Archive for October, 2012

Smart Regulations

Saturday, October 6th, 2012



A regulation is a double-edged sword in any sphere of life, especially in business. Smart regulations can save a business and its stakeholders, and dumb regulations can kill them.

That is why, like Barack Obama on wars, I believe in smart regulations. So what is the difference between smart and dumb regulations? Like wars, it is evidence. Just as it is dumb to fight wars without evidence that we are fighting the right enemy, it is dumb to regulate business (or any other activity) without evidence that regulation is needed.

Let’s look at it this way: When an oncologist prescribes chemo for a patient without cancer cells (evidence), that oncologist deserves to be stripped of his medical license and sent to jail for murder and malpractice. As a society we would not tolerate oncological medicine without evidence, and we should not do that in other businesses because dumb regulations crush good businesses.

Of course if there is evidence of harmful and illegical business, enforcement and regulations (a.k.a. chemo)  should be forcefully applied to those socially harmful and illegal businesses (cancer cells).

For America’s nascent reverse mortgage industry  (it is only 23 years old; though the first reverse mortgage in the U.S. was done in 1961) and the millions of older consumers who will need its essential services, there is evidence that over-regulation (and the prospect of more regulations) is taking us in the path of dumb regulations. In the last year or so, major lenders — Bank of America, Wells Fargo, Metlife Bank, Financial Freedom and others — have left the industry. Whatever you may think of lenders and the business of lending, that is not good for consumers. Why? Because consumers and producers of reverse-mortgage credit are joined at the hip.

And Congress knew that. That is why one of the purposes of the industry’s foundation law is to encourage lenders. Only smart regulations can spur lenders.

For more on what dumb regulations can do to an industry, read my column in Reverse Mortgage Magazine.


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