Originally posted at Coyote Blog,
Steven Rattner, investment banker and former member of the Obama Administration, is terrified that under a proposed law companies will be able to raise money without investment bankers.
Most troublesome is the legalization of “crowd funding,” the ability of start-up companies to raise capital from small investors on the Internet. While such lightly regulated capital raising has existed for years, until now, “investors” could receive only trinkets and other items of small value, similar to the way public television raises funds. As soon as regulations required to implement the new rules are completed, people who invest money in start-ups through sites similar to Kickstarter will be able to receive a financial interest in the soliciting company, much like buying shares on the stock exchange. But the enterprises soliciting these funds will hardly be big corporations like Wal-Mart or Exxon; they will be small start-ups with no track records.
This is absolutely, classically representative of the technocratic arrogance of the Obama Administration and the investment bankers that inhabit it. I have three quick thoughts:
- Rattner's concern for individual investors comes rather late. After all, he was the primary architect of the extra-legal screwing of GM and Chrysler secured creditors in favor of the UAW and other Obama supporters.
- God forbid investors get actual, you know, ownership in a company for their capital rather than just trinkets. This is so bizarrely patronizing that I had to read it twice just to make sure I wasn't missing something. But no, he is explicitly preferring that you and I get trinkets rather than ownership (ownership, apparently, to be reserved for millionaire insiders like himself).
- We have truly entered the corporate state when leftish opinion makers argue that large corporations like Exxon and Wal-Mart get preferential access to capital and that smaller startups that might compete with them be shut out of the market.
I would predict that over time, Internet entrepreneurs running such crowd-sourcing sites would develop reputation management and review tools for investors (similar to those at Amazon and eBay). Over time, it may be that these become far more trustworthy than current credit agency reports or investment bank recommendations. After all, which do you trust more -- a 5-star Amazon review with 35 responses or a Goldman Sachs "buy" recommendation on an IPO like Facebook or Groupon? Besides, it would take a very long time, like eternity, for fraud losses in a crowd-sourcing site to equal 1/100 of the investor losses to heavily regulated Bernie Madoff.