About 3 weeks ago, I wrote about Senator Christopher Dodd’s proposals for increased regulation of venture capital and angel investing and why these are very bad and damaging ideas. WSJ (4/22) makes several points about this proposed legislation:
Amazon, Yahoo, Google and Facebook all benefited from angel investors, who typically target companies under five years old…such firms are less than 1% of all companies yet generate about 10% of new jobs. Between 1980 and 2005, companies less than five years old accounted for all net job growth in the U.S. In 2008, angels invested some $19 billion in more than 55,000 companies.
Mr. Dodd’s bill would change all this for the worse. Most preposterously, it would require that start-ups seeking angel investments file with the Securities and Exchange Commission and endure a 120-day review. Rare is the new company that doesn’t need immediate access to the capital it raises, and a four-month delay is the kind of rule popular in banana republics that create few new businesses.
There’s a lot wrong with Dodd’s ideas on VC and angel investing; see my earlier post and the WSJ article for more details. There’s plenty more to be concerned about in the current approaches to financial regulation being devised on Capitol Hill.
For example: Mars, the maker of M&M’s and Snickers, is concerned about possible restrictions on its ability to continue “dabbling in the derivatives” market to protect the price of sugar and chocolate for its candies. And eBay is concerned about possible restrictions on its PayPal subsidiary in moving money in the Internet marketplace. I’m sure there are many, many more consequences of the proposed regulations that no one has even realized yet. Anyone who thinks that the only thing this legislation would do is to reduce the incomes of certain big Wall Street players had better think again.
Once again, we have a huge (1400 page) and overweening attempt to radically change many things at same time, while greatly increasing the power of the political classes relative to other Americans. One of the many problems with this is that most Senators and Representatives demonstrate a vast lack of knowledge of the complex things that they are attempting to micromanage. Writing about the Goldman hearings, PowerLine observes:
It didn’t appear that a single Senator understands what is involved in making a market in a security.
Lack of knowledge and a pressure-cooker atmosphere to “get something done,” combined with extreme arrogance, makes a deadly combination.