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I think this is the expected cycle of business long term. 1. Entrepreneur notices an opportunity to avoid overzealous regulations and provide better value to c

by nojs 5y ago

I think this is the expected cycle of business long term. 1. Entrepreneur notices an opportunity to avoid overzealous regulations and provide better value to customers 2. Everyone wants a piece of the action, bad actors start to move in and updated regulation is required 3. New regulations get out of hand and start to become extremely costly to comply with (see banks) 4. New entrepreneur comes along with a novel way of avoiding said regulations, providing better value to customers again. Repeat. At any given point in time the industry is either in cowboy crypto mode, or crusty overregulated bank mode. Both have drawbacks, and it’s just a pendulum that swings back and forth.

toomuchtodo 5y ago
“Overzealous regulation” = regulation they prevents me as an “entrepreneur” from profiting off of unsophisticated people, in this example.
- qeternity 5y ago
  Who determines what qualifies as “unsophisticated”. This is where the overzealousness creeps in. Regulators always push for more regulations.
  - toomuchtodo 5y ago
    Regulators discover and patch regulatory gaps. One might say that’s doing their job, versus overzealousness.
    - Jorge1o1 5y ago
      So a “poor” but highly knowledgeable financial planner making “only” $180k a year can’t invest in their friend’s startup because the regulators deem it too risky. But some random dentist can? https://www.bloomberg.com/opinion/articles/2018-09-24/earning-the-right-to-get-swindled https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...
      - toomuchtodo 5y ago
        The dentist can weather the poor investment. Knowledge does not make you financially solvent. It just improves your gambling odds as it relates to equity investment.
        BitwiseFool 5y ago
        From my perspective, only letting people who are well off enough to 'weather the loss' seems like something that only exacerbates the wealth gap.
        toomuchtodo 5y ago
        Super off topic, but the wealth gap is exacerbated by not taxing the wealthiest at a high enough rate, not regulations against capital market participation in highly speculative ventures. To argue that accredited investor regulations are the problem is no different than arguing for lottery tickets or penny stocks as an investment strategy for low income citizens.
        mschuster91 5y ago
        Lotteries are super regulated though, it's (no matter the country) an utter nightmare, even stuff like a school's trinket raffle. The reason is a shitload of people making "easy profits" by frauding people.
        notahacker 5y ago
        The wealth gap isn't going to shrink by making it easy for startups (or "startups") that can't convince rich strangers (or friends and family, or crowdfunding platforms) they're worth investing in to convince larger numbers of less rich strangers to do it instead. Most companies funded by professionals go bust and the risk adjusted returns to VC as an asset class aren't that great: the funds that have spectacular returns being balanced out by those that lose their LPs money. And few unicorns are going to be spending their effort pitching average earners for $2k cheques. Why would we expect the average joe to invest better than the pros with less capital to diversify, no board seats and substantially worse dealflow?
  - drekk 5y ago
