[rday]

I don't think the gambling analogy works here. You can't invest 5 dollars in a company 1000 times until you have no money left.

Also gambling odds are heavily controlled. Could you imagine a pit boss telling you "Table 5's die have an unfair advantage to land on 7"? Conversely, people raising money tell you exactly why they will succeed and why they are a better choice than some other company. These people can be very convincing as well.

When gambling, bets are easy to understand. You make a static bet before the wheel spins. When investing, size of the pot depends on how well the company was valued when you made that bet. The next players may decide that the company was only worth half what you paid. This isn't something uneducated investors expect.

[themagician]

That analogy isn't about odds. It's about the why.

The reason we don't let 99% of people buy shares of private companies has NOTHING to do with protecting the wealth of the 99%. Nothing. Zero. And to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting.

It has everything to do with creating a private market where the 1% can get in early before the price rises as public money flows in. Wouldn't want too many poor people to get in early. Wouldn't want to have to deal with a bidding war against poor people. Better off to just exclude them from the buying process when the price is low and then sell it to them later when everyone wants it.

It's an institutionalized example of a law designed to maintain a plutocracy. It's disgusting.

I never really understood just how stacked the cards were until I tried to buy FB shares on the secondary market one day. I wasn't allowed to. What the fuck? Then I got married and I became an accredited investor over night. I'm like, "Wow. Really? REALLY?!?! This is how it works?" Then I lost my status as the result of a divorce. So a few years ago I was smart and experienced enough to take on that risk. Now I'm not.

[Domenic_S]

> to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting.

Really? Because a lot of that group said they "didn't know any better" and were "misled" when it came to bad mortgages during the crunch. Whether you believe them or not, that was their argument and it worked.

There are entire industries based on exploiting people with bad money management skills (payday lenders, rent-to-own, etc). Clearly the population exists.

[themagician]

Yeah, lots of people do claim that. But we still let them do it. High risk, low reward investments are totally cool for everyone. We don't have a problem with the risk portion. It's only when the reward becomes huge that we have a problem.

I don't think most people realize how true the adages are, "the rich keep getting richer," or, "it takes money to make money," really are. People say it, and other people feel it's true, but then they can't point to anything tangible. But there it is. Current SEC regulation basically institutionalizes this.

Here is a financial opportunity that's actually not that complicated, which is no more risky than other available opporutinies, but we have actually made it the law such that, "Only the 1% may do this."

[shanemhansen]

But there's only one law "protecting" them from one specific kind of bad money decision. So I guess we're saying payday lenders are ok for poor people, rent-to-own is ok for poor people, but we must protect them from investing in the next amazon or dropbox at all costs. That's much riskier than the lottery.

[a_c_s]

1. Mortgage contracts are too complex for a layperson to understand. Often the amount of time people are given to sign them is less than it would take to read the entire contract through just once. 2. Getting a mortgage is an instance where the seller is also the advisor (similar to an auto mechanic or a doctor). 3. Consumers were actively advised to take out mortgages that the seller knew were more expensive than the consumer could afford. 4. If a predatory auto mechanic deliberately advised a customer they needed repairs that they did not, that would be fraud on the part of the mechanic. The same thing applies to predatory lenders.

(There certainly were people who just made bad decisions. But there was also widespread, documented fraud on the part of lenders.)

[prostoalex]

Nobody really got screwed by misunderstanding small print on page 89 of the mortgage contract. The fraud (faking employment and income levels) was directed at insurers and buyers of those mortgages, not at the recipient.

[tsotha]

>Because a lot of that group said they "didn't know any better" and were "misled" when it came to bad mortgages during the crunch.

What else are you going to tell people when you lose half a mil? That sounds a lot better than "Honey, I gambled our financial future trying to get rich in the housing market, and you'll never believe what happened..."

[prostoalex]

> Wouldn't want too many poor people to get in early.

In reality loosening that restriction would lead to a reverse selection bias, where only extremely unfit companies would approach such investors. Talk to any startup and their preference of funding is ranked roughly this way:

1) Value-add VC

2) Non-value-add VC with big pockets

3) Value-add angel/superangel/seed fund

4) Non-value-add angel/superangel/seed fund

5) Randoms

By removing the gatekeepers we're back to that scene in "Wolf of Wall Street" where random brokers call up some widow in Nebraska to pitch her on some "high tech company about to go big" and forgetting to mention they're getting a 50% commission on this.

