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Gambling in state lotteries and casinos is legal. Leveraging your residence 95% or more to speculate in your local real-estate market is favored by tax policy.

by gojomo 13y ago

Gambling in state lotteries and casinos is legal. Leveraging your residence 95% or more to speculate in your local real-estate market is favored by tax policy. Equity investing, day-trading, and option investing are all available to non-accredited investors. In all of these activities, your principal can go to zero very quickly, and will if you're overconfident and misinformed. How is private investment any more irrational or dangerous? Can't 'poor' people sometimes have excellent, inside information on a new business, or are only already-wealthy people informed and rational? In the case of the Bitcoin Investment Trust, the effect of the accreditation-barrier is even more pernicious and counterproductive. There's no block against the poor owning Bitcoins - they can buy them in many ways. There's just a block against those Bitcoins being professionally secured, and getting the tax-advantages available in IRAs. How are poor, irrational people protected by making them self-secure their Bitcoins while paying higher taxes on any gains?

dustcoin 13y ago
Minor correction: Trading frequently requires a minimum of $25k https://en.wikipedia.org/wiki/Pattern_day_trader https://en.wikipedia.org/wiki/Pattern_day_trader
- gojomo 13y ago
  $25K doesn't make someone an accredited investor. Plenty of negative-net-worth people could scrounge up $25k to day-trade.
drone 13y ago
shrug It's been the law of the land for what, 80 years? If you want every body and their brother to invest with minimal restrictions: you register the security and create all of the disclosures. If you don't want to go through the effort of creating prospectus and accurately describing the risk, and requiring lots of sign-off from the investor? You limit yourself to the wealthy. Those things the equity investor, day-trader, and optioneer may invest in are all registered securities with all information required by law filed and up-to-date. I'm not arguing that poor people are irrational (that's a straw-man, and nothing in the laws have ever stated that poor people are irrational), and I find it offensive that you jump to this sort of polarizing attack rather than making a more substantive argument, as if to paint me as a person who thinks all poor people are dumb. Now, we ask ourselves, how did this come to be the law of the land? Because people were regularly not disclosing all aspects of their investments to investors, and people, both rational and irrational, were regularly losing money they wouldn't have invested had they been given complete information as was known to the promoter of that investment. However, many investors (quite rightly) balked at the idea that they could only invest in full-registered securities, so some test was created - it happened to be a means test. What would you replace with as a test for securities that do not require complete and accurate disclosure (which is what pretty much every early stage investment is)? We've seen what that looks like: more disclosure. [0] [0] http://boss.blogs.nytimes.com/2013/11/14/what-the-proposed-crowdfunding-rules-could-cost-businesses/?_r=0 http://boss.blogs.nytimes.com/2013/11/14/what-the-proposed-c...
- gojomo 13y ago
  Lots of awful laws were "the law of the land" for much longer. Why would a tradeoff from 80 years ago be appropriate for today's wealthier, more informed era? And when the other competing ways that people can lose all their net worth (gambling, real-estate speculation, leveraged/optioned public-security speculation) are so much more available? It's no longer serving a protective function... but that rationalization is still trotted out, out of habit and status-quo bias. You implied irrationality among non-accredited investors, with your question, "how can you make a rational decision...?" Well, non-millionaires can be just as rational as millionaires, within these domains. As a practical matter, firms can't just increase their disclosures and then accept investment from everyone. The costs and legal risks are too high - the regulations preclude non-millionaires from rationally accepting the same level of disclosure and disclaimers as millionaires are allowed. So less-wealthy people get locked out, by regulation-imposed costs. The means-test is unjust discrimination, just like if a community said, "you may have the cash to pay the asking price for a house here, but we'll need to x-ray your personal finances to determine if you're really suitable for our community". I would replace the means test with the same test required to buy a state lottery ticket: are you 18 and do you have the cash? If compromise is required, I'd replace the means test with a means-oblivious competence-evaluation: do you understand the risks and instruments involved? Wealthy people – heirs, lottery winners, successful businesspeople – wouldn't get a free pass, they'd have to pass the same test. (That would help ensure that politically-influential wealthy people also lobby to keep the test from becoming too exclusionary.) Many kinds of certifications – like college degrees in business/economics/law or the standard tests that already exist to qualify people as a banker/lawyer/accountant/investment-adviser – should serve as adequate proof of competence. (For example, pass the 'Series 7' that allows you to recommend and manage investments for others, and we'll assume you can also invest for yourself.) After all, who's more at risk from a shady private investment: a trustfunder 'accredited investor' or an MBA/CPA/licensed-investment-professional? Current law favors the trustfunder at the expense of the certified expert! If even more compromise to paternalism is required, private-security investments could be subject to a proportion-of-net-worth test. For example, perhaps only 1/2 to 1/3 of net-worth could be placed in such securities. Or, only an amount that's less that that already saved in tax-advantaged retirement accounts (IRAs/501ks/etc). Any of those standards make more sense than the "are you already rich?" test.

