All the Regulations Money Can Buy
When congress and two presidents get tired of shoveling our unborn grandchildren's money into the bad debt inferno, sure as night follows day our public servants will embark on an orgy of regulatory rule making intended to ensure that nothing like this ever happens again.
How'd that work out last time?
Do you remember the junk bonk S&L fiasco? How about the public hearings after the dot.com market crash? Who can forget the raft of new accounting rules showered on us after the Enron and WorldCom debacles?
While honest businessmen drown in SarbOx compliance costs, reaching into their pockets to pay swarms of accountants, Bernie Madoff was reaching into the pockets of pudding-for-brains investors robbing them blind right under the SEC's nose.
Is it possible that there are not already enough regulations on the books to uncover an old fashioned Ponzi scheme? What have the people we pay $900 million dollars a year at the SEC been doing? Perhaps they should find jobs better suited to their talents. Would you like fries with that?
Did you ever try to complete a FAS 157 mark-to-market valuation for a startup company consisting of a professor, a pending patent, and a PowerPoint presentation? What is the "fair market value" of a business so close to infancy that it has no saleable products, no revenues, and no customers? Beats me, perhaps we should consult General Motors.
But savvy investors don't just put their faith in regulators, do they?
Independent accounting firms and bond ratings agencies help inform decisions. Heaven forbid anyone should take the time to do their own due diligence.
A Danish IT entrepreneur recently confessed that he has been running a $185 million sham operation whose only business was to swindle banks. Were you surprised when you learned that two of the big four public accounting firms had audited his books finding no problems and a third awarded him an entrepreneur of the year award on the very night he went on the lam?
A Credit Default Swap is an insurance product. We have more insurance regulations than Illinois has unconvicted felons. These require insurance companies to acquire and prudently manage portfolios of diversified assets large enough to pay anticipated claims under the worst possible circumstances.
How is it that not a single insurance regulator blinked when every boiler room operation on the planet started selling insurance on complex mortgage securities spit out by Government Sponsored Entities that everyone knew were out of control? Hey, they were government sponsored, what could go wrong? Instead of prudently investing the premiums, the dealers backed their commitments with ... IOUs from other boiler room operators peddling insurance written on the identical underlying securities! How could this risk-kiting scheme have done anything else but implode?
Once exposed, surely regulators would levy fines on the miscreants to discourage this from every happening again? Don't be silly. Congress wrote them all checks made out on your account! Albert Einstein once stated, "the problems we face will not be solved by the minds that created them." Is it possible that the same Congressmen who were the primary facilitators of Fannie & Freddie could really be the lead dogs slavering to write all the new regulations that await us? But of course!
They give such natty tongue lashings on TV. Is this what Menken meant when he said that in a democracy voters get what they deserve - good and hard?
"Deregulation" is largely a media fantasy. The absurdity and ineffectiveness of our ever expanding regulatory universe knows no bounds.
The FDA is in charge of preventing drugs from reaching the market that might have adverse side effects on one in a million people. Who protects the thousands of people who die every year waiting for drugs that never get approved?
Have you ever petitioned the Medicare gatekeepers for reimbursement approval on a new medical product or service? Have you read Kafka's novel "The Trial?" Kafka clearly worked for a healthcare startup.
I once looked at investing in an entrepreneur who figured out how to inexpensively track and uniquely bar code every strawberry you eat. It's pretty clever, and I can see why grocers might be willing to pay a penny more for fruit they can intelligently pull off the shelves, or not, should CNN report a salmonella outbreak in Duluth. How long do you think it will be before this novel innovation becomes mandatory? And how soon after will the four hundred pages of fruit-tracking regulations churned out annually by the new Bureau of Diarrhea Protection metastasize into a club that a handful of agribusinesses can use to bludgeon smaller competitors to death with compliance costs?
Once carbon footprint accounting becomes law, can paperwork requiring farmers to track cow flatulence be far behind? Can we at least make the big four personally audit those?
Cast your eyes around your room and count the number of products that have been touched by a regulator. Email me the number, and drop me a line if you find one that hasn't. Yet why is it that there are never any consequences when existing regulations don't deliver the intended benefits? Instead we get a clamor for more regulations, ignoring the predictable unintended consequences that regularly drive whole industries either into bankruptcy or out of the country.
Perhaps you believe a magic Change in our federal sausage factory will make the new regulations about to rain down on us more intelligent and effective than the regulations so easily evaded by Bernie Madoff. What do they call someone who expects different results when the same experiment is conducted over and over again?