“Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.”
― George Orwell, 1984

Regulation and the “Unknown Unknowns” Effect

“Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know.” —  Donald Rumsfeld[1]

I ingest a large amount of business media—and even more that passes itself off as business media. There is a lot of head scratching going on about the small business optimism index (among the highest levels in 43 years), CEO Confidence Measurement (up 15 points in the most recent measure) and even the strong consumer confidence survey (up 9.5 points in the most recent survey).

“How could this be,” many business media pundits ask, “with the GOP healthcare bill failure, no tax reform yet, no new infrastructure spending bills, and no new laws to roll back regulations?”

I say it’s the reduction in the “unknown unknowns.” More specifically, I mean the bad unknown unknowns that come with high and increasing levels of regulation. Whatever your feelings about the current administration, I believe most would agree that the current level of regulation on business will be lessened, and any future regulatory actions will likely be much more pro-business. This can be seen in recent executive actions that undo some of the prior administration’s executive orders, rules and requirements.

Businesses may not believe that all of the positive things the President promises will actually happen, but they have some belief that the burdensome regulatory environment will not continue (or get worse). That’s either good or bad depending on your point of view, but for many in the business community, it’s one less unknown unknown.

[1] “ News Transcript: DoD News Briefing – Secretary Rumsfeld and Gen. Myers, United States Department of Defense (”

What’s in a name?

Like how a cat that jumps on a hot stove will never again step on a cold one, many people are still investing and planning with memories of the financial crisis of 2007-2009 foremost in their minds: the so-called “Great Recession.”  With the benefit of almost a decade of hindsight, I propose a new moniker for the 2007-2009 financial crisis.

In the 18th and 19th centuries, extreme economic downturns were generally referred to as “Panics.” Examples are the Panics of 1837, 1857, 1873 and 1893. These Panics would then lead to recessions or depressions, depending on the duration of the downturn.

The triggering event of a Panic would often be the failure of a specific industry or company (railroads, banking, land or commodities).  The 2007-09 financial crisis began with overheated real estate prices which translated into overvalued financial assets.  First you had Lehman Brothers, followed by Fannie and Freddie, and then you had panic in the marketplace.

Therefore, from here forward, I am referring to the financial crisis of about ten years ago as the Panic of 2008.

Remember, you heard it here first.




Regulatory Time-out

 “U.S. President Donald Trump on Friday will fire the opening salvo in his campaign to scale back major regulations that resulted from the financial crisis, directing a review of the Dodd-Frank Act and putting the brakes on a retirement advice rule.” – Reuters 2/3/2017

Speaking as someone who has dealt with these Regulations and proposals, the President’s actions are (hopefully) the first steps toward sane regulatory oversight and away from rampant unintended consequences.

The parts of the DFA that deal with TBTF and capital requirements are useful, especially for the largest institutions. Stress tests and other solvency related requirements seem reasonable. The headline item is always the Volcker Rule. It’s primarily symbolic in nature, and it certainly doesn’t impact the activities of smaller institutions.

However, the parts of the DFA that are concerned with matters wholly unrelated to the financial crisis of 2007 and 2008 (like the CFPB) could be reduced or eliminated completely. It’s simply a full employment program for compliance officers and attorneys.

My favorite anecdote relates to the 2018 HMDA revisions. A simple designation of ethnicity (Hispanic or Non-Hispanic) was deemed insufficient for government monitoring. Starting in 2018 you have to identify what “type” of Hispanic (Mexican, Puerto Rican, Cuban, Other Hispanic). Interesting information, but it has nothing to do with the financial crisis precipitated by the poor lending practices sanctioned by the GSEs and HUD. Just extra compliance cost with no corresponding benefit.

The DOL rule. Well intentioned…totally the wrong approach. As presented, it would hurt the people it was meant to help. The small investor would pay more, have fewer options, and get no assistance. It’s hard to see how the little guy would gain in that scenario.

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Commonly attributed to Mark Twain (but someone else probably said it first)