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Why shouldn't mom-and-pop get the choice to invest in SEC regulated companies? If you like what the SEC has to offer, you can keep it. Taking away that choice s

Why shouldn't mom-and-pop get the choice to invest in SEC regulated companies? If you like what the SEC has to offer, you can keep it. Taking away that choice seems paternalistic at best, corrupt at worst.

JumpCrisscross 9y ago
> Why shouldn't mom-and-pop get the choice to invest in SEC regulated companies? When retail, i.e. unaccredited investors, get hurt (a) there are more of them and (b) it more often than not puts them into dire, sometimes existential, straits. The latter leads to political backlash and instability, e.g. the 1930s. Basically, you must have a nest egg to act as a safety cushion before you can invest in risky things. This makes sense on another level, in that doing diligence on un-registered companies is expensive. That, in turn, drives a minimum practical investment size.
- Jabanga 9y ago
  People are going to make bad investments, no matter how much the SEC restricts. There are a huge number of non-securities investments available, and people pour huge amounts of money in them. A government is never going to be able to protect individuals from their own bad judgment. All these regulations do is drive up the cost of directly accessing public capital markets (at last count, $6 million to do an IPO), and contribute to growing income disparity [1]. [1] https://www.brookings.edu/research/make-elites-compete-why-the-1-earn-so-much-and-what-to-do-about-it/ https://www.brookings.edu/research/make-elites-compete-why-t...
  - JumpCrisscross 9y ago
    > All these regulations do is drive up the cost of directly accessing public capital markets (at last count, $6 million to do an IPO), and contribute to growing income disparity There's a fair argument in weighing the upsides and the downsides of registration requirements. But saying the downsides are "all these regulations do" is intellectually dishonest. Lots of scams get stopped, or at least quarantined, by these regulations. The speed with which the ICO market went from zero to bullshit only seems to re-inforce the prudence of these rules. > $6 million to do an IPO Having watched private companies spend much more than that to raise private capital, I think it's safe to say filing fees aren't the primary problem the public markets have.
    - Jabanga 9y ago
      It's not intellectually dishonest, because I'm commenting on the net effect. If people are getting scammed just as much, but from other sources, then "all they do" is the net effect on the negative side. But fair enough: if you constrain this new internet sector, then you could conceivably reduce scams, just by virtue of forcing people into higher-friction areas of the economy, where less can practically be transacted. I'm sure Cuba has pretty low scam volumes by the same virtue. >Having watched private companies spend much more than that to raise private capital, I think it's safe to say filing fees aren't the primary problem the public markets have. Many private companies spend FAR less than that to raise private capital. To claim that a $6 million fee for entry is not going to disenfranchise a huge subset of the population is intellectually dishonest.
  - regulation_d 9y ago
    I'm not sure what a "non-securities investments" in the US securities scheme would look like. An "investment contract" is sort of the catch all category for everything that tries not to look like a security, but actually is one. If something is an investment, I can't imagine that it's not a security.
    - Jabanga 9y ago
      The Howey Test defines an investment contract more narrowly than you imply. People lose absolutely staggering amounts of money each year on bad investments. Money is like water. It flows around these regulations. The detours just add friction that slows innovation, and diverts capital to fees for legal/accounting professionals.
      - regulation_d 9y ago
        > The Howey Test defines an investment contract more narrowly than you imply I mean, maybe? An investment of money, managed by somebody else, with the expectation of profits. I feel like that covers most things we would typically consider to be investments. Aside from something like, "I bought this piece of art... as an investment." Maybe I'm just missing some obvious examples?
        Jabanga 9y ago
        Case law defines each of those points. This elaborates more on that: http://coinbase.com/legal/securities-law-framework.pdf http://coinbase.com/legal/securities-law-framework.pdf
- DennisP 9y ago
  And yet plenty of first-world countries allow non-millionaires to invest in these companies, and it seems to work just fine.
- siliconviking 9y ago
  It's not the government's business to decide what people do with their money.
regulation_d 9y ago
So this is kind of an oddly phrased question. It's probably better to think of things in terms of offerings instead of companies. One company might have different offerings using different mechanisms to raise money. And different people can participate in different offerings. Pretty much anybody can participate in a registered offering or a Reg A offering, often called a mini-registration. A Reg D offering is however limited to accredited investors. With Reg D the SEC is basically saying "We won't require as much disclosure from you, but you'll have to raise money from a more sophisticated investor, ostensibly." Edit: spelling
ThrustVectoring 9y ago
Should they also have the choice to take non-FDA approved drugs?
- wuliwong 9y ago
  I would say yes. :)
  - ThrustVectoring 9y ago
    Keep in mind that having this right available will kill people.
    - maehwasu 9y ago
      Anything looks horrible if your analysis includes all costs and excludes all benefits.
- regulation_d 9y ago
  Securities is my go-to example of government regulation that has a net-positive market effect. Whatever we lose in market efficiency we more than make up for in market confidence.
  - wuliwong 9y ago
    If I were to apply the idea initially expressed to your comment it would be to say "why not give people the choice to invest in non-SEC regulated markets." If the effect is net-positive, than why would you have to force people to choose SEC regulated markets. Obviously if it was not actually positive then not having the choice is pretty crappy.
    - regulation_d 9y ago
      For sure. Regulation without justification is "pretty crappy". The starting point should always be "no regulation". Occasionally, we override the starting point following the occurrence of massive market failure, where market forces simply are insufficient to apply the right pressure to actors involved. In environmental regulations, we had the Love Canal which exposed a lot of school children to toxic waste. The market failed, we responded was CERCLA and the EPA. In the case of securities regulation, the market failure was a big one in 1929. We responded with major legislation in 1933. And in general, that legislation has been a rousing success. But it's important to note that the goal of security regulation, of preventing crappy investments, isn't just to protect mom-and-pop, but also to prevent against another 1929. In my mind, it's really hard to argue that the effect of US securities regulation hasn't been a net positive.

