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The SEC is where they always are, fighting the last war. Investments create return because there is risk, not every investment is going to be a winner. When inv

by fleitz 16y ago

The SEC is where they always are, fighting the last war. Investments create return because there is risk, not every investment is going to be a winner. When investing in startups with new business models there is a lot of risk and hence a lot of return. Hopefully the SEC stays out of it because the combination of the SEC, Federal Reserve and Federal Gov't create untold havok in the market. Even a GIC has risk because of the underlying fractional reserve system. The same thing that allows the economy to expand faster than the rate of gold mining also allows the leverage to unwind just as fast. The Fed, SEC, and Federal Gov't collude to prevent the free market from working and bad ideas from failing. Look at a graph of global IPOs vs. IPOs on american exchanges since Sarbox was passed. You'll see how the overly onerous regulations prevent the market from functioning properly and create an environment of moral hazard where undue risks are taken, and investors who correct the market have their returns taken away from them. The investors who shorted AIG, Bear Stearns, GS, Citigroup, BOA, etc and recognized their impending fiscal collapse should be handsomely rewarded for their prescient view of the market. Having your company collapse is the right way to handle reckless investing. Hopefully the SEC stays out of it, an ETF/Shell corp for Facebook shares is the ideal balance between public money and few onerous requirements. If an investor feels that the lack information available for Facebook prevents an informed decision from being made then perhaps they should not invest. Yes, you may lose your shirt investing in Facebook, but you might also make a lot of money. I don't see a problem with either outcome.

encoderer 16y ago
But this hack that GS created -- bypassing the 500 shareholder limit by creating a company that owns a stake in FB and then selling shares of said company -- completely undermines the law. This is a temporary loophole that will be fixed. I don't begrudge facebook a thing. They get most the upside of an IPO with nearly none of the downside. But to act that it's perfectly alright because, hey, caveat emptor... i disagree strongly with that.
brc 16y ago
I don't want to disagree with your main point, but it's wrong to link risk and return so closely, as though one always brings the other. Just because there is a lot of risk doesn't mean there will be a lot of return. Risk is simply the likelihood that you will get your original money back, plus any return. The higher the risk, the higher the chance you won't get any return or indeed your original capital. While this often means that people will only take on risky investments if there is a chance of high return, the way it reads is that all you need to do is create some risk and your returns wil flow. It's entirely possible to have high risk, low return and low risk, high return. However I agree entirely that SEC always fights the last war like the French building the Maginot line, and that this type of innovation is just a response to the Sarbox rules.

by fleitz 16y ago

encoderer 16y ago

But this hack that GS created -- bypassing the 500 shareholder limit by creating a company that owns a stake in FB and then selling shares of said company -- completely undermines the law. This is a temporary loophole that will be fixed. I don't begrudge facebook a thing. They get most the upside of an IPO with nearly none of the downside. But to act that it's perfectly alright because, hey, caveat emptor... i disagree strongly with that.

brc 16y ago

I don't want to disagree with your main point, but it's wrong to link risk and return so closely, as though one always brings the other. Just because there is a lot of risk doesn't mean there will be a lot of return. Risk is simply the likelihood that you will get your original money back, plus any return. The higher the risk, the higher the chance you won't get any return or indeed your original capital. While this often means that people will only take on risky investments if there is a chance of high return, the way it reads is that all you need to do is create some risk and your returns wil flow. It's entirely possible to have high risk, low return and low risk, high return. However I agree entirely that SEC always fights the last war like the French building the Maginot line, and that this type of innovation is just a response to the Sarbox rules.