3 ms·

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

by 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.
- drone 13y ago
  > Lots of awful laws were "the law of the land" for much longer. I don't think it's as awful as you make it out to be. I think the situation before it was passed into law was far, far worse for the prosperity of individuals than it has ever been after. But, that's just, you know, my opinion. > 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. No, I didn't, as I assume you're familiar with securities law, I would presume that you could see that I was contrasting registered securities with required disclosures, and unregistered securities with little or no disclosure. Perhaps I should've phrased the question instead as "How can you make a good decision when the other party is intentionally hiding relevant information from you?" > If compromise is required, I'd replace the means test with a means-oblivious competence-evaluation: That sounds awfully complex to codify. Who gets to write the questions? What happens when the subject is not previously coded up into a test? Endless questions. What this all really boils down, what I'm getting from this, is that you feel that you're smarter than the average bear, and you feel that the rules are holding you back from really succeeding, so let's make some rules that you'll pass. That's not intended as a personal insult, that's just how it comes across. > 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). Actually, that makes a lot more sense than anything else you've come up with, and more akin to my reading of the reasoning behind the means test. It has nothing to do with any one individual, but instead to avoid massive culling of the fortunes of the middle class at once and causing social unrest. If its more difficult for the masses to invest primarily in high risk investments that more often fail than succeed, then they will likely invest in lower-risk, or at least more well codified risk, which is more likely to achieve a more stable economy and reduce the risk of public upheaval. We have a lot of history in the unregulated investment markets to draw from in painting a picture of the potential future. Your assumption that people have more information now, readily available to them about the quality of investments with little or no disclosure is one I'd call into question. People in the 'teens certainly felt they had a lot more information about the quality of investments with little or no disclosure than they did in the early 1800's. But, we have a stark difference of opinion. I never felt that the accredited investor test was holding me back from succeeding and making good investments. In fact, I've never found a rule that was really holding me back from succeeding, but that's just me, I guess.

by drone 13y ago

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.

drone 13y ago
> Lots of awful laws were "the law of the land" for much longer. I don't think it's as awful as you make it out to be. I think the situation before it was passed into law was far, far worse for the prosperity of individuals than it has ever been after. But, that's just, you know, my opinion. > 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. No, I didn't, as I assume you're familiar with securities law, I would presume that you could see that I was contrasting registered securities with required disclosures, and unregistered securities with little or no disclosure. Perhaps I should've phrased the question instead as "How can you make a good decision when the other party is intentionally hiding relevant information from you?" > If compromise is required, I'd replace the means test with a means-oblivious competence-evaluation: That sounds awfully complex to codify. Who gets to write the questions? What happens when the subject is not previously coded up into a test? Endless questions. What this all really boils down, what I'm getting from this, is that you feel that you're smarter than the average bear, and you feel that the rules are holding you back from really succeeding, so let's make some rules that you'll pass. That's not intended as a personal insult, that's just how it comes across. > 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). Actually, that makes a lot more sense than anything else you've come up with, and more akin to my reading of the reasoning behind the means test. It has nothing to do with any one individual, but instead to avoid massive culling of the fortunes of the middle class at once and causing social unrest. If its more difficult for the masses to invest primarily in high risk investments that more often fail than succeed, then they will likely invest in lower-risk, or at least more well codified risk, which is more likely to achieve a more stable economy and reduce the risk of public upheaval. We have a lot of history in the unregulated investment markets to draw from in painting a picture of the potential future. Your assumption that people have more information now, readily available to them about the quality of investments with little or no disclosure is one I'd call into question. People in the 'teens certainly felt they had a lot more information about the quality of investments with little or no disclosure than they did in the early 1800's. But, we have a stark difference of opinion. I never felt that the accredited investor test was holding me back from succeeding and making good investments. In fact, I've never found a rule that was really holding me back from succeeding, but that's just me, I guess.