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The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into

The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into a business unless the government deems you Smart Enough (c) (tm) to do so. If the vast majority of citizens here are not smart enough to invest our own money, then what is all the higher education for? This change sounds like a good one but there's not enough information to know if it will really open up any opportunities for regular people.

refurb 6y ago
like the most anti-free-market law I've ever heard of Do you know why the SEC created these rules? If you understand the history it makes a lot of sense.
- chrisco255 6y ago
  The world is quite a different place in 2020 than in 1933. We have access to unlimited digital forms of risk to speculate on as it is. It used to be seen as necessary to have taxi licenses in order to have trusted drivers who wouldn't scam out-of-towners. It turns out you can replace all that regulation with an online review system plus mobile GPS and payment app (Uber / Lyft). Similar innovations are being held back in securities because of red tape.
  - refurb 6y ago
    The existence of other risks isn't a strong argument for introducing more risks. It's easy for HN to say "this makes no sense", but I guarantee you if the rules changed we'd see some article in the NYTimes where some retiree lost their entire life savings in a private investment including quotes like "no one told me it was that risky".
- tathougies 6y ago
  No it doesn't really. People should be allowed to fail. The response when someone loses all their money due to a business failing should be to have a social safety net, not to prevent them from ever having been able to invest their money in the first place.
  - refurb 6y ago
    Wait what? You're arguing we should have a social safety net so when some blue collar worker loses 100% of their retirement savings because they invested in a scam start-up, they're covered?
    - tathougies 6y ago
      Yes. That's right. Part of living in a free market state is allowing the market to choose. Part of living in a civilized country is ensuring that there are safety nets available to those who the market fails to support. The market operates efficiently when every entity involved can have net worth of any amount, including negative. Unfortunately, human life requires a particular amount of wealth to survive. You cannot have a pure free market system without there being some left out. The purpose of government is to protect rights to life, liberty, and property. That means providing some support when someone's wealth is so low that they cannot sustain their life. This should be implemented in such a way as to affect the market least. Milton Friedman's negative income tax would be one possibility, but there are others as well. In any case, the market should be free to operate as if the person could reasonably be expected to have nothing.
deleted 6y ago
[deleted]
michaelbuckbee 6y ago
This is a pretty clear Chesterton's Fence [1] example. The scams that occurred prior to enacting these standards were massive. If you want to look at a modern example of such things, consider the cryptocurrency ecosystem and the many scams that occurred [2] 1 - https://en.wikipedia.org/wiki/Wikipedia:Chesterton%27s_fence https://en.wikipedia.org/wiki/Wikipedia:Chesterton%27s_fence 2 - https://twitter.com/patio11/status/1032024732214812673 https://twitter.com/patio11/status/1032024732214812673
- deleted 6y ago
  [deleted]
- gojomo 6y ago
  Modern scams don't show the 'accredited investor' rules are helpful. These "are you rich enough?" limits, on just a few classes of potential investments, did not and can not provide any protection against rampant risks like: * Enron (an audited public company approved for widow-and-orphan investing) * Madoff * Fake-documentation or risk-oblivious home lending * At-home Forex or securities trading in arbitrarily exotic or leveraged ways (Robinhood! Futures! Expiring options!) * State lotteries with awful odds & deceptive advertising preying on the decision-biases of the poorly-educated * Prosperity gospel solicitations So rather than proving the value of Accredited Investor restrictions, your example scams (some crypto), and others, just show them to be an ineffectual symbolic Maginot Line, not a wise Chesterton's Fence.
  - chii 6y ago
    the accredited investor rules are not meant to reduce all risks - just risks associated with non-disclosures. Things like enron cooking the books, or madoff ponzi schemes are going to happen regardless of the accredited investor certification. But what you can't know is whether having early stage startup and other investments require accredited investor certification means fewer people get trapped into investments they don't fully understand. I think it does.
    - gojomo 6y ago
airza 6y ago
I guess i would refer you to the brief period of time where cryptocurrencies were skirting these regulations. I'm sympathetic to the argument that there was some value created there, but hoo boy, a lot of people lost a considerable portion of their life savings there.
- chrisco255 6y ago
  A lot of people have gotten life-changingly rich from crypto investments. Bitcoin is already the best performing asset class of all time, and has minted plenty of millionaires.
- tboyd47 6y ago
  How many people lost money in cryptocurrency scams compared to the entirely legal and rule-following housing market crash of 2008?
  - bpt3 6y ago
    Much of the losses in 2008 were caused by illegal and non-rule-following activity.
    - DetroitThrow 6y ago
      Importantly we also implemented several new schemes to ensure that we were better able to evaluate illegal and non-rule-following activities after 2008 as well.
      - bpt3 6y ago
        Right, this is the sort of regulation that people are now complaining about in the securities market because a long time has passed since it was originally enacted.
    - baryphonic 6y ago
      Since there was so much illegal activity, who went to jail?
airstrike 6y ago
> then what is all the higher education for? How exactly does a PhD in Biology help you understand investments?
- throwaway713 6y ago
  Because intelligence is general and correlates well across fields, and intelligence has a loose causal link with a PhD in biology. So I wouldn’t say it "helps" with investment per se but there is a connection there.
  - dralley 6y ago
    Ben Carson.
    - throwaway713 6y ago
      One counterexample doesn’t make a point. I could list many people who are simultaneous experts in multiple fields and it wouldn’t help my argument either.
  - airstrike 6y ago
    A very small connection. Investments aren't exactly just intuitive knowledge one can grasp just by being "smart". It takes specialized training to know what you're doing – and even among those who study finance, you won't find consensus on any single investment.
    - beambot 6y ago
      To be fair, a PhD in biology likely makes the individual more savvy when it comes to certain classes of investments (e.g. BioTech startups) than most full-time investors... so the criticism cuts both ways. Case in point: Theranos.
- tboyd47 6y ago
  Perhaps it doesn't, but that's the point. Education should prepare you to engage with society gainfully. If one makes it through 20 years of rigorous school but at no point acquired the necessary cognitive skills to discern scams from legitimate opportunities, then the education itself is the scam.
paxys 6y ago
Every SEC regulation and every financial law is anti-free-market, but that doesn't mean it isn't necessary.
charliemil4 6y ago
No the real injustice is $25,000 for FINRA day trading / margin accounts. Recent insane volatility could allow you trade from a couple thousand up to 25k in a few weeks - BUT you will most likely run out of day trades before that happens. It's highly annoying.
- TACIXAT 6y ago
  What would you trade on in this environment?

