
Will the Last Startup Leaving Dodd's America Please Turn Off the Lights? - bigstartups
http://www.bigstartups.com/wac6/blog/1273/Will-the-Last-Startup-Leaving-Dodds-America
======
hristov
This is really silly. First of all, I would recommend that if there is a short
blog post that does nothing more but summarise an article, one should submit
the article and not the blog post.

Second, the actual businessweek article is so silly it is laughable. It
mentions that Dodd wants to connect the accredited investor metrics to
inflation but admits that it does not know how that will happen. Then it makes
a silly guess out of the blue how it may happen and and assumes that is how it
will happen and then goes on to complain how it will be the end of the world.
This is a classic straw man argument.

Here's the thing - politicians do not like to make drastic changes unless they
are warranted. I guarantee you Dodd is not going to double the income and net
worth requirements for accredited investors overnight. The requirements will
probably be connected to inflation starting now, which means they will keep
their current values when the law passes and will slowly increase with
inflation in the future.

~~~
grellas
I would not be too sanguine about what politicians beholden to the trial
lawyers might or might not do in this sort of area. When you shrink the pool
of accredited investors, you remove many of the avenues by which startups can
raise capital in a manner by which they can be assured they are not violating
securities laws. If the safe avenues are no longer there, the risks of
lawsuits increase dramatically. It will all be done in the name of protecting
investor rights, but the real beneficiaries here will be the trial lawyers and
the losers will indeed be all early-stage companies that seek to raise
capital.

Maybe it will happen quickly or maybe it will be gradual but the underlying
motives here are pretty clear and have nothing to do with promoting the health
of startups.

I express no opinion about the quality of the article posted here but it is a
mistake to assume this legislation is benign for startups. It is not.

~~~
anigbrowl
George, I am disappointed by the superficial assumptions which you make here,
which I feel serve to obscure rather than clarify the issue.

(Before going on, grellas is a lawyer and one I respect due to his extensive
experience, while I am not only not a lawyer, I have no qualifications of any
kind on such matters and the following is nothing but my personal opinion. If
you need guidance in this area then you should be consulting someone qualified
to practice securities law instead of wasting your valuable time reading my
upstart ideas.)

First, the relevant material we're talking about. The text of the bill is to
be found here:
[http://banking.senate.gov/public/_files/ChairmansMark31510AY...](http://banking.senate.gov/public/_files/ChairmansMark31510AYO10306_xmlFinancialReformLegislationBill.pdf)

The relevant sections are #412 and #413, as follows:

 _SEC. 412. ADJUSTING THE ACCREDITED INVESTOR STANDARD FOR INFLATION.

The Commission shall, by rule— (1) increase the financial threshold for an
accredited investor, as set forth in the rules of the Commission under the
Securities Act of 1933, by calculating an amount that is greater than the
amount in effect on the date of enactment of this Act of $200,000 income for a
natural person (or $300,000 for a couple) and $1,000,000 in assets, as the
Commission determines is appropriate and in the public interest, in light of
price inflation since those figures were determined; and (2) adjust that
threshold not less frequently than once every 5 years, to reflect the
percentage increase in the cost of living.

SEC. 413. GAO STUDY AND REPORT ON ACCREDITED INVESTORS. The Comptroller
General of the United States shall conduct a study on the appropriate criteria
for determining the financial thresholds or other criteria needed to qualify
for accredited investor status and eligibility to invest in private funds, and
shall submit a report to the Committee on Banking, Housing, and Urban Affairs
of the Senate and the Committee on Financial Services of the House of
Representatives on the results of such study not later than 1 year after the
date of enactment of this Act._

'Commission' here refers to the Securities and Exchange Commission.
Accreditation criteria as they currently stand are set out in rule 501 of
Regulation D of the SEC's rules, under the authority of the Securities Act
1933. You can read those criteria here:
<http://www.law.uc.edu/CCL/33ActRls/rule501.html>

Now, to my argument.

