5 ms·

Equal access to private investments should face no wealth tests larger than those required for playing the state lottery, taking out a 30-year mortgage, or trad

by gojomo 6y ago

Equal access to private investments should face no wealth tests larger than those required for playing the state lottery, taking out a 30-year mortgage, or trading securities/currencies on margin.

loeg 6y ago
This sounds good superficially but I don't think it actually makes sense. People can and should have higher expectations for investments than lottery tickets. And primary-residence mortgages are relatively safe and liquid compared with private investments. I.e., these things are of a different kind entirely than private investment. The real question to me is, what is a "private" investment if everyone can invest in it? Why isn't it subject to the same reporting requirements as a "public" investment?
- nixonpjoshua1 6y ago
  I think to allow small business and startups to flourish. It is important to not subject all companies to the reporting requirements of public companies, smaller organizations just don't have the spare resources and it really would hurt them being nimble and getting established. This of course means that any investor into such a company needs to have a more intimate relationship and understanding of the company despite the lack of detailed reporting, which is at least one reason to have accredited investor rules.
- gojomo 6y ago
  So, there can be a wealth test - but no competence test! – for investments that might be positive expectation? But then absolutely no limits to who and how much someone can spend on rigged games of chance with guaranteed negative-expectation. How does that make sense? You're right, the 'public'/'private' distinction is confusing and outdated. It should just be 'high-reporting' (certified by accountants/lawyers/exchanges to meet certain standards) and 'low-reporting'. Perhaps tax-advantaged retirement accounts shouldn't be allowed into 'low-reporting' situations. But with a person's own excess money, they shouldn't face a wealth test to invest it anywhere their judgement guides them - if they're allowed to gamble, donate, burn, over-leverage, etc that money a thousand other ways to zero as well.
gnopgnip 6y ago
These regulations are largely imposed on the companies seeking investments from the public. If they want to advertise the the general public then they need to complete certain disclosures and audits
mundo 6y ago
Lotteries, mortgages, and public securities are heavily regulated to make it nearly impossible to get ripped off. You can lose your life savings by buying AAPL, but you can't lose it despite AAPL going up because you didn't read the fine print on the brokerage website. The reason for accredited investor requirements is that it's not realistic to do the same with small businesses. It is perfectly legal, and not totally uncommon, for startups to have very unfavorable terms for investors. If the LLC paperwork says the majority partner can choose to buy back your shares against your will for a dollar any time they like, then they can, and it's your fault for not reading it more carefully. I've heard of many cases, and personally witnessed one case, in which an accredited investor put a lot of money in to a startup, and lost it even though the startup did well. The requirements may not be perfect, but I don't think it's fair to suggest they don't serve a purpose.
- gojomo 6y ago
  State lotteries are rigged: marketed to the gullible & have far worse payouts than casinos. (Have you seen stare-sponsored Keno games like "California Hot Spot", with draws every 4 minutes, offered in only the very finest neighborhoods' liquor stores to extremely wise gamblers?) Mortgages were pushed to sketchy credit risks for years, wiping out the the poor's earnings & equity with unsustainable housing costs in (temporarily) pubic-policy-inflated home values - and even now, there's minimal protection against over-concentrating in unwise housing markets. Plenty of public securities go to zero, often in fraud. But with easy-to-get investing leverage, any amount of initial capital can go to zero with only small moves in public prices. You can lose any amount of money after a small move of AAPL up - if you purchase enough (or leveraged) securities which bet on it going down, which are available to anyone without an accredited-investor-like wealth test. (Have you seen the promotions, and easy on-ramps, for daytrading & foreign-exchange trading & Robinhood? Or how easy it is to channel any amount of money into crypto trading?)
  - mundo 6y ago
    There's a lot of risky investments. Anyone over 18 can bet their life savings on roulette. That has nothing to do with this. "Well other investments are risky too!" does not apply here because "Investing in startups is super-risky!" is not the reason why accreditation requirements exist.
deleted 6y ago
[deleted]

by gojomo 6y ago

Equal access to private investments should face no wealth tests larger than those required for playing the state lottery, taking out a 30-year mortgage, or trading securities/currencies on margin.

