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Today I want to talk about lying and regulation. I read a great article about the human psychology behind lying. If we think of a pyramid, at the top of the pyramid let’s say 5%, there are those people that lie. They lie no matter what. They lie regardless of circumstance, rules, regulations, conditions. It doesn’t matter. They will always lie. A prime example is Bernie Madoff. He lied. He lied no matter what rules were there to prevent him from doing what he did.

At the bottom of the pyramid let’s say another 5% are those that will never lie. It doesn’t matter what the situation, the facts, they won’t lie. Never do never will.

In the middle of the pyramid lies (no pun intended) the rest of us. And the question is: will the rest of us lie? (and we are not talking about white lies). According to the study as described in the article, the answer is not quite as clear as one might expect. The answer seems to hinge on the idea of temptation and for most of us, temptation still won’t cause us to cross the line and lie. For example, let’s suppose you leave your car unlocked. At one end of the spectrum, a car thief (a person who lies all the time) will get into your car and take your valuables. At the other end of the spectrum a person who never lies would never go into your car and take anything. In fact, they might even lock your doors. For the rest of us in the middle, there are those that seeing an unlocked car will be tempted, will act on that temptation, and they will go into your car and take your valuables.

This example raises the debate about the purpose for regulations. The primary purpose for regulation is to protect the public. Well, protect the public from whom? As discussed, a regulation will never stop those that lie no matter what and a regulation is useless for those that never lie. So, the only purpose for a regulation is to deal with those that might have some temptation to do something improper.

Here is where it gets interesting because the real cost of regulation is borne by all people especially those who don’t have temptation to do something improper. In my view that is where the enormous cost of doing business lies. As we heap more and more regulations on people and business we drive them more into compliance and administration than creativity and innovation.

Relating this discussion to one of the areas in our estate planning practice that we experience is causing more and more challenges are banking requirements. We have clients who want to add children’s name on bank accounts when parents need help managing their financial affairs, take former spouses off the account, or do strategic planning with corporations and LLC’s. Yet, in dealing with the banking world, the amount of paperwork and steps a client has to go through consumes valuable time and money (hiring a lawyer just to help them through the process). No doubt these regulations were enacted because of one bad case and one bad lawsuit. But the taking of the proverbial sledgehammer to kill a fly leaves a mess of unintended consequences for those people who want to do some simple estate planning.

No doubt some amount of regulation is appropriate to have order in our society, but I think the next time a person or group wants to regulate something, we should consider what is the real cost of this regulation versus the real benefit and whether a moderate amount of common sense and empowerment to allow people to make reasonable decisions is in order without all the fuss.

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