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Comment by JumpCrisscross | Hacker News Reader

> rich people ("accredited investors") know enough to be responsible to take risks

This is a straw man.

The real argument: someone with more money is less likely to become destitute as a result of a bad investment. Also: someone with more money is less likely to become a political problem that shuts down the market, or a drain on the public purse, when they lose money.

When it comes to private investments, someone investing e.g. $10k cannot afford to do legal diligence. They are also unlikely to unilaterally pursue someone who sued them in court. That almost guarantees they’ll be the sucker in the long run.

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> The real argument...

I would agree with this except for one huge fact that has existed for close to 100 years - poor investors can put their money into options and blow up in a day, but can't put it into private equity.

I'm not ascribing any good or bad intent to the regulators here, but this is so big of a hole that I can't believe this has anything to do with destitution.

For what it's worth, I've seen an actual person do this first hand (options trading), and destroyed their life as a result.

> poor investors can put their money into options and blow up in a day, but can't put it into private equity

Cost of diligence. One can theoretically fully diligence an option and its underlying stock’s issuer with public information. One cannot do that in private investments. Private investing requires expensive legal work; it also requires the ability to enforce one’s rights in court. Investing $10 or 20k pretty much guarantees one isn’t doing the former and can’t do the latter; that’s a recipe for disaster.

As a former options market maker who is now in private equity, I (a) agree that options should be more roped off from retail investors and (b) minimally dabble in private equity and don’t touch options in my PA.

The only responsible buyers of options buy them expecting to lose money. They’re the lossy leg of the trade, the insurance. When hedge funds want to go long or short they use cash positions or leveraged swaps. Not options.

There are plenty of opportunities every day to responsibly buy a put or call because it happens to be the best price you can get for entry to execute on an investing thesis. Your background notwithstanding, there is nothing mystical or sinister about options as a vehicle when the price is right.

>someone with more money is less likely to become a political problem that shuts down the market, or a drain on the public purse, when they lose money.

laughs in 2008 securities crisis

A lot of ‘08 was because it impacted the every day Joe quite a lot. If prices drop because people can’t get mortgages, and people can’t pull money out of their bank because the bank is insolvent?

Those are now people who don’t have the HELOC they though they had, or their primary asset for retirement is now worth half of what it was, or can’t or won’t use the savings available when they need it - and also the people getting laid off because other Joe’s aren’t spending money or buying houses anymore. The banks are at the center of this.

Many big banks were nationalized for awhile, Lehman was blown up, Fannie and Freddie were taken over. Not because they had more money. Rather because they were at the center of the crisis that touched assets almost every American owned - and had more money because of it.

If this only impacted folks with > $1m net worth, it would have looked a lot different.

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