Of Mountebanks and the Second Coming of Christ

I have been wanting to write this for months, but I have been reluctant. I have been wanting to write this ever since I heard the bizarre claim on the radio by false prophets that they knew the exact date of the second coming of Christ. I have been reluctant, because I did not want to help draw attention to these con artists and inadvertently stimulate the curiosity of an unwary reader that could bring him within their grasp. We are close enough, now, to the day when their deception will be revealed, so the chance of there being further victims is small.

Today is May 20, 2011, and I am still here. I will still be here tomorrow, the date that the diabolical deceivers have given out as the day that Jesus Christ would return to the earth in glory. These mockers of the Savior are correct that tomorrow will fulfill prophecy, for as it comes and goes they will have demonstrated the fulfillment of Christ’s warning given to His disciples shortly before His crucifixion. As the Savior sat on the Mount of Olives, overlooking the Temple, Christ prophesied of His return to the earth in the latter days. Jesus warned,

Then if any man shall say unto you, Lo, here is Christ, or there; believe it not. . . . if they shall say unto you, Behold, he is in the desert; go not forth: behold, he is in the secret chambers; believe it not. (Matthew 24:23, 26)

The Savior then explained, that when He returns to the earth, no one will need to tell you, for all will see and know. It will be just as obvious and apparent as the sunrise:

For as the lightning cometh out of the east, and shineth even unto the west; so shall also the coming of the Son of man be. . . .
And then shall appear the sign of the Son of man in heaven: and then shall all the tribes of the earth mourn, and they shall see the Son of man coming in the clouds of heaven with power and great glory. (Matthew 24:27, 30)

Tomorrow will be the end of just one more in a long line of frauds. Unholy mountebanks, avaricious men and women in pursuit of power, wealth, sport, or personal aggrandizement, have played and will continue to play upon the emotions and fancies of those who mix their longing—and lack of patience—for the return of the Savior with a spiritual gullibility, unilluminated by an allegiance to the guidance of Christ and His prophets. These sheep, unwilling to rely upon the Savior’s promises on His own timetable and in His own ways, line up to be unmercifully shorn.

For us and for them it could be otherwise. Jesus Christ Himself gave an ironclad safeguard against these deceivers, a foolproof test that has protected believers for almost 2,000 years. If anyone tells you the day or time when the Savior will return, do not believe him:

But of that day and hour knoweth no man, no, not the angels of heaven, but my Father only. (Matthew 24:36)

I consider it unwise to lay claims to more knowledge than the angels or to follow any mortal who makes such claims.

So tomorrow will come, and tomorrow will go. I will be here, and you will be here, but the leaders of the latest unholy fraud will likely be gone, long gone, probably along with much of the funds of their followers. But do not look for them in heaven; I recommend seeking them in some more earthly paradise, with swaying palm trees and drinks served with little umbrellas.

Of the Dodd-Frank Act and Preparing for the Next Crisis

Last year Congress passed and President Obama signed into law the Dodd-Frank Act. As advertised, the Dodd-Frank Act was to restructure the entire financial system of the nation to ensure that we do not have another melt down of the economy, at least not one related to the financial system. With that promise, the Dodd-Frank Act set in motion an extensive program of federal government control of the banking and investment industries. Ever after, financial firms would be more responsible to bureaucracies in Washington than they would be to their own customers, but everything financial would be “safer.”

The Dodd-Frank Act is failing. In fact, judged by the most demanding measures possible, those set out by its framers in the Administration, it is an abject failure. And it is getting worse, not better, and it is making financial things worse, not better. A repeat of the troubles of 2007 through 2009 is becoming more likely rather than more remote.

A few days following enactment of Dodd-Frank, Treasury Secretary Timothy Geithner gave a speech at New York University’s Stern School of business in which he outlined six principles that would guide implementation of the new law. It is altogether fitting and proper that we should judge the success of the implementation by those six principles. Secretary Geithner challenged us to do so. He said, “You should hold us accountable for honoring them.” In a few days it will be ten months since President Obama signed the law in a formal White House ceremony. Let us examine progress of the last ten months by the standard of the six principles.