    I work in fintech. I'm not sure what bank regulations you think are overzealous. To give an example, banks can legally keep you from accessing your data. Whether by blocking your screen scraping or providing an API with poor coverage. You understand I imagine that the regulations don't use the word "unsophisticated" and as such it's a red herring. We have these (few) regulations because banks and their consumers are not entering into a business arrangement on similar footing. I'm not "too big to fail". I don't get a bailout. Banks love to collude with one another or engage in predatory behavior, and when we repealed the Glass-Steagall act in 1999 it took less than a decade for the subprime mortgage crisis to rear its ugly head. Allowing banks to also act as securities firms will continue to show us these "once in a lifetime" economic recessions every decade or so. And would you look at that? It's been over a decade since the subprime mortgage crisis, yet here we are back in the same glut. Crypto doesn't solve any of that. It solved double spending. Most of the "exchanges" that people are using are mixing banking and securities, and when crypto blows out there is nothing left to catch most of the retail investors that shoulder that cost. There already are so many examples that listing them is prohibitive, but I'll remind everyone that Mt Gox handled 70% of all Bitcoin transactions at the time and lost 6% of the entire Bitcoin circulation at the time to hacks. No FDIC insurance, do not pass go, do not collect $200. Laissez faire becomes laissez tomber. I wish people were honest about why they like crypto -- it's a speculative asset in a time when most people can't afford appreciating assets, and it doesn't require an ID if you avoid exchanges so you can buy contraband. The drawbacks are someone can code a button that is difficult to inspect and if you press it your entire wallet is drained with no recourse. Haven't even touched on the energy or silicon expenditures for a system with laughably tiny adoption
    - datadata 5y ago
      Could you share a citation for your claim of "laughably tiny adoption"? What data are you looking at to reach this perspective?
      - dzamo_norton 5y ago
        A definition of "adoption" would also help here. Are we counting the zero-sum game speculators as "adopters", or are we counting something like flows enabling the legally compliant exchange of goods and services in the real world?
thwayunion 5y ago
I cannot think of a single previous business cycle that was driven by this dynamic. Can you give some historical examples? This strategy seems unique to the most recent generation of capitalists (sharing economy, crypto stuff, etc).
- VHRanger 5y ago
  The 2008 bubble was largely driven by the deregulation of financial instruments (and non-regulation of new instruments) in the late 1990 and early 2000.
  - reedjosh 5y ago
    It was also driven by easy fed dollars and banks that knew they'd be bailed out.
    - rchaud 5y ago
      Lehman Brothers didn't know, Barclay's acquired them for pennies. Same with Bear Sterns (JP Morgan acquired) and Merrill Lynch (BofA acquired). Also quantitative easing began as a result of the massive loss of trust between banks as a result of the crisis. Every central bank in countries with big financial centers had to follow a similar playbook.
    - VHRanger 5y ago
      Banks didn't expect to be bailed out. That question has been studied Bank upper management just didn't care that they'd be bailed out or not because their incentives were on fairly short term horizons.
throwaway894345 5y ago
This isn't necessarily a bad thing. It's probably good to stop strangling the economy for a bit once bad actors disappear. Moreover, in many cases the regulators themselves are corrupt (e.g., regulators exempting lenders from regulation leading up to the 2008 housing crash), so the regulation may not be delivering the intended value and taking another swing at it in a decade may not be the worst thing. Further still, in a few cases, the regulation may actually not make sense any more due to some change in the landscape--it might be similarly good to back off the regulation, see what problems arise, and address them accordingly (i.e., control loop).
- HWR_14 5y ago
  > e.g., regulators exempting lenders from regulation leading up to the 2008 housing crash Congress changed the regulations, not the regulators. I really have no idea what examples you're thinking of.