refurb 6y ago

like the most anti-free-market law I've ever heard of Do you know why the SEC created these rules? If you understand the history it makes a lot of sense.

chrisco255 6y ago
The world is quite a different place in 2020 than in 1933. We have access to unlimited digital forms of risk to speculate on as it is. It used to be seen as necessary to have taxi licenses in order to have trusted drivers who wouldn't scam out-of-towners. It turns out you can replace all that regulation with an online review system plus mobile GPS and payment app (Uber / Lyft). Similar innovations are being held back in securities because of red tape.
- refurb 6y ago
  The existence of other risks isn't a strong argument for introducing more risks. It's easy for HN to say "this makes no sense", but I guarantee you if the rules changed we'd see some article in the NYTimes where some retiree lost their entire life savings in a private investment including quotes like "no one told me it was that risky".
tathougies 6y ago
No it doesn't really. People should be allowed to fail. The response when someone loses all their money due to a business failing should be to have a social safety net, not to prevent them from ever having been able to invest their money in the first place.
- refurb 6y ago
  Wait what? You're arguing we should have a social safety net so when some blue collar worker loses 100% of their retirement savings because they invested in a scam start-up, they're covered?
  - tathougies 6y ago
    Yes. That's right. Part of living in a free market state is allowing the market to choose. Part of living in a civilized country is ensuring that there are safety nets available to those who the market fails to support. The market operates efficiently when every entity involved can have net worth of any amount, including negative. Unfortunately, human life requires a particular amount of wealth to survive. You cannot have a pure free market system without there being some left out. The purpose of government is to protect rights to life, liberty, and property. That means providing some support when someone's wealth is so low that they cannot sustain their life. This should be implemented in such a way as to affect the market least. Milton Friedman's negative income tax would be one possibility, but there are others as well. In any case, the market should be free to operate as if the person could reasonably be expected to have nothing.