JumpCrisscross 9y ago

> Why shouldn't mom-and-pop get the choice to invest in SEC regulated companies? When retail, i.e. unaccredited investors, get hurt (a) there are more of them and (b) it more often than not puts them into dire, sometimes existential, straits. The latter leads to political backlash and instability, e.g. the 1930s. Basically, you must have a nest egg to act as a safety cushion before you can invest in risky things. This makes sense on another level, in that doing diligence on un-registered companies is expensive. That, in turn, drives a minimum practical investment size.

Jabanga 9y ago
People are going to make bad investments, no matter how much the SEC restricts. There are a huge number of non-securities investments available, and people pour huge amounts of money in them. A government is never going to be able to protect individuals from their own bad judgment. All these regulations do is drive up the cost of directly accessing public capital markets (at last count, $6 million to do an IPO), and contribute to growing income disparity [1]. [1] https://www.brookings.edu/research/make-elites-compete-why-the-1-earn-so-much-and-what-to-do-about-it/ https://www.brookings.edu/research/make-elites-compete-why-t...
- JumpCrisscross 9y ago
  > All these regulations do is drive up the cost of directly accessing public capital markets (at last count, $6 million to do an IPO), and contribute to growing income disparity There's a fair argument in weighing the upsides and the downsides of registration requirements. But saying the downsides are "all these regulations do" is intellectually dishonest. Lots of scams get stopped, or at least quarantined, by these regulations. The speed with which the ICO market went from zero to bullshit only seems to re-inforce the prudence of these rules. > $6 million to do an IPO Having watched private companies spend much more than that to raise private capital, I think it's safe to say filing fees aren't the primary problem the public markets have.
  - Jabanga 9y ago
    It's not intellectually dishonest, because I'm commenting on the net effect. If people are getting scammed just as much, but from other sources, then "all they do" is the net effect on the negative side. But fair enough: if you constrain this new internet sector, then you could conceivably reduce scams, just by virtue of forcing people into higher-friction areas of the economy, where less can practically be transacted. I'm sure Cuba has pretty low scam volumes by the same virtue. >Having watched private companies spend much more than that to raise private capital, I think it's safe to say filing fees aren't the primary problem the public markets have. Many private companies spend FAR less than that to raise private capital. To claim that a $6 million fee for entry is not going to disenfranchise a huge subset of the population is intellectually dishonest.
- regulation_d 9y ago
  I'm not sure what a "non-securities investments" in the US securities scheme would look like. An "investment contract" is sort of the catch all category for everything that tries not to look like a security, but actually is one. If something is an investment, I can't imagine that it's not a security.
  - Jabanga 9y ago
    The Howey Test defines an investment contract more narrowly than you imply. People lose absolutely staggering amounts of money each year on bad investments. Money is like water. It flows around these regulations. The detours just add friction that slows innovation, and diverts capital to fees for legal/accounting professionals.
    - regulation_d 9y ago
      > The Howey Test defines an investment contract more narrowly than you imply I mean, maybe? An investment of money, managed by somebody else, with the expectation of profits. I feel like that covers most things we would typically consider to be investments. Aside from something like, "I bought this piece of art... as an investment." Maybe I'm just missing some obvious examples?
      - Jabanga 9y ago
        Case law defines each of those points. This elaborates more on that: http://coinbase.com/legal/securities-law-framework.pdf http://coinbase.com/legal/securities-law-framework.pdf
DennisP 9y ago
And yet plenty of first-world countries allow non-millionaires to invest in these companies, and it seems to work just fine.
siliconviking 9y ago
It's not the government's business to decide what people do with their money.

regulation_d 9y ago

So this is kind of an oddly phrased question. It's probably better to think of things in terms of offerings instead of companies. One company might have different offerings using different mechanisms to raise money. And different people can participate in different offerings. Pretty much anybody can participate in a registered offering or a Reg A offering, often called a mini-registration. A Reg D offering is however limited to accredited investors. With Reg D the SEC is basically saying "We won't require as much disclosure from you, but you'll have to raise money from a more sophisticated investor, ostensibly." Edit: spelling

ThrustVectoring 9y ago

Should they also have the choice to take non-FDA approved drugs?

wuliwong 9y ago
I would say yes. :)
- ThrustVectoring 9y ago
  Keep in mind that having this right available will kill people.
  - maehwasu 9y ago
    Anything looks horrible if your analysis includes all costs and excludes all benefits.
regulation_d 9y ago
Securities is my go-to example of government regulation that has a net-positive market effect. Whatever we lose in market efficiency we more than make up for in market confidence.
- wuliwong 9y ago
  If I were to apply the idea initially expressed to your comment it would be to say "why not give people the choice to invest in non-SEC regulated markets." If the effect is net-positive, than why would you have to force people to choose SEC regulated markets. Obviously if it was not actually positive then not having the choice is pretty crappy.
  - regulation_d 9y ago
    For sure. Regulation without justification is "pretty crappy". The starting point should always be "no regulation". Occasionally, we override the starting point following the occurrence of massive market failure, where market forces simply are insufficient to apply the right pressure to actors involved. In environmental regulations, we had the Love Canal which exposed a lot of school children to toxic waste. The market failed, we responded was CERCLA and the EPA. In the case of securities regulation, the market failure was a big one in 1929. We responded with major legislation in 1933. And in general, that legislation has been a rousing success. But it's important to note that the goal of security regulation, of preventing crappy investments, isn't just to protect mom-and-pop, but also to prevent against another 1929. In my mind, it's really hard to argue that the effect of US securities regulation hasn't been a net positive.