Comment by mapgrep | Hacker News Reader

Comment by mapgrep | Hacker News Reader

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I enjoyed your lengthy comment but you are being selective in the historic context you provide.

In a nutshell, you show how private placements got exempted from certain securities regulations, how those depression-era exemptions were expanded in the 1980s leading to "tons" of new activity, and how those exemptions may now be expanded further, making startups very happy.

What you leave out is that federal investment-activity standards have been shown by recent history to be wholly inadequate. You leave out the recent financial meltdown, a direct result of replacing 1930s era banking regulations with looser laws in the 80s and 90s. And you leave out the dot-com collapse, caused by dubious IPOs of the sort that SOX -- which JOBS would partially repeal -- was subsequently designed to counter.

This context is vital. The aggressively deregulatory JOBS act comes st a time when our regulatory framework has been exposed as woefully inadequate, in the midst of quickly ballooning tech valuations, and as we are seeing financial misstatements already from companies like Groupon that went public under the old, supposedly over-regulatory regime.

So yes, we should consider the historical context around the JOBS act. And I'd choose a vastly different frame than you have: Financial regulations designed to prevent bubble-depression cycles have been steadily stripped away since the 1930s, leading directly to the collapse of our economy in 2008 and the ensuing malaise. Now the JOBS Act proposes to strip these standards down even further.

I don't consider myself a big-L libertarian, but I can't help but notice the "Regulation failed, we need more regulation!" template. If the incredibly burdensome Sarbanes-Oxley was nonetheless "inadequate", then maybe you just can't protect people from certain specialized types of folly with any sane amount of regulation, and the correct response is to give up on the high social costs of inadequately protecting people from themselves under certain circumstances. To look at it another way, what your argument says is that a certain expensive purchase, namely Sarbanes-Oxley, brought less value than expected. Should we buy more of that stuff because now still more is needed, or buy less because the value proposition is diminished?

But the grandparent is more nuanced than that; it points out that regulation failed because it's been steadily stripped down. The attempted framing is not "we need more regulation", but "we need to return to what worked well in the past."

(SOX is just one part of the argument, though IMO the weakest part.)

Just pointing out some basic logic that may or may not be present in the above, but is not apparent either way: Just because one solution fails, it does not necessitate "all solutions fail, the right answer is no solutions". Perhaps the problem was in SO itself. Perhaps the problem is in the concept of regulation. Maybe a systemic fix would work better than bolted on regulation, and better than same system, no fixes at the same time. Perhaps a rethinking of some of those core components would be nicer.

Edit for those who are apparently thinking this is some sort of troll: Why can we look at code, say a scaling problem, and say "the answer is not a bigger server or a tweak on the existing code base, but a rework of the core components to work horizontally" and get kudos, but when similar questions are asked of government/financial systems, it is instantly and unfathomably bad?

Financial regulation is certainly a complex problem, and there are many ways of solving the problem, and my ignorance of the subject is vast.

As to why it's "instantly and unfathomably bad" to get rid of regulation: It seems to me that regulation, most of the time (and for most financial "problems") has worked pretty well. Other countries haven't had any where near as much trouble with, for e.g., the recent housing crisis, because they have had better regulation in place. So, At least as far as I can tell, it looks like regulations work fairly well. It's certainly better than no regulation.

There are already huge amounts of regulations in all sorts of fields, such as education, medicine, pollution, the environment, politics, etc... So we know how to make regulations work. There are certainly problems with regulation but it seems better than any alternative I know of.

So, and this could just be ignorance (or a lack of imagination) but I don't think the problem is in the concept of regulation. I honestly can't think of a systemic fix that wouldn't make things worse.

As far as it goes, the US has far more of a problem when laws and regulations are gamed by insiders for their own benefit, at great expense to everyone else. Another way of framing it is basically the "1% vs. the 99%" debate that's been going for the last year or so. So maybe that points at a systemic fix -- open government, especially open regulation, so it's much harder to game the regulations.

You are mixing up your meltdowns.

SOX was a corporate regulation in response to Enron's abuse of deregulated energy market in California and the 2001 tech bubble burst.

The 2008 meltdown was due to deregulation of the mortgage and derivatives markets (and also a bit of regulation that promoted bad loans to poor families. )

SOX in turn faced regulatory attack and was scaled back down, which in turn was a contributing factor to the 2008 meltdown from what I recall.

Let's talk about security and free-riders. Many varieties of fraud are free-riding: you don't actually do the hard work you need to do, but merely say you did it, for your own personal profit. You're saying, "oh, your regulations didn't prevent free-riding? Well maybe the solution is to deregulate, let everyone ride free, and abandon any pretense of security against free-riders." It's true, that may be a solution, but it sounds to be suspiciously bounded by no-free-lunch theorems.

Thanks for the thoughtful response. My comment was focused on developing the theme that securities laws have never been absolute in emphasizing the absolute maximum in investor protections, regardless of practicalities, and that the JOBS Act fits within this tradition (contrary to the underlying piece's claims). It remains to be seen whether it was a correct policy decision in light of the historic events that prompted passage of SOX in the first place. You present a spirited counter-point and you might be right. Only time will tell.

Thanks for staying engaged in the thread, I appreciate all your thoughts!

I think an argument can be made that the regulatory failure in the recent meltdown was more a failure to adapt regulations to changes in the financial markets, than it was a failure to uphold 1930s standards.

In that context I think it is heartening that the JOBS Act passed. The outcomes remain to be seen, but it shows Congress can move quickly to adapt financial regulation.

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