Washington Versus Silicon Valley
online.wsj.com
online.wsj.com
Timothy Geithner or whoever is crafting this proposal is probably licking his/her lips at the thought of a $200bln industry on their knees willing to write a check to anyone who has the power to decide who are the winners and who are the losers in this regulation madness.
Administration: 1, Rest of America: 0
Could it be that the political system in Washington is corrupt beyond belief?
I think it's really a symptom of a much deeper problem with American government and that is that the "system" is getting so big that no one really knows how to fix it. I see this kind of thing happen with software too. Your IT department buys software or adopts a new platform and builds all these great interconnected applications with messaging busses and information silos and then one day everyone who knows anything about the system is gone and what to do now?
Well, you start building systems on the platforms that are easier to understand and try to work around problems and in the meantime, the people who don't know what to do are trying to keep their jobs by doing something at all which is just making the whole package even worse!
At some point, a company has to make a very tough decision to "rip and replace." It's costly. It takes time. And while you are ripping and replacing you have to try to do the best with what you have working now. But the consequences of not ripping and replacing are just going to continue crippling you and eventually, you are going to be leap frogged by an agile startup who doesn't have the legacy deficit you've run up by not doing things right in the first place!
What are some examples of the governments that are simpler and better?
If no one wants to give up their power, what is going to happen? Revolution? Civil war? Domination by another power somewhere else?
However I don't agree with that analogy in this day and age where countries offer services countries should be seen as corporate entities.
But I see your point.
Also, in 6 out of 10 Canadian provinces, it is illegal to enter into a contract for health services that are publicly funded. (http://www.cmaj.ca/cgi/reprint/164/6/825) Still not a monopoly?
It will also be interesting to compare the average remuneration for doctors in France and Canada when compared to other countries. I am not saying that the American system is not broken – but France and Canada’s health system isn’t the model to follow.
For interest sake, Canada imports a hell of a lot of doctors. They simply do not train enough doctors to be self sufficient and must rely on the brain drain from 3rd world countries for their staff. (In the province of Saschatewan, more than 50% of doctors are from abroad – most prominently from South Africa).
The amount spend on medical research in Canada is also a lot lower (per capita) than the USA.
The US has incredibly powerful teachers unions as well. The teacher's union is so powerful it's still technically on the Homeland Security list of terrorist organizations.
Yet we don't have healthcare.
Not only that there's a reason why IT and (real) Doctors aren't the most popular jobs (or majors) unlike Business and Psychology, it's because they're the #2 and #1 (respectively) most stressful occupations according to Forbes.
It depends on your definition of bloat. They do consume comparable amounts of GDP and they don't do some things that the US govt does.
However, there's an even bigger difference - both are tiny by comparision to the US govt. Germany would be a big state and Austria a middle-size one.
Off-topic, but I recently considered relocating to Germany, and here is a brief synopsis of the main considerations.
I saw figures on the web once saying that in the U.S. government (Federal, state and local) takes about 40% of the income of individuals and in Germany government takes about 50%. Take the figures with a grain of salt because I do not recall where I saw them or who compiled them.
Homeschooling is illegal in Germany, and the law against homeschooling is enforced, making it very difficult to raise children there without sending your children to government schools or to private schools heavily regulated by the government. For example, it is illegal for private schools to pay their teachers less than the pay of teachers in government schools. The result of the heavy regulation of private schools is that almost everyone sends their children to government schools.
It is easier for men to get laid in Germany than in the U.S. I cannot tell you why, but several sources have said so, including a French manufacturer of sex dolls (high-end ones costing thousands each) who said that his company's dolls sell much better in Japan and the U.S. than they do in Europe. His exact words were, "Sex is easier in Europe, but taxes are harder." So if you are a heterosexual man having trouble getting laid in the U.S., moving to France or Germany might solve the problem.
And, they're about as diverse as Minnesota.
http://en.wikipedia.org/wiki/New_Zealand#Demography
And, we're talking about less than 4.5m people.
Compare it with http://en.wikipedia.org/wiki/Demographics_of_Chicago , which has more people than live in all of New Zealand's 4 largest cities and has almost as many people as NZ's 16 main urban areas. And, that's not counting Chicago's suburbs.
Chicago is only moderately diverse for a large American city - there are less than 50 languages spoken by more than 1000 people.
See http://en.wikipedia.org/wiki/Demographics_of_Los_Angeles for diversity (which has more people than all of new zealand's major urban areas, and I'm still ignoring suburbs and other major adjoining cities.)
Your comparison is absurd. You're making the case for regulating the same amount of leverage twice -- once when it's borrowed, and once when it's invested. That doesn't do anything but make life inconvenient for the folks who don't lever up.