Principle One: Speed, moving as quickly as possible to bring clarity to the new rules of finance. The Dodd-Frank Act mandated an unprecedented program of new regulations that are so numerous and complex that describing them defies hyperbole. Estimates range between 250 and 500 new regulations to be promulgated. One of Washington’s prestigious financial law firms, Davis-Polk, noted by way of illustration that one of the agencies tasked with writing new regulations, the Commodity Futures Trading Commission (CFTC), normally has at most four regulations that it is working on at a time. At the end of December the CFTC had 31 regulations under work.

But starting regulations is not completing them. The Davis-Polk study noted that the law required 26 regulations to be completed in April 2011, but not a single deadline was met. Some 40 Dodd-Frank regulations are now behind schedule. That is not to criticize the regulators, who are cutting as many corners as possible to meet the deadlines. It illustrates how impossible it is to implement Dodd-Frank as mandated.

Principle Two: Full transparency and disclosure, with the regulatory agencies consulting broadly as they write new rules. Compliance with this principle is even worse than the speed test. In fact, in a vain effort to meet the unrealistic deadlines of the Dodd-Frank Act, regulators are shortening comment periods, consulting with each other as little as possible, and in general trusting to their own hasty judgment far too much. One agency head remarked to a banker group that the agency leadership did not need to have long discussions with the public; they have been thinking about the issues and already know what they want to do.

Principle Three: Avoid layering of new rules on top of old, outdated ones, eliminating rules that do not work, and wherever possible streamlining and simplifying. Barbara Rehm, a financial reporter with the independent trade newspaper American Banker, recently observed, “None of the numerous people interviewed could name a single rule that has been repealed or simplified.”

Principle Four: Avoid risking killing freedom of innovation, striving to achieve a careful balance, safeguarding freedom and competition. Since enactment of the Dodd-Frank Act there has been no innovation in the financial services industry, as businessmen do not know what they will be allowed to do and what will be banned once the Act is implemented. Actually, it is worse. The best minds in financial firms have been focused on how to meet the needs of the regulators rather than on how to meet the needs of their customers, and the only competition is among the regulators over who can be “tougher” on the financial industry.

Principle Five: Make sure that we have a more level playing field, both between banks and non-banks as well as with regard to America’s foreign competitors. In this category the talk and promises are extensive and good. So far there are no results. In fact, foreign regulators are quietly backing away from copying the regulatory excesses of the Dodd-Frank Act, positioning American firms to surrender the global financial leadership that they have built up over the last 100 years.

Principle Six: Actually, Secretary Geithner provided a bonus, squeezing two parts into this last standard. Part One: Have more order and coordination in the regulatory process so that regulatory agencies are working together, not against each other. Coordination among the regulators is haphazard at best, with plenty of agency competition in evidence. The new Orwellian Bureau of Consumer Financial Protection has not even been set up, and the other regulators are already competing with it to show who can be more punitive on financial firms in the name of helping their customers. Even the States are joining in, with various state attorneys general pressuring banks to cough up $20 billion to some kind of fund to be used by officers of the Obama Administration to help the fortunate troubled homeowners of their choice.

Principle Six, Part Two: Conduct a careful assessment of costs and benefits of the burdens involved with the regulations. Cost/benefit analyses have been cursory at best but more often non-existent. The inspector general of the CFTC recently chastised his agency for ignoring meaningful inquiry into the cost of its proposed regulations. Ten Republican legislators, troubled by this neglect, sent a letter to all the financial regulators asking for their cost/benefit analyses. There has been no reply.

Ten months into the implementation process, how must we judge the Dodd-Frank Act? Holding Secretary Geithner and the Obama Administration to their own standards, it is hard to avoid a conclusion of complete failure. This is no surprise to those of us who criticized the whole premise of the Dodd-Frank Act, that the government failures that brought on the financial crisis could be resolved by increasing the role of government. So far government is failing in the regulatory implementation crisis created by the Dodd-Frank Act. Do not look to government to be ready to respond to the next financial crisis when that arrives, especially if the confusion of the Dodd-Frank Act helps to hasten that day.

