, you've got a lot of flexibility. You just need to make sure that you distribute this over the next 10 years. And you must start taking your first distribution in the first 12 months. Actually, December of 31st, the first full year after passing away. Otherwise, the account would need to be distributed within five years.

Pat: So when did she pass away?

Rob: October 5th.

Pat: Okay, so you'd need to do the distribution in 2023. How do you have any money in your 403-B or 401 or 457 with the state that you're working with?

Rob: Well, I have a pension fund, but they said that they don't want nothing to do with that.

Pat: No, that's right. That's right. That's right. That's right. That's right.

Rob: So, I asked them if I could do that because they're always telling me if you put more money in, you got more money coming back before you go to retire.

Scott: Well, they're kind of right. So here's what I want you to do. I want you to take money outta this $115,000 and pay taxes on it every year. And I want you to put money into...

Pat: Basically 1/10, take out 1/10 the first year, 1/9 the second year, 1/8.

Scott: And I want you to actually put this into your, to come outta your paycheck. To come outta your paycheck. So what happens, you are gonna get $10,000 in taxable from your mom's IRA. Your paycheck is gonna drop by $10,000 a year because you're gonna put it into a Roth 457 with the State. And quite frankly, you know, you need a financial advisor to walk you through this. It's not complicated, but you gotta make sure you do it right.

Pat: Yeah, I would definitely meet with a financial advisor, but you can't put it in your name. If you do, you're essentially draining that IRA. It's gonna be a taxable event. And then the proceeds you can put in your name. But the best thing is to set up a beneficiary account and you could...

Scott: And then increase your contributions.

Pat: Your financial advisor can help you set that up, help you deal with the paperwork of getting it transferred over from where it's currently at today and go that direction. So wish you well, appreciate the call. Let's talk to Ron in California. Ron, you're with Allworth Money Matters.

Ron: I hear you guys have the best crop report, so I'm ready for the information.

Scott: Okay. All right. Thank you. What could we do for you?

Ron: All right. Come on, Pat. I thought you'd be jumping on that [inaudible 00:47:09.611].

Pat: I'm trying, Ron. Trying. What do you got for us?

Ron: So I wanna... I have a question more along the lines in the, I guess it would be under what seems to be everyone calling the great reset. So there's an executive order out there that is coming in line in December, and it's either a beta or some kind of a soft look at transitioning the dollar to electronic currency, something along those lines. And so I just wanna see, hey, what you guys knew about that, and what your thoughts were on where that would even take us in the world of investing.

Scott: Well, let's frame this. I think it took place in March or April, is that the Biden's executive order regarding blockchain and digital currencies? Is that what you're speaking of?

Ron: Correct. And there's a start date in December of this year.

Scott: Yeah. So no one really... We're not quite sure what this means yet, but I think it was a good thing. And I didn't read it as it is to switch our currency to a digital currency. In fact, you could argue right now that a large part of our economy is run by digital currency just because how money is moved around. Very rarely do you transact...

Pat: I hardly even use cash anymore.

Scott: With cash, right? Very rarely. So it is in some digital fashion. What I read into the executive order, and we're gonna see where it lands, it was to protect the economic system from systemic problems that occur because of the digital currencies. And it's especially important as we have seen companies, including brokerage firms, I think the last one, don't quote me on this, was Bank of New York Persian and Fidelity were going to start allowing digital currencies to figure out how to allow digital currencies to be traded on their platform. So I didn't think one way or the other over the executive order. I didn't see it as good. I actually saw it more as good than bad.

Pat: And I don't wanna go down this rabbit hole in this program, but if we are at a point where suddenly it's a digital currency that a government controls, then the government can start dictating who gets to spend money on what items and services. Similar to what China is doing. So the whole concept of that goes against the core of my belief in individual freedoms and the things I love about this country.

Scott: But I didn't read it that way. And by the way, if we think about where digital currency came from, everyone talks about digital currency. You know, digital currency has been around for quite a while. And the first digital currencies were used in order to move currency on the dark web, having to do with Silk Road. So if I was buying this drug in what country and selling it to another, someone in another country, I needed a way to disguise or launder that money across national borders. And I didn't oftentimes know who my counterparty was, or didn't know them that well. And that was the whole premise behind this digital currency. That's why it started, it started as a way to launder money. I mean, we could talk about it, and it's morphed into something else. So I didn't see anything wrong with that executive order, and I didn't see him either endorsing or not endorsing digital currencies. That make sense, Ron?

Ron: Yeah. And I was thinking more along the lines of what Scott was saying, but only time will tell. So [crosstalk 00:51:05.090].

Scott: It's just not where I wanna go in this program. 'Cause it's....

Ron: I hear you.

Scott: Yeah.

Pat: Although there's many interesting programs out there on that sort of thing. So appreciate the call.

Scott: Well, unfortunately that's it for this program. As fun as it's been. And as Pat said, he was not gonna mention crypto again for another month, but I kind of doubt that.

Pat: We'll see.

Scott: It is interesting.

Pat: Oh, it's fascinating to watch. You knew it was gonna happen. You just didn't know when.

Scott: I was talking to an advisor, a client in February of this year, took all those life savings out and put it in crypto 'cause we didn't understand, apparently. Anyway, we're outta time. We'll see you next week. This has been Allworth's Money Matters.

Man: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or a state planning attorney to conduct your own due diligence.