We don't need more financial regulation. It's making us soft.
- 11 November 2022
- Faris Mali
Navigating through legislation of financial instruments in the 'developed' world is akin to finding your way out of an ant colony, built within a rabbit hole, under a tsunami.
Real estate (in Australia at least) is not considered a cash asset.
Hence there's so many unfiltered opinions on the matter and brokers usually only hold a diploma. So when it comes to getting a home loan, the loan provider is there to protect the loan issuer. They are protecting the bank and they do so by either requiring a 20% deposit on the property and assuring you have the means to repay the loan (at a higher rate than is currently provided).
So worst case scenario (for them) is if you stopped paying your loan and the bank foreclosed on the property (an incident I dealt with as a former real estate agent) then the sale price of the property would need to be 20% less than what the bank secured the loan for. If the bank was out of pocket they would sue YOU, the borrower for the difference. This does not apply in the USA as there is non-recourse lending. There, banks just write the losses off in their balance sheet and the borrower moves on without any ramifications for their actions.
Excessive legislation and taxation are the main reasons I stopped investing in Australia. You need to meet with accountants, solicitors and mortgage brokers if you wanted to invest in property. You would spend at least $3,000 before putting an offer on a property. When you eventually do purchase a property then you incur stamp duty (a state tax) which in Melbourne, Australia, is averaged at $55,000. Recouping this cost alone would require 5% capital growth on a property of median value.
The legislation in place is protecting the creditor (the bank) at the cost of the investor. If you are a high risk borrower you need to pay for the bank’s insurance. I have no problem with this, but I would argue that the taxes are a disincentive to investors. Why should the state penalise people attempting to be responsible for their future financial independence? If their investments are successful then in the future they will not be a financial burden to the state in the form of social security and welfare payments. But the state taxes you for your initiative and risk taking.
I'm writing this in the wake of another cryptocurrency exchange (FTX) potentially filing for bankruptcy. It appears they misled investors and over-leveraged their holdings taking riskier and risker gambles. There's now calls from various departments and agencies in the United States to regulate the crypto industry.
There are exchanges, such as CoinBase and Binance, that go out of their way to comply with federal laws as they are seeking to move crypto adoption into the mainstream. I've used both these exchanges but have never left any of my assets on there for long periods of time. Why did I stop using them? Because they were becoming over-regulated and I found that a hindrance. Bitcoin is like cash or a bearer bond, possession IS ownership. I remove my private keys from exchanges as I'm aware they could be hacked, stolen or frozen at any moment.
If I hand over my funds to someone to manage then I have negated that responsibility, and the outcome. Maybe as a society we've become so soft that when an investment blows up we're looking for someone else to blame. I've lost significant money in trading and in property investments, and it was ALL entirely my fault. I didn't run to my local parliamentarian and demand the laws be changed to prevent me from making my mistake again!
When I started trading CFD (contracts for a difference) I read through my broker’s PDS (over 90 pages) twice. It was very clear how their product work and how you could lose your money. I spent 300 hours in education and training before I ever put my first trade on. I made and lost a lot of money. I understood the risks because they were clearly stated.
Then all of a sudden the entire CFD industry in Australia was changed because someone somewhere complained about something. This completely screwed up my vocation and method of earning an income.
So how do I Segway all this into children's playgrounds?
Well the New York Times recently cited a study that found children's playgrounds are, and becoming even more so, 'too safe'
“There is no clear evidence that playground safety measures have lowered the average risk on playgrounds,” said David Ball, a professor of risk management at Middlesex University in London. He noted that the risk of some injuries, like long fractures of the arm, actually increased after the introduction of softer surfaces on playgrounds in Britain and Australia. This sounds counterintuitive, but it shouldn’t, because it is a common phenomenon,” Dr. Ball said. “If children and parents believe they are in an environment which is safer than it actually is, they will take more risks. An argument against softer surfacing is that children think it is safe, but because they don’t understand its properties, they overrate its performance.” (1)
When my son and I took karate lessons, during the session we had to block our opponents strike with the top of our forearms. It was a forearm to forearm blow and it HURT! My arm was red and throbbing. The sensei explained to us that when the bone is struck it releases bubbles that actually strengthen it. This is why some Muay Thai fighters get their tibia bones surgically broken, because it grows back stronger.
One of the most important aspects of bone hardening is increasing bone mineral density by continuously loading and unloading bones, as well as contracting the surrounding muscles consistently and for a prolonged period of time. It is particularly interesting to study how the typical bone mass gain that occurs during the adolescents is affected by sports that are high-impact and place great stress on one’s bones. Studies show that adolescents who participate in combat martial arts had significantly higher bone material density in their hands, arms, and legs than comparable adolescents who did not. Since the development of bone mass and structure is most significant during adolescence, the potential to increase the bone mineral density is greatest during this time.(2)
Because some societies are curbing contact sports and over-protecting their children during physical activities, there is a concern that this young generation will develop early onset osteoporosis. Speaking with two fathers one said that in parts of Japan they have banned swings, while the other admitted that his 9 year old son had never climbed a tree.
If we keep expecting the government to step in and protect us from the consequences of our own decisions, we will never learn, and grow weaker for it.
1) The New York Tines: https://www.nytimes.com/2011/07/19/science/19tierney.html
2) University of Notre Dame https://sites.nd.edu/biomechanics-in-the-wild/2021/07/14/a-striking-difference-how-combat-sports-effect-bone-density/