If the Treasury Department is worried about how much people are putting into venture capital, then they should make a ceiling of 1-3% of the fund's portfolio being able to be invested in venture capital. No regulations are needed on venture capital firms.
I would bet that many politicians in Congress or the Treasury couldn't tell you how a VC firm operates, let alone how their actions would affect future new-technology incubation and growth. If this wasn't the case, SOX would never have passed in its current form.
In short, we have too many "Nancy Pelosis" and "Timothy Geitners" with not enough "Jared Polises" in Congress today.
How does this work? Isn't there a clear distinction between hedge funds and venture funds?
Folks like to trot out hedge funds as bad guys, but in fact they do a ton of good, and prove that a lightly regulated environment works as well (or much better) than operating with the government's hands all over them.
You may be under that impression, but it's wrong. (It's being pushed by folks who like regulation.)
They were all regulated to the hilt. AIG especially.
Such a firm connection to reality.
How about the reality that regulation caused a lot of the problems?
Start with Fannie Mae and Freddie Mac. Ask whether anyone would be willing to make NINJa loans without a govt guarantee. And, if someone made such loans, ask whether anyone would buy them.
US Govt policy pretty much guaranteed that the mortage industry would take a huge fall. Even now, it's trying to keep people in houses that they can't afford. And, the money is coming from folks who bought what they could afford or rented because they couldn't afford to buy.
The only folks who ever say that do so as above, attributing that belief to others in an attempt to cover up their lack of an actual argument.
Govt is subject to exactly the same failings, with one important difference - it gets to tax and coerce folks and there's even less connection to results.
Even the most corrupt company would have problems keeping Barney Frank around, yet he's still a major player in govt, driving housing policy....
Also, hedgefunds like banks were the main cause of the meltdown because they were so leveraged when the market prices of their assets decreased even slightly they had to sell large chunks of their assets to cover their losses, which caused further decrease in prices, which caused further sales, which caused the death spiral of the entire economy.
Again the banks were more vocally criticized for this than the hedgefunds because the banks are insured by the federal government, but the hedgefunds were doing it just the same, and they are just as much to blame.
The only thing that you said that is true is that the hedge funds did not really take tax payer money. That is true because they had absolutely no possible argument to ask for taxpayer money. The federal government was already on the hook for the banks because it ensured them.
http://www.nuclearphynance.com/Show%20Post.aspx?PostIDKey=13...
This type of regulation originated many years ago with the broad idea that unsophisticated persons (the "little guy") needed various forms of disclosure to enable them to make informed decisions about their investments. How that rationale can even begin to apply to VCs and their LPs (who are typically large institutional investors) is an absurdity only Washington could possibly begin to fathom.
The article nails it when viewing this development as a further extension of Sarbanes-Oxley and other recent regulatory changes: much more of this and it will be time to put the IPO on the endangered species list.
This will definitely hurt startups in the long run.
Think about what that means: for a firm worth $100mm, they would have to spend 2.5% of their net worth just paying lawyers and accountants to comply with regulations. Never mind the ongoing costs of SOX implementation after the IPO.
And if banks and financial institutions are going to cry for federal bailouts every time a "systemic risk" rears its ugly head, the only thing any responsible government official can do is put in regulation to make sure that the systemic risks are controlled.
The financial industry loves to complain about regulation but it is the financial industry that brought this on their own heads by (1) fuckign up, and (2) asking the taxpayer to pay for their fuckup.
As far as the rationale, it is different from what you said. The rationale is that certain parts of the economy are so intertwined that if one financial company craters it can cause a chain reaction disaster for multiple other completely healthy financial institutions. I am not sure I buy this logic, but again the financial industry used this very same logic to say it was not their fault when the economy imploded, so it is only fair that the same thinking should be applied to them now that the feds are starting to regulate them.
Now you could make somewhat of an argument that VCs are not systemic risks, and that may be true if they were mostly owned by wealthy individuals, but that's not the case. VCs are mostly owned by financial institutions that may borrow against their property, so if the value of a VC craters they may cause a sell off spiral in a larger financial institution. Again, I am not I believe the above sentence, but if you buy into the theory of systemic risks, it is pretty obvious that VCs are one.
The rest of the whole sorry mess has been a disaster, one initially triggered by the bogus subprime paper generated through the Fannie/Freddie programs, and it is in that direction that regulators should focus their efforts, not on an an industry that had nothing whatever to do with this fiasco (a point also made in passing by the author of this article).
Why aren’t these regulations simplified? Why aren’t employees paid on a cost to company” basis and are responsible for their own administration (i.e. own union payments, own unemployment insurance, own health insurance, etc…).
Maybe it is just because I hate admin – but I doubt that admin should take up 40% of a small business owner’s time.
Please make it more clear, since this is a great article that everyone should read.