First of all, the proposed bill lets the SEC itself recalculate the financial
threshold for a natural person to be an accredited investor. As I am sure you
are aware, the SEC proposed raising that threshold to $2.5 million in
investment assets back in December 2006 (primarily as a prophylactic against
fraud by hedge fund managers) but abandoned the idea following the feedback
they received during the public consultation period. I fail to see how
requiring the accreditation threshold to keep pace with inflation and tasking
the GAO with a review of current practices - to which both attorneys and
entrepreneurs will presumably contribute - is a bad thing.

Perhaps your specific objection is to the suggestion that the SEC consider CPI
in its reassessment of thresholds from the limits established in 1982. I would
respond that pointing out that requiring consideration of the changes in CPI
is very different from mandating their use as a metric, and only uses
inflation as a rationale for future long-term maintenance of threshold
amounts.

Incidentally, even if such thresholds were imposed by fiat tomorrow, are we
really to believe that the risk of any given to investors is only 43% of that
which it was in 1982? Is it logical to maintain a fixed dollar amount as the
threshold for individual participation in offerings? Surely a period of
inflation which further eroded the real value of that threshold would not in
any way improve investors' collective security. I cannot fathom that
investment risk declines in direct proportion to the purchasing power of the
currency.

In any case, Regulation D also provides that becoming a director, partner, or
executive offer in a business venture confers accreditation status, as does
certification of an entity as a business development company in accordance
with the Investment Company Act of 1940. So as a purely practical matter,
someone of middling means who might not qualify as an accredited investor
under future revisions of the income or asset thresholds could still invest in
a startup by the fairly simple expedient of joining the startup in one of the
capacities mentioned above.

Your allusions to predatory trial lawyers and obscure motives trouble me;
rather than discussing the likely outcome of changes in the law (but rather
assuming the shrinkage of the investor pool as a fact), you engage in a kind
of ad-hominem by proxy, casting aspersions on the proponents of change without
addressing the substantive issues in their proposal.

