Great question by Wall Street Journal editorial page assistant editor James Freeman today:
The Obama administration wants to regulate venture capital firms to prevent systemic risks. Silicon Valley residents are scratching their heads and asking: What risks? The rest of us should ask why Washington is targeting a jewel of the American economy that had nothing to do with the housing bubble.
The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren’t “a threat to financial stability.”
Since then, venture investors have been trying to solve the mystery of how they could possibly threaten the financial system. Their work involves very little banking. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. The VCs and the companies in which they invest use little or no debt.
“I cannot imagine any venture fund being of a size to pose ‘systemic risk,’ so they either don’t understand the nature of the business, or by including this provision they are sharing that their agenda is not the overt one disclosed,” says Jack Biddle of Novak Biddle Venture Partners. What Washington needs to understand is that bank-style regulation could destroy the culture that created the microprocessor.
Timothy Geithner is the threat to financial stability…
One has to wonder (as one so often does) whether such hostility towards wealth generation on the behalf of the Obama administration is the result of stupidity or ignorance. Neither is an appealing prospect, but at least ignorance can be cured by a sufficiently violent intersection with actuality. Sadly, I think the current crop of Chicago machine pols and Beltway whores that cluster round this government like flies on roadkill are too hidebound to be instructed by reality until it is too late.
It won't make a jot of difference, sub specie aeternitatis. It's just that the benefits of the inevitable technological advantages to come will not accrue to U.S. investors. All the addle-pated 9/11 conspiracy freaks wailing about the intrusion of the NSA on their thoroughly unremarkable lives fail to understand that the SEC is a much more deeply inimical institution.
Of course the Obama Administration needs to control the Venture Capital. Didn't Hitler?
Hozro
We're now living out the worst case scenario of an Ayan Rand novel, but I am still attributing this administration's decisions to gross ignorance (vs downright evil), at the most core level of presumptions regarding human motivation. They absolutely do not believe that at some point the intelligent, productive, responsible individuals at all levels of our system simply quit.
I can not believe that anyone with a lick of common sense doesn't see through this guy (Obama) We are wittnessing a cold calculated methodology to assume comtrol of a nation without firing a shot. We must realize what is happening is an organized assult on our constitution and turn it around before it is too late. What we are tragically missing is leadership.
Ayn Rand' John Galt our or George Washington will emerge. Those pulling Pelosi's and Obama's strings do not believe there is a John Galt or a GW on Earth today who will lead the charge against them. They forget it takes very few determined people. The more one is squeezed, Mr. Obama, the more determined one gets.
George III had good intentions too. He just wanted to pay off debt from the 7 Year's War.