by nojs 5y ago

toomuchtodo 5y ago

“Overzealous regulation” = regulation they prevents me as an “entrepreneur” from profiting off of unsophisticated people, in this example.

qeternity 5y ago
Who determines what qualifies as “unsophisticated”. This is where the overzealousness creeps in. Regulators always push for more regulations.
- toomuchtodo 5y ago
  Regulators discover and patch regulatory gaps. One might say that’s doing their job, versus overzealousness.
  - Jorge1o1 5y ago
    So a “poor” but highly knowledgeable financial planner making “only” $180k a year can’t invest in their friend’s startup because the regulators deem it too risky. But some random dentist can? https://www.bloomberg.com/opinion/articles/2018-09-24/earning-the-right-to-get-swindled https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...
    - toomuchtodo 5y ago
      The dentist can weather the poor investment. Knowledge does not make you financially solvent. It just improves your gambling odds as it relates to equity investment.
      - BitwiseFool 5y ago
        From my perspective, only letting people who are well off enough to 'weather the loss' seems like something that only exacerbates the wealth gap.
        toomuchtodo 5y ago
        Super off topic, but the wealth gap is exacerbated by not taxing the wealthiest at a high enough rate, not regulations against capital market participation in highly speculative ventures. To argue that accredited investor regulations are the problem is no different than arguing for lottery tickets or penny stocks as an investment strategy for low income citizens.
        mschuster91 5y ago
        Lotteries are super regulated though, it's (no matter the country) an utter nightmare, even stuff like a school's trinket raffle. The reason is a shitload of people making "easy profits" by frauding people.
        notahacker 5y ago
        The wealth gap isn't going to shrink by making it easy for startups (or "startups") that can't convince rich strangers (or friends and family, or crowdfunding platforms) they're worth investing in to convince larger numbers of less rich strangers to do it instead. Most companies funded by professionals go bust and the risk adjusted returns to VC as an asset class aren't that great: the funds that have spectacular returns being balanced out by those that lose their LPs money. And few unicorns are going to be spending their effort pitching average earners for $2k cheques. Why would we expect the average joe to invest better than the pros with less capital to diversify, no board seats and substantially worse dealflow?
- drekk 5y ago
  I work in fintech. I'm not sure what bank regulations you think are overzealous. To give an example, banks can legally keep you from accessing your data. Whether by blocking your screen scraping or providing an API with poor coverage. You understand I imagine that the regulations don't use the word "unsophisticated" and as such it's a red herring. We have these (few) regulations because banks and their consumers are not entering into a business arrangement on similar footing. I'm not "too big to fail". I don't get a bailout. Banks love to collude with one another or engage in predatory behavior, and when we repealed the Glass-Steagall act in 1999 it took less than a decade for the subprime mortgage crisis to rear its ugly head. Allowing banks to also act as securities firms will continue to show us these "once in a lifetime" economic recessions every decade or so. And would you look at that? It's been over a decade since the subprime mortgage crisis, yet here we are back in the same glut. Crypto doesn't solve any of that. It solved double spending. Most of the "exchanges" that people are using are mixing banking and securities, and when crypto blows out there is nothing left to catch most of the retail investors that shoulder that cost. There already are so many examples that listing them is prohibitive, but I'll remind everyone that Mt Gox handled 70% of all Bitcoin transactions at the time and lost 6% of the entire Bitcoin circulation at the time to hacks. No FDIC insurance, do not pass go, do not collect $200. Laissez faire becomes laissez tomber. I wish people were honest about why they like crypto -- it's a speculative asset in a time when most people can't afford appreciating assets, and it doesn't require an ID if you avoid exchanges so you can buy contraband. The drawbacks are someone can code a button that is difficult to inspect and if you press it your entire wallet is drained with no recourse. Haven't even touched on the energy or silicon expenditures for a system with laughably tiny adoption
  - datadata 5y ago
    Could you share a citation for your claim of "laughably tiny adoption"? What data are you looking at to reach this perspective?
    - dzamo_norton 5y ago
      A definition of "adoption" would also help here. Are we counting the zero-sum game speculators as "adopters", or are we counting something like flows enabling the legally compliant exchange of goods and services in the real world?

thwayunion 5y ago

I cannot think of a single previous business cycle that was driven by this dynamic. Can you give some historical examples? This strategy seems unique to the most recent generation of capitalists (sharing economy, crypto stuff, etc).

VHRanger 5y ago
The 2008 bubble was largely driven by the deregulation of financial instruments (and non-regulation of new instruments) in the late 1990 and early 2000.
- reedjosh 5y ago
  It was also driven by easy fed dollars and banks that knew they'd be bailed out.
  - rchaud 5y ago
    Lehman Brothers didn't know, Barclay's acquired them for pennies. Same with Bear Sterns (JP Morgan acquired) and Merrill Lynch (BofA acquired). Also quantitative easing began as a result of the massive loss of trust between banks as a result of the crisis. Every central bank in countries with big financial centers had to follow a similar playbook.
  - VHRanger 5y ago
    Banks didn't expect to be bailed out. That question has been studied Bank upper management just didn't care that they'd be bailed out or not because their incentives were on fairly short term horizons.

throwaway894345 5y ago

This isn't necessarily a bad thing. It's probably good to stop strangling the economy for a bit once bad actors disappear. Moreover, in many cases the regulators themselves are corrupt (e.g., regulators exempting lenders from regulation leading up to the 2008 housing crash), so the regulation may not be delivering the intended value and taking another swing at it in a decade may not be the worst thing. Further still, in a few cases, the regulation may actually not make sense any more due to some change in the landscape--it might be similarly good to back off the regulation, see what problems arise, and address them accordingly (i.e., control loop).

HWR_14 5y ago
> e.g., regulators exempting lenders from regulation leading up to the 2008 housing crash Congress changed the regulations, not the regulators. I really have no idea what examples you're thinking of.