I know you are not giving legal or political advice here, just expressing a
brief reaction to these proposals. I do not think you are a conspiracy
theorist or someone who seeks to mislead, and that your concerns on behalf of
current and future clients are real. Nor am I a proponent of reform at all
costs, or oblivious to the potential headaches for those seeking to raise
capital - as an independent filmmaker of extremely modest means, these
proposals could affect my ability to raise capital too. But I fundamentally
disagree with your suggestion that this bill represents a covert attempt to
enrich trial lawyers at the expense of honest entrepreneurs.

~~~
grellas
Thank you for your thoughtful response, which I just upvoted for its very
helpful content.

I must confess that some of my comments were indeed superficial but I did want
to explain briefly why I have the perspective that I do. It is perhaps as much
philosophical as anything else.

In this area, there has always been a continual tension between protecting
investors (the very purpose of the securities laws) and giving people freedom
to invest freely in ways that promote capital formation.

The Securities Act of 1933 imposes registration requirements upon the issuers
of securities. The basic idea is that stock (and other securities) can be sold
to the public only when accompanied by suitable disclosure materials such that
a prospective investor can have a good understanding of the risks associated
with the investment. Each state also has its own version of such laws, and
these are known as "blue sky" laws. Thus, any issuer that desires to sell
stock to public investors must register it with the SEC and also comply with
the parallel blue-sky requirements.

Section 4(2) of the 1933 Act provides an exemption from these registration
requirements for private placements. This is required for small-company
capital formation because such companies would choke on the compliance costs
involved with registration and, more importantly, in a private placement, the
problems associated with selling stock to mass numbers of small and often
unsophisticated public purchasers are just not present and it is overkill to
apply the full force of the registration requirements to such situations.

The question is what is a "private placement"? Before Regulation D was adopted
in 1982, this whole area was a mess. Did an offering to 5 people constitute a
public offering? Or to 10? Or to 20? How about if stock were sold to 5, then
another 5, then another and another, and so on, all in succession? At what
point did such offerings cease to be private placements and become "public"
offerings and hence illegal unless accompanied by suitable SEC registration?
What if stock were sold to 15 people but were done via public forms of
advertising? Did that make a difference? What if the investors numbered 50 or
500 but were all sophisticated investors capable of understanding the nature
of the investment? Did that make a difference? What if they were given audited
financials and similar forms of disclosure as part of the offering?

All such questions went all over the board prior to the enactment of
Regulation D as courts struggled to make sense of the meaning of Section 4(2),
and the result was a proliferation of litigation all over the nation that
could easily ensnare issuers and their principals with large legal expenses
and possible large judgments. And the penalties were not small. A violation of
the 1933 Act by an issuer that does an improper unregistered offering meant
that investors could rescind their stock purchases out to 3 years after their
purchase and, moreover, could get their money back not only from the issuers
but also from the principals who controlled them.

I remember this vividly. I clerked for a federal judge in the 1979-1980 period
and saw firsthand the kinds of crazy cases that could wind up in court over
such issues.

And here is the key point about such litigation: it could take all shapes and
sizes because of _uncertainty_ surrounding the meaning of what constituted a
private placement. In other words, a company that sought to issue stock in a
private placement could never know for sure (except in really extreme cases)
whether investors could come back to bite the company and its principals
simply because the company wound up failing. This set up all sorts of
situations where lawyers could second-guess the offering even a long time
after the fact because they could always point to this or that fact or
circumstances that they would argue took the offering out of the 4(2) exempt
category and subjected it to registration requirements. This uncertainty made
it risky for companies to attempt to raise capital via private placements and
hindered such offerings accordingly.

Starting in 1982, Regulation D solved all this by bringing certainty to this
process. It set out clear rules for what was or was not a private placement
and it did so for various types of offerings, small and large. It did so by
delineating "safe harbors" by which an issuer could know, if it met the rules,
it would clearly be doing a private placement that could not be second-guessed
after the fact. And, of course, by second-guessed, I mean that lawyers could
not bring expensive proceedings against the company and its principals based
on creative interpretations of facts and circumstances by which they would
argue that an offering was not really a private placement (at least they were
not likely to win such cases, and this deterred bringing them). Such issues
were off the table so long as the rules of Regulation D were met.

The definition of an "accredited investor" was a key part of this because,
with such investors (or at least with a predominance of them), the safe-harbor
requirements could easily be met for any given offering.

Thus, in practice today, when I tell my clients to try to limit their
offerings to accredited investors, I can know as a lawyer that they are on
relatively safe ground in how they handle their offering. It is _easy_ to
structure such offerings without undue legal risk and hence such startups can
much more easily raise capital for their ventures.

Now take that same scenario and shrink the number of accredited investors
radically and the whole structure of Regulation D is compromised such that we
are nowhere near as likely to have the certainty of "safe harbors" for issuers
and their management but we instead have a much larger element of uncertainty
and room for after-the-fact second-guessing if an investment goes bad.

If you have a startup and need to deal with large numbers of non-accredited
investors (as newly and more restrictively defined), and your company goes
south, it is simply much easier for investors to sue for alleged violations of
the 1933 Act. This means they can sue not only the company but also its
officers and directors. This means those who sit on boards face larger
liability exposure. This means even VCs who invest in companies and get board
sits run higher risks in subsequent offerings unless the investors are all
accredited under the stricter definition. All in all, it means that capital
formation efforts will be hindered as much of the activity now falls into the
more uncertain category where lawyers can easily second guess.

This is the practical reality. And this is why I made my statements about this
sort of bill effectively promoting the interests of the lawyers. Yes, you can
say that it really protects investors and that is the purpose of the
securities laws in the first place. But that was true as well of the legal
landscape before Regulation D was enacted in 1982 and, though investors were
theoretically protected, it also meant it was hard to raise capital without
running an undue risk of potentially being devoured by lawsuits if things
didn't go well with the investment. Thus, the Dodd bill signifies, for me, a
move in the wrong direction, philosophically speaking. It is the same type of
bent that would lead to further steps in the direction of removing "safe
harbor" protections from issuers wanting to do offerings.

I don't think this is paranoid thinking. I am simply looking to the philosophy
of the proponents of such changes. The state of affairs that I fear might
happen as lawmakers go down this path is not something that is unheard of -
after all, it did exist for over four decades prior to 1982. And it is
Regulation D that altered this and that ushered in a great era of small-
company capital formation.

Thus, the Dodd legislation, in giving the SEC an impetus to scale back who can
be an "accredited investor," is effectively going to make this area more
litigious and is going to hinder small-company capital formation activities
accordingly. Maybe this is good. But laws can and do work counter-productively
even if they are enacted in the name of protecting investors. Just think about
what Sarbanes-Oxley did to the IPO market. The question here is what this
signifies and whether it will lead to tightened laws relating to small-company
formation that will make it much more difficult for startups to raise funding.

I believe that is why many of the VCs, angel groups, etc. are worried about
the Dodd legislation. It is perhaps not so much in what it does as an
immediate step but in what it signifies about the future of Regulation D and a
strong system of small-company capital formation. No serious problems have
arisen under the current system. Why tamper with it, then?

I think it is legitimate to raise questions about the motives of those who
would seek to fix something that is not broken when the practical effect of
such steps is to make the process much less certain and much more prone to
litigation. Like I said, I hope I am wrong about the potential implications of
this legislation but I worry about where it might head.