loeg 6y ago

This sounds good superficially but I don't think it actually makes sense. People can and should have higher expectations for investments than lottery tickets. And primary-residence mortgages are relatively safe and liquid compared with private investments. I.e., these things are of a different kind entirely than private investment. The real question to me is, what is a "private" investment if everyone can invest in it? Why isn't it subject to the same reporting requirements as a "public" investment?

nixonpjoshua1 6y ago
I think to allow small business and startups to flourish. It is important to not subject all companies to the reporting requirements of public companies, smaller organizations just don't have the spare resources and it really would hurt them being nimble and getting established. This of course means that any investor into such a company needs to have a more intimate relationship and understanding of the company despite the lack of detailed reporting, which is at least one reason to have accredited investor rules.
gojomo 6y ago
So, there can be a wealth test - but no competence test! – for investments that might be positive expectation? But then absolutely no limits to who and how much someone can spend on rigged games of chance with guaranteed negative-expectation. How does that make sense? You're right, the 'public'/'private' distinction is confusing and outdated. It should just be 'high-reporting' (certified by accountants/lawyers/exchanges to meet certain standards) and 'low-reporting'. Perhaps tax-advantaged retirement accounts shouldn't be allowed into 'low-reporting' situations. But with a person's own excess money, they shouldn't face a wealth test to invest it anywhere their judgement guides them - if they're allowed to gamble, donate, burn, over-leverage, etc that money a thousand other ways to zero as well.

gnopgnip 6y ago

These regulations are largely imposed on the companies seeking investments from the public. If they want to advertise the the general public then they need to complete certain disclosures and audits

mundo 6y ago

Lotteries, mortgages, and public securities are heavily regulated to make it nearly impossible to get ripped off. You can lose your life savings by buying AAPL, but you can't lose it despite AAPL going up because you didn't read the fine print on the brokerage website. The reason for accredited investor requirements is that it's not realistic to do the same with small businesses. It is perfectly legal, and not totally uncommon, for startups to have very unfavorable terms for investors. If the LLC paperwork says the majority partner can choose to buy back your shares against your will for a dollar any time they like, then they can, and it's your fault for not reading it more carefully. I've heard of many cases, and personally witnessed one case, in which an accredited investor put a lot of money in to a startup, and lost it even though the startup did well. The requirements may not be perfect, but I don't think it's fair to suggest they don't serve a purpose.

gojomo 6y ago
State lotteries are rigged: marketed to the gullible & have far worse payouts than casinos. (Have you seen stare-sponsored Keno games like "California Hot Spot", with draws every 4 minutes, offered in only the very finest neighborhoods' liquor stores to extremely wise gamblers?) Mortgages were pushed to sketchy credit risks for years, wiping out the the poor's earnings & equity with unsustainable housing costs in (temporarily) pubic-policy-inflated home values - and even now, there's minimal protection against over-concentrating in unwise housing markets. Plenty of public securities go to zero, often in fraud. But with easy-to-get investing leverage, any amount of initial capital can go to zero with only small moves in public prices. You can lose any amount of money after a small move of AAPL up - if you purchase enough (or leveraged) securities which bet on it going down, which are available to anyone without an accredited-investor-like wealth test. (Have you seen the promotions, and easy on-ramps, for daytrading & foreign-exchange trading & Robinhood? Or how easy it is to channel any amount of money into crypto trading?)
- mundo 6y ago
  There's a lot of risky investments. Anyone over 18 can bet their life savings on roulette. That has nothing to do with this. "Well other investments are risky too!" does not apply here because "Investing in startups is super-risky!" is not the reason why accreditation requirements exist.

deleted 6y ago

[deleted]