deleted 6y ago

[deleted]

michaelbuckbee 6y ago

This is a pretty clear Chesterton's Fence [1] example. The scams that occurred prior to enacting these standards were massive. If you want to look at a modern example of such things, consider the cryptocurrency ecosystem and the many scams that occurred [2] 1 - https://en.wikipedia.org/wiki/Wikipedia:Chesterton%27s_fence https://en.wikipedia.org/wiki/Wikipedia:Chesterton%27s_fence 2 - https://twitter.com/patio11/status/1032024732214812673 https://twitter.com/patio11/status/1032024732214812673

deleted 6y ago
[deleted]
gojomo 6y ago
Modern scams don't show the 'accredited investor' rules are helpful. These "are you rich enough?" limits, on just a few classes of potential investments, did not and can not provide any protection against rampant risks like: * Enron (an audited public company approved for widow-and-orphan investing) * Madoff * Fake-documentation or risk-oblivious home lending * At-home Forex or securities trading in arbitrarily exotic or leveraged ways (Robinhood! Futures! Expiring options!) * State lotteries with awful odds & deceptive advertising preying on the decision-biases of the poorly-educated * Prosperity gospel solicitations So rather than proving the value of Accredited Investor restrictions, your example scams (some crypto), and others, just show them to be an ineffectual symbolic Maginot Line, not a wise Chesterton's Fence.
- chii 6y ago
  the accredited investor rules are not meant to reduce all risks - just risks associated with non-disclosures. Things like enron cooking the books, or madoff ponzi schemes are going to happen regardless of the accredited investor certification. But what you can't know is whether having early stage startup and other investments require accredited investor certification means fewer people get trapped into investments they don't fully understand. I think it does.
  - gojomo 6y ago

airza 6y ago

I guess i would refer you to the brief period of time where cryptocurrencies were skirting these regulations. I'm sympathetic to the argument that there was some value created there, but hoo boy, a lot of people lost a considerable portion of their life savings there.

chrisco255 6y ago
A lot of people have gotten life-changingly rich from crypto investments. Bitcoin is already the best performing asset class of all time, and has minted plenty of millionaires.
tboyd47 6y ago
How many people lost money in cryptocurrency scams compared to the entirely legal and rule-following housing market crash of 2008?
- bpt3 6y ago
  Much of the losses in 2008 were caused by illegal and non-rule-following activity.
  - DetroitThrow 6y ago
    Importantly we also implemented several new schemes to ensure that we were better able to evaluate illegal and non-rule-following activities after 2008 as well.
    - bpt3 6y ago
      Right, this is the sort of regulation that people are now complaining about in the securities market because a long time has passed since it was originally enacted.
  - baryphonic 6y ago
    Since there was so much illegal activity, who went to jail?

airstrike 6y ago

> then what is all the higher education for? How exactly does a PhD in Biology help you understand investments?

throwaway713 6y ago
Because intelligence is general and correlates well across fields, and intelligence has a loose causal link with a PhD in biology. So I wouldn’t say it "helps" with investment per se but there is a connection there.
- dralley 6y ago
  Ben Carson.
  - throwaway713 6y ago
    One counterexample doesn’t make a point. I could list many people who are simultaneous experts in multiple fields and it wouldn’t help my argument either.
- airstrike 6y ago
  A very small connection. Investments aren't exactly just intuitive knowledge one can grasp just by being "smart". It takes specialized training to know what you're doing – and even among those who study finance, you won't find consensus on any single investment.
  - beambot 6y ago
    To be fair, a PhD in biology likely makes the individual more savvy when it comes to certain classes of investments (e.g. BioTech startups) than most full-time investors... so the criticism cuts both ways. Case in point: Theranos.
tboyd47 6y ago
Perhaps it doesn't, but that's the point. Education should prepare you to engage with society gainfully. If one makes it through 20 years of rigorous school but at no point acquired the necessary cognitive skills to discern scams from legitimate opportunities, then the education itself is the scam.

paxys 6y ago

Every SEC regulation and every financial law is anti-free-market, but that doesn't mean it isn't necessary.

charliemil4 6y ago

No the real injustice is $25,000 for FINRA day trading / margin accounts. Recent insane volatility could allow you trade from a couple thousand up to 25k in a few weeks - BUT you will most likely run out of day trades before that happens. It's highly annoying.

TACIXAT 6y ago
What would you trade on in this environment?