~~~
anigbrowl
You're welcome, and thank you in turn.

We basically agree on the purpose and utility of regulation D. By clearing
defining what the safe harbor provisions are, it opens the doors to capital
formation for small business without imposing hugely expensive compliance
requirements, and I am heartily in favor of keeping capital formation a
relatively simple process - especially in times like these when credit markets
remain chilly and many otherwise healthy or promising businesses are unable to
expand for lack of ready capital. I also agree that imposing stricter fiscal
requirements for accreditation risks shrinking the liquidity pool and thus
starving one of the most dynamic segments in the economy, with serious
implications for job creation and economic growth.

Now, you mention that this legislation, if enacted pushes the SEC in a
regulatory direction that will make this area more litigious, and here we
differ, although I know I am presenting a rather flimsy theoretical opinion
against your solid empirical one! It seems to me that you're assuming a
shrinking liquidity pool will drive entrepreneurs to engage in increasingly
risky behavior in order to develop their businesses; if the pool of accredited
investors shrinks then capital will have to be sought from unaccredited ones,
and uncertainty will ensue, followed by painful and expensive legal wrangling
when a good portion of these ventures fail or underperform.

But is it not rather simplistic to assume that if the supply of investors is
artificially constrained, the demand for investment will necessarily run
towards the same uncertain and litigation-prone methods of capital formation
that preceded the establishment of Regulation D? Might we not instead see an
increase in the number of partnerships or directorships taken up as a
condition of investment, but still in accordance with other safe harbor
provisions of regulation D besides those based on the net worth of a natural
person?

I am not attempting to argue this as a debating point. Rather, I am seeking to
understand why you anticipate one outcome rather than another. For example, is
it your professional experience that angels are tolerant of risk but don't
wish to shoulder the various obligations of a directorship, whether due to the
burdens of compliance or because it might compromise their objectivity as
investors? Is the distribution of wealth such that an increase - say, a
doubling - of the financial barrier to accreditation necessarily halves the
size of the capital pool, or shrinks it in direct proportion to the number of
angels? In other words, if middling investors with more than a million but
less than two all disappeared from the angel pool, what of the fact that no
upper cap on the assets of wealthier angels exists - a newly imposed $2m
threshold is of no material consequence to an angel with $10m to invest,
whereas the middling investor's capital contribution is necessarily limited to
less than the accreditation threshold. Finally, such restrictions might create
opportunities for business development companies, not unlike YC, which are
large enough to shoulder the burden of compliance and act as reliable brokers
for high risk investors (eg a hedge fund manager who might wish to put 1% of
his fund into high risk ventures with great upside potential and can easily
offset the risk with more pedestrian investments, but lacks the time or
expertise to seek out many tiny startups). The 'shotgun' approach of investing
small sums in many disparate ventures with the understanding that only a few
will yield significant returns could probably be formalized and maybe even
simplify the capital formation process for startups, as YC seems to be doing.
It seems to me that one of the most common and frustrating questions for new
entrepreneurs is where to find an angel in the first place - for many people
and industries, finding someone who can listen to and act upon your pitch is
mysterious, so I feel there's an unmet demand here for business development as
a kind of brokerage service.

