ÖIf Only You Had Asked Dr. Risk! ^TM Last revised: 03/02/02

Here, Dr. Risk fills some much needed gaps in the public discussion of a wide variety of topics. No one dared, deigned, or bothered to Ask Dr. Risk^TM these questions. Who is behind this widespread public failure to Ask Dr. Risk^TM to answer these questions? A recent poll suggests the villain. Question:
          "Are ignorance and insouciance the greatest problems today in American society?"
Responses:
          "I don't know," 45%;
          "I don't care," 38%.
Another 16% couldn't read the question. The rest walked off with the pencil when the polltaker wasn't looking.

SEC cracks down on promoters of investments in the land of 'Melchizedek'. (11/28/99)

Dear Dr. Risk – It seems like current financial regulation is a joke. When I read about some of the financial frauds, such as the recent one involving bogus investments in "Melchizedek", it seems as though the Money Mounties in Washington, D.C. aren't doing their jobs right. What do you think? – Dr. Risk

Dear Dr. Risk – Dr. Risk has a hard time figuring out whether to be sad or glad that on a good day, financial regulators appear to be auditioning as replacements for the Keystone Cops. Some of them have their hearts in the right places and want to do "God's work" or the secular equivalent. Many of them are extremely talented. They are demoralized and are severe underdogs in the war against financial crime, so it's easy to sympathize with them. However, the bottom line is that it's not clear whether they do more good than harm.

Why can't the SEC, NASD-R, etc. be more effective fighting crime?
1. By law, they're always a step behind the bad guys. The police can almost never do anything before a crime has been committed. Then the bad guys can often tie the cops up in procedural complications, using the law against the justice system.
2. People can be so stupid and/or ignorant. This is the biggest problem. The recent incident with "Melchizedek" is a perfect example. How do you protect people who give money to someone who clearly tells them that he is going to invest the money in "Melchizedek", which does not exist? If that isn't a red flag, I don't know what is. You have to wonder how someone dumb enough to give money away on such a premise was smart enough to earn money in the first place. (A silver lining: You can now prove to your teenagers why knowledge of geography has monetary value.)
3. Financial cops get demoralized, just as city cops do. The analogy pretty good. The streets and financial markets are so full of scum, it's overwhelming. The law handcuffs the crime fighters, not the criminals. Ordinary citizens make the criminal's job easier. The little criminals get caught, but the big ones hire expensive and effective lawyers with money from their victims. High up officials stop the beat cops from pursuing leads that would inconvenience certain "upstanding citizens."

What are the solutions?
1. Defend yourself. If you're not part of the problem, you're part of the solution. If you're smart enough to keep your money from the promoters of "Melchizedek", then you're reducing the incentive for crooks to try to pull that sort of scam. If the pickings are slim enough, these crooks won't waste their time with this sort of crime.
2. Educate other people. The Wall Street Journal article (Karen Jacobs, "SEC Accuses Brooklyn Lawyer of Fraud Related to Investments in 'Melchizedek', 11/24/99) announced details of a scam to millions of potential readers. This will no doubt save a few of them from their own gullibility.
3. Take crimes against property as seriously as crimes against people. People own property. When you take their property, you're taking part of their lives. A slap on the wrist for a property crime is a slap in the face of the victim.
– Dr. Risk

Why the debate over the size of the tax cut is worse than worthless (9/28/99)

Dear Dr. Risk – President Clinton and the Republican Congress are debating the size of the tax cut. Much of the American public is salivating over the windfall they're going to get, but another segment of the public is yawning. Who's right? – Dr. Risk

Dear Dr. Risk – The yawners score for refusing to waste their time discussing something that's largely irrelevant, because Congress can't affect the size of federal taxation via its tax legislation. The amount of government spending determines real taxation, because (a) all that money comes from somewhere, (b) a negligible portion comes from gifts, and (c) the rest is taxation -- now or later. If the government prints money to spend, then we'll see a higher rate of inflation, which amounts to a tax on cash balances and a partial repudiation of (hence, a tax on) fixed income debt.

Congress can definitely affect the timing of taxes. If Congress runs a deficit, which the Treasury finances by issuing debt, then future taxpayers will pay for this year's spending by paying interest on the debt and then repaying principal. However, the government is merely exchanging with the public the current sum and the stream of future taxes required to service and retire the debt. The value of the stream clearly equals the value of the future stream of payments.

Congress may be able to shift the burden from one class of taxpayer to another, but maybe not, and maybe not as much as it might seem at first glance. For example, deficit pending appears to shift the burden to future generations. However, some of the ancestors of future generations live today, and they are making decisions about bequests. In the face of debt financing, the present generation can buy the debt and bequeath it to the next generation, and so on. Thus, the future generations inherit enough to pay off the deferred taxes. Are people really that clever? Well, they don't have to be. However, if they aren't, then my skeptics need to explain why the current generation wouldn't bequeath too much, rather than too little.

If Congress cuts marginal income taxes for taxpayers making over $100,000 per year, then the burden may shift to the rest of society. However, they will also encourage more people to raise their incomes to surpass $100,000. So the benefit goes to some people who would ordinarily earn less than $100,000.

Of course, Congress can and sometimes does pass a tax law that benefits a single individual or family. The beneficiaries of such Congressional largess must pay for the favors, ordinarily through campaign contributions.

But the main point is that when Congress says to spend money it also says it's going to take enough money to cover the spending. – Dr. Risk

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ÖIf Only You Had Asked Dr. Risk! TM Last revised: 03/02/02

SEC cracks down on promoters of investments in the land of 'Melchizedek'. (11/28/99)

Why the debate over the size of the tax cut is worse than worthless (9/28/99)

ÖIf Only You Had Asked Dr. Risk! ^TM Last revised: 03/02/02