Of Dishonest Money and a Poorer Future

Interest rates in the United States are low, far lower than they would normally be. The Federal Reserve has been pumping hundreds of billions of dollars into the economy to keep them low. Is that a good thing? For the federal government it might be—in the short run—but for savers it is bad. One percent back on your savings is pretty low. The persistent, artificially low interest rate policy of the Federal Reserve Board has become a major transfer of wealth from private savers to the federal government. Low interest paid by the Treasury means low interest earned by savers. Measured against inflation, you may be letting the federal government use your money for less than nothing.

Perhaps even worse, the low interest rate policy of the Federal Reserve is supporting the colossal spending binge of the federal government. The federal government can spend trillions of dollars it does not have, because the cost of government borrowing is so cheap.

It is not naturally cheap. Normal markets would not support the continued massive deficits from Washington. When the government spends more than it takes in it has to borrow from you and me, or more particularly from our pension plans and insurance programs, as well as from banks (and foreigners, a subject for another day). Savers and banks do not, however, have an unlimited appetite for lending to the government, especially at the low rates that the government offers. In past decades, persistent federal deficits would result in rising interest rates, as investors would demand a higher return to keep them willing to buy more government bonds.

Some months ago, when the ballooning federal deficit showed no signs of easing, the Federal Reserve stepped in and started buying up hundreds of billions of dollars of government debt just as investors were backing away. Interest rates on government borrowing would have gone up, but the Federal Reserve bought up the oversupply of debt and pushed interest rates down. Interest rates on government borrowing today remain at historically low levels, six-month Treasury securities going for about one-tenth of one percent. That is way below the rising rate of inflation, which lately is at about 2.5% and going north. That means that many investors in government debt are actually losing money, the return on their government debt falling behind the rate of inflation, the government paying back the money it borrowed with dollars that buy less than the ones that they took in. Federal Reserve policies are helping this go on.

Speaking of inflation, the Federal Reserve announced this past week that it is O.K. with inflation of 2.5%, that in fact the Federal Reserve sees inflation trending toward 3% for the coming years. Some of us who remember back to the Jimmy Carter days when inflation approached closer to 20% than 10% might be tempted to think that 3% inflation sounds pretty good. Keep in mind, though, what inflation means.

Remember what money is. Money is an exchange of promises. I promise that I will give you, say, $100 worth of value, whether my goods, my time, or my services, in exchange for which you give me a certificate—money—that can be exchanged for $100 worth of goods, time, or services with someone else. Money lets me take that promise and put it in my pocket and carry it around to where I think that it will be of most use to me. Money is enormously efficient. I do not work for the grocery store. I work at my job and get paid and then take my money to the grocery store and exchange it for groceries. The store exchanges that money, in turn, for more goods, as well as to pay the salaries of the people who work there. They in turn take that money and use it for what they want.

Inflation makes all of that dishonest. I get paid the $100. If I wait a year to spend it, and there is a 3% inflation rate, that $100 dollars will then only by me what about $97 would have bought when I got paid. Of course, that is an even bigger deal if the inflation rate is 10%, my $100 only being worth some $90 of goods and services in my example. But even 3% can be a very big deal, a far bigger deal than the Federal Reserve seemed to acknowledge this past week.

Consider retirement. Not enough people do, but you should. Perhaps you are an average couple saving and investing and hoping to have a retirement income of say $80,000 per year. You have figured that you can live on that. With an inflation rate of 3%, you had better think again. Your $80,000 retirement income will only be able to buy what $40,000 or less buys today. Setting aside adequate money to save and invest for retirement is hard enough. Inflation makes it all much harder.

Massive government deficits are already driving the Federal Reserve to cheapen the return on your investments (in order to keep the federal deficit from snuffing out the weak recovery). The inflationary pressures that they are building up inside the federal volcano will undermine your retirement even further. The longer we wait to solve the deficit problem, and the interest rate and inflation dangers it spawns, the worse it all gets. Government may not be able to create wealth, but it can surely take it away.