I don't mean this as an endorsement or even a comment on the Dodd legislation
as a whole - I've only read three pages of this 1300-page bill, am ambivalent
about committing the 1-2 week sot evaluate the whole thing, and am painfully
aware that its introduction to the senate is taking place in a charged and
acrimonious political atmosphere, which is rarely a recipe for regulatory
bliss. For that matter, it is inevitably molded by the global financial
crisis, and as we know hard cases generally result in bad law, just as
Sarbanes-Oxley's burden of compliance is thought by many people to have cost
more than the problem it was intended to solve. So I appreciate your worries
that the legislation might well be reactionary - by intent, in effect, or even
both.

It does strike me that the prescriptions in this bill as they relate to
capital formation are pretty mild. To the extent that the bill is agenda-
driven, I think its primary purpose is to rein in the perceived excesses of
large financial institutions and the fast-talking social engineers of the
financial world as exemplified by Bernie Madoff - in short, to put a leash on
fat cats for the public good (one may or may not agree that this a worthy aim;
I just think that this is the basic intent). I agree that startup capital
formation has not been a bed of nettles for investors or played any major role
in the structural problems of our financial system, and frankly I doubt the
bill's intent is to choke off investment in startups.

While uncertainty of the kind you describe may enrich trial lawyers, is there
really so much profit to be had in litigating cases brought by investors who
sit between the existing and potential future thresholds? I suppose one could
see a situation where some breakout company does well and and has an IPO and
is awash in cash, only for someone to point out an obscure legal failing of
their very first fundraising round 5 years later and sue them for a
billion...but it'd be a lot easier to buy some old company with a patent and
take a vacation in Texas. I don't know a whole lot about the economics of the
legal industry; it just seems to me that you're extrapolating an awful lot
from a fairly bland directive to inspect and tune up one small component of
the regulatory mechanism. After all, a great many people subscribe to the view
that inflation is the economic equivalent of rust, and the bill basically says
to consider its effects rather than issuing detailed prescriptions for dealing
with it.

------
jbooth
Money quote: <i>Currently, a person must have a net worth of $1 million or an
annual income of $200,000 if single or $300,000 if married (and filing
jointly) to be an accredited investor. The senator's proposed bill doesn't say
what inflation adjustment will be used to convert these numbers, established
in 1982, to today's dollars. But if we use the Bureau of Labor Statistics
inflation calculator to adjust these figures on the basis of the consumer
price index, then the annual income requirements for accredited investor
status would become $449,000 if the investor were single and $674,000 if the
investor were married, while the net worth requirement would become $2.25
million.</i>

So, in other words, the bill's not even finished being drafted and they made
some noise about maybe adjusting some figures, but they have CPMs to sell so
they'll just assume "adjust" means "multiply by 2.25" and get the snappy
headline.

That said, Dodd clearly shouldn't do anything to hurt actual startup
investment.

------
jsz0
I don't know enough about the legislation to comment on it specifically but I
do know politics -- it appears the Republicans are pulling another HCR
strategy here and simply letting the Democrats go forward on this unchallenged
on substance in an attempt to score a political Waterloo 2 (since the first
one didn't quite work) Pretty sad state of affairs I think. I'm willing to
accept Dodd's bill isn't great (or even good) but the response of trying to
make it purely a political issue with dishonest speculation of repealing it
later is pure lunacy from the opposition. People are desperate to see some
major financial reform so it _will_ be extremely popular no matter what's
actually in the bill. The political narrative of saying "the people who caused
the meltdown oppose the fix" is political gold. As a committed liberal I'm
actually a bit worried that the classic check & balance of right/left is
getting out of whack due to the massive failure of the Republican party to put
governing over politics. They need to come to the table with honest intentions
and substance and try to be part of the solution.

~~~
anamax
> They need to come to the table with honest intentions and substance and try
> to be part of the solution.

If Democrats left to their own devices do dumb things, why should we want to
let them stay in power?

What's wrong with holding Democrats responsible for their proposals?