by gojomo 13y ago

dustcoin 13y ago

Minor correction: Trading frequently requires a minimum of $25k https://en.wikipedia.org/wiki/Pattern_day_trader https://en.wikipedia.org/wiki/Pattern_day_trader

gojomo 13y ago
$25K doesn't make someone an accredited investor. Plenty of negative-net-worth people could scrounge up $25k to day-trade.

drone 13y ago

shrug It's been the law of the land for what, 80 years? If you want every body and their brother to invest with minimal restrictions: you register the security and create all of the disclosures. If you don't want to go through the effort of creating prospectus and accurately describing the risk, and requiring lots of sign-off from the investor? You limit yourself to the wealthy. Those things the equity investor, day-trader, and optioneer may invest in are all registered securities with all information required by law filed and up-to-date. I'm not arguing that poor people are irrational (that's a straw-man, and nothing in the laws have ever stated that poor people are irrational), and I find it offensive that you jump to this sort of polarizing attack rather than making a more substantive argument, as if to paint me as a person who thinks all poor people are dumb. Now, we ask ourselves, how did this come to be the law of the land? Because people were regularly not disclosing all aspects of their investments to investors, and people, both rational and irrational, were regularly losing money they wouldn't have invested had they been given complete information as was known to the promoter of that investment. However, many investors (quite rightly) balked at the idea that they could only invest in full-registered securities, so some test was created - it happened to be a means test. What would you replace with as a test for securities that do not require complete and accurate disclosure (which is what pretty much every early stage investment is)? We've seen what that looks like: more disclosure. [0] [0] http://boss.blogs.nytimes.com/2013/11/14/what-the-proposed-crowdfunding-rules-could-cost-businesses/?_r=0 http://boss.blogs.nytimes.com/2013/11/14/what-the-proposed-c...

gojomo 13y ago
Lots of awful laws were "the law of the land" for much longer. Why would a tradeoff from 80 years ago be appropriate for today's wealthier, more informed era? And when the other competing ways that people can lose all their net worth (gambling, real-estate speculation, leveraged/optioned public-security speculation) are so much more available? It's no longer serving a protective function... but that rationalization is still trotted out, out of habit and status-quo bias. You implied irrationality among non-accredited investors, with your question, "how can you make a rational decision...?" Well, non-millionaires can be just as rational as millionaires, within these domains. As a practical matter, firms can't just increase their disclosures and then accept investment from everyone. The costs and legal risks are too high - the regulations preclude non-millionaires from rationally accepting the same level of disclosure and disclaimers as millionaires are allowed. So less-wealthy people get locked out, by regulation-imposed costs. The means-test is unjust discrimination, just like if a community said, "you may have the cash to pay the asking price for a house here, but we'll need to x-ray your personal finances to determine if you're really suitable for our community". I would replace the means test with the same test required to buy a state lottery ticket: are you 18 and do you have the cash? If compromise is required, I'd replace the means test with a means-oblivious competence-evaluation: do you understand the risks and instruments involved? Wealthy people – heirs, lottery winners, successful businesspeople – wouldn't get a free pass, they'd have to pass the same test. (That would help ensure that politically-influential wealthy people also lobby to keep the test from becoming too exclusionary.) Many kinds of certifications – like college degrees in business/economics/law or the standard tests that already exist to qualify people as a banker/lawyer/accountant/investment-adviser – should serve as adequate proof of competence. (For example, pass the 'Series 7' that allows you to recommend and manage investments for others, and we'll assume you can also invest for yourself.) After all, who's more at risk from a shady private investment: a trustfunder 'accredited investor' or an MBA/CPA/licensed-investment-professional? Current law favors the trustfunder at the expense of the certified expert! If even more compromise to paternalism is required, private-security investments could be subject to a proportion-of-net-worth test. For example, perhaps only 1/2 to 1/3 of net-worth could be placed in such securities. Or, only an amount that's less that that already saved in tax-advantaged retirement accounts (IRAs/501ks/etc). Any of those standards make more sense than the "are you already rich?" test.