[gruseom]

I guess what you're arguing is that if YC funded too many startups, the bottom could fall out of the startup market the way it did in the mortgage market. Is that it? But the leverage thing is a huge difference. Another is the markets themselves. If the money in startups all comes from rare cases that pay off a million percent in a few years, well, mortgages surely don't work that way no matter how many layers of indirection the derivatives people concoct.

(Looking upthread, I wonder if your objection really is to the idea that more risk automatically means more reward, so therefore YC should fund 10x more. But clearly the argument is more subtle than that – otherwise, they should just fund everyone who asks them.)

Edit: I have another argument, or perhaps just article of faith: I think there's a major pool of unexploited talent out there, basically wasting away (mostly in corporate jobs) at far below its potential. If many more startups get funded, many more creative endeavors will get going. Most won't be black swans but that doesn't mean they won't be side effects of great good.

If I'm wrong about that, then maybe there is an analogy with subprime, where lenders' (investors') zeal caused them to lend to (fund) ever-crappier borrowers (founders). On the other hand, if I'm right, then this is more about correcting an inefficient allocation of talent in our economy.