~~~
anigbrowl
When elected members of a political party find themselves in opposition, they
are not paid to just sit on their hands and say 'fuck it'. They still have an
obligation to their constituents to participate in the legislative process
even if they don't expect to succeed. That's why we have a legislative branch
instead of just an executive.

~~~
anamax
> When elected members of a political party find themselves in opposition,
> they are not paid to just sit on their hands and say 'fuck it'.

Remind me - did you complain when Dems did that to Bush? (Pre 2006)? You
remember - "Disent is patriotic" and all that. Or is that somehow different?

Of cours, the Repubs actually do have proposals. You don't hear about them in
the "tingly leg" media, so you'd have you'd have to look elsewhere. Or is that
their fault too?

~~~
anigbrowl
As a matter of fact, I have, though I have not been here on HN so long. This
is hardly the place for a political argument, but I believe a pragmatic
approach is entirely compatible with robust debate.

I do not care for the zero-sum outcomes which often result from or are
promoted by the adversarial nature of our political system. But I learned very
early in life that no matter how bitter a competition becomes, almost all the
spectators are united by a disdain for the referee.

This cartoon humorously summarizes my worldview; I like that fellow with the
pipe.
[http://i171.photobucket.com/albums/u316/sisdecadence/subgeni...](http://i171.photobucket.com/albums/u316/sisdecadence/subgenius_big.jpg)

~~~
anamax
> This is hardly the place for a political argument, but I believe a pragmatic
> approach is entirely compatible with robust debate.

Interestingly enough, your "pragmatic approach" involves chiding Repubs for
not making proposals even though they actually did.

Why are you blaming Repubs for your ignorance of their proposals? (I'm not
saying that it's necessarily wrong to blame them - I'm asking why you are
doing so.)

btw - You do realize that the fellow with the pipe is a smug parasite, right?
Snark, while "cool", isn't actually productive. It's a way to feel superior
without actually doing anything that justifies the feeling.

------
jackowayed
Why do investors need to be accredited at all? If I, someone with savings and
income far below those thresholds, want to invest a large portion of my net
worth into a startup I really believe in, why should the government stop me?
It's so risky that it's a horrible idea, but don't I have a right to be
stupid?

~~~
hristov
Because of scams. Of course you are going to say that you should have the
right to fall for scams if you want to, but some scams become so prevalent
they actually have an effect on the economy, or can crash the stockmarket.

I also have to say that the accredited investor rules do not exactly prohibit
you from investing in startups. Or from owning stock. They are part of a
complex securities regulation framework and it is difficult to explain in a
quick message board post exactly where they fit in.

~~~
gojomo
But the result of the rule is that submillionaires can't invest in YC-like
companies, but they can still lose _all_ their money (and whatever additional
amount banks will loan them) on...

\- day-trading

\- real-estate-speculation

\- investing in 'safe' public stocks like Enron, Fannie Mae, Lehman, and GM

\- trading forex following rules they learned from late-night-informercials

\- gambling in licensed casinos offering rigged games

\- buying state lottery tickets

All these often-negative-expectation activities are allowed. So what, exactly,
do the 'accredited investor' limits prevent a gullible person from doing? A
fool will be parted from his money; these rules just change the form of the
transactions that will be used.

Meanwhile, the limits prevent wise-but-poor people from being shareholders in
small businesses that they actually have some expertise about, and which are
more likely to be positive-expectation than the above activities.

~~~
anigbrowl
First, wise-but-poor people will be able to invest in small businesses as you
describe, but will have to satisfy other non-financial criteria in order to do
so. (these criteria already exist, and apply if you don't meet the current
accreditation thresholds.)

Second, to turn your argument on its head, why not get rid of the limits
altogether? Let anyone invest in anything, whether or not the investment
vehicle is registered with or reports to the SEC. Sounds great, right?
Unfortunately, historical experience with this approach is that people get
ripped off left, right and center, and taxpayers end up holding the bag.

True, taxpayers end up holding the bag for a lot of things anyway. I'm not
sure how to fix this, but I'm pretty sure that removing all limits on the size
of bags ain't it.

~~~
gojomo
_wise-but-poor people... have to satisfy other non-financial criteria_

...which limits them to a tiny fraction of the private investment
opportunities available to millionaires. Why make things harder on the wise-
but-poor? Or those who have wise-but-poor friends-and-family?

 _...to turn your argument on its head, why not get rid of the limits
altogether..._

That's not the argument on its head -- that's the argument itself! Net-worth-
based discrimination has no place in securities regulation.

If an unwise or gullible person can throw their entire net worth -- and then
some, via leverage -- into a single risky real-estate transaction, or risky
options trade, or risky loan to an unreliable acquaintance, or risky superbowl
wager -- then there's no rational basis for preventing them from buying
private securities.

Some will be burned, and learn (and teach others via their example). They'll
do better the next time -- as with all the other expensive failures we let
people experience with their own money.

Fraud can be prosecuted under existing fraud laws. And the majority of honest
entrepreneurs and wise-but-poor investors will have many, many more
opportunities to explore the small-business solution-space with angel capital.

~~~
anigbrowl
I can't help feel you're responding to individual bits of my reply rather than
the whole thing. As for the rational basis of such rules, I invite you to
consider why the securities act of 1933 was created in the first place, and
the circumstances which led up to that.

~~~
gojomo
Whatever good was in the depression-era securities regulations, other parts
were an overreaction, just like SarbOx has been. Now, much of their
paternalism is obsolete. Non-millionaires of 2010 have knowledge and resources
far beyond that of depression-era barons.

And irrational exuberance, not fraud, is how the masses lost the bulk of their
money -- then and now.

We just lost trillions in real estate value. Should non-millionaires be
prohibited from buying real estate, by law, because circumstances have shown
they're just too feeble-minded to make such investments? That would be a
modern equivalent to 'accredited investor' rules originating from depression-
era biases.

------
nfnaaron
\- What problem does Dodd say this is going to solve? Is he trying to reduce
the workload of the SEC?

\- Whatever the problem is, _is_ it a problem?

\- Does this solve it?

\- Who is paying/lobbying Dodd to do this? I imagine it wasn't on his radar
until someone who stands to gain brought it to his attention. Is it just
Tourette legislation?

\- If the result will be as bad as the article says ... how/why do we let
Congress get away with fucking things up?

~~~
anigbrowl
It would increase the workload of the SEC, though only very marginally. The
SEC proposed (but then retracted) a very similar change about 3 years ago. You
can read about it here: <http://www.sec.gov/rules/proposed/2006/33-8766.pdf>
their rationale is set out on pages 17-18.

tl;dr the SEC was worried that the explosion in house prices during the 90s
(which raised many people's net worth above the accreditation threshold set in
1982) and the parallel increase in both the popularity and complexity of
private investment offerings were tempting many people out of their financial
depth. Large numbers of people borrowing against the value of their home to
invest in hot deals without much understanding of the risks involved struck
the SEC as a dangerous situation.

Arguably, the events of the last few years proved them correct. The SEC was
not trying to strangle startups (nor was it blind to the the possibility of
such a result), but to maintain a barrier between overconfident homeowners and
glib fund managers whose only business case was that markets tend to rise over
time.

~~~
waterlesscloud
Good thing the highly trained professionals on wall street weren't out of
their financial depth, eh?

~~~
anigbrowl
I think most of them are doing just fine. The problem is that too many of us
paid for their swimming lessons :)

------
gills
Step 1. Make private investment difficult and costly. Step 2. Save the day
with gov small business investment. 3. Pick winners based on political agenda.

There's more than one way to build a command economy...