Meanwhile someone in the league of Google, Facebook or Uber would not go this route just because they already filled their rounds.

> And to pretend like people with less than a million dollars in liquid assets are "too dumb" or "inexperienced" to purchase something is beyond insulting.

This is less about treating the folks as "dumb" vs "bright" and more about access to proper financial professionals. Accredited investors typically have access to a financial advisor, investment consultant, attorney and a CPA whom they can ask to "look things over". The lower the total assets number, the higher are the chances that no financial advisor is ever involved.

[refurb]

The reason we don't let 99% of people buy shares of private companies has NOTHING to do with protecting the wealth of the 99%. Nothing. Zero.

You seem pretty confident in your hypothesis. Have you gone back and looked at what drove the change in regulations? It's not like these regulations are passed with supporting evidence. The regulation was passed in 1933, right after the crash.

Between protecting investors and "creating a private market for the 1%", I'm thinking the first seems more rational.

[themagician]

We don't protect investors from penny stocks, which are far riskier. We "protect" investors from damn near nothing. There are some limits on day trading and options trading sure, but those start to get lifted at around $25k.

Investing in a private company that's about to go IPO is actually not that risky when compared to multitude of other investment instruments that are available.

The secondary market is private market for the 1%. That's literally what it is. Maybe that's not how it started or how it was originally sold, but that's what it is. And it's now institutionalized and part of the law.

The idea that it's about protection is just absurd. It's absurd. Are you telling me you are glad that the 1% is out there making sure that you can't invest in Facebook for $20/share? Protection? Really?

[oh_sigh]

Right...I wonder how the public would react to those "protections" if they were dropped a bit, but still out of reach for the average person. Let's say $100k in assets, not including your home and property. Now, about 15% of Americans have access to this pool. Do you think the other 85% is going to be happy about this? Right now, the way the regulations are set up, it seems like such a small minority of people have access, that it isn't worth worrying about. But $1M is really just an arbitrary number.

[angersock]

Your argument here seems somewhat reinforce the "private club" theory.

[oh_sigh]

Well, good, because that is what I was going for :) I think most people don't care about the arbitrary wealth limit on these investments because they either 1) don't know it exists, or 2) know it exists, but $1M is such a far off magical number that it's easy to think almost nobody has access to it. If the number was lower, but still high, I think people would see it for what it really is, and be upset that they are prevented by the government from using their money as they see fit, especially as it is the same government which runs the lottery and allows casinos to operate.

[JoeAltmaier]

The crash was widely construed to be because of the ignorant public essentially betting on the stock market, with resulting instability. Wise, rich investors would invest and leave their money for years at a time.

The resulting rules changes can be revisionist-history interpreted as protecting the 99%. But remember at the time, the gilded age had passed; labor reforms were in place etc (Teddy Roosevelt, 1910s) and laws such as these were under fierce scrutiny for favoritism.

Still, today it does what it does regardless of the initial impetus. And what it does is prevent most people from playing most games.

[a_c_s]

Comparing the light regulation of the past to the current strict regulation, sure the current regulation is better.

But legally anointing an "accredited investor" class based on their current financial resources clearly advantages the rich over the poor. There are other ways to protect investors without categorically denying opportunities for savvy, non-wealth individuals (and people who are currently wealthy also deserve protection from fraudsters).

[refurb]

I'm not saying an advantage isn't given to the wealthy, I'm just challenging the idea that that was the driver for the regulation.

To be honest, the gov't is kind of stuck here. Let people make their own choices and they blame someone else. "I didn't know the mortgage rate was only a teaser!!"

At least with the credited investor regulations, if they lose money, nobody has sympathy for them.

[gfodor]

Seriously, the same people who complain about "accredited investors" being a privilege of the 1% are also going to use the phrase "predatory lenders." So, which is it? Can people be tricked into bad deals or can't they?

I'm pretty sure if anyone could invest in private equity, overnight you'd see a flood of get-rich-quick ventures crop up and you'd see a lot of people lose everything.

I'm not sure if I think the current legal system is fair, but without acknowledging the huge amount of risk involved in changing it any argument against it is hard to take seriously.

[a_c_s]

You do realize there is a difference betwixt a "lender" and a "predatory lender", right?

Mortgages are sold by people in a dual advisor/salesperson role, just like auto mechanics (and doctors and plumbers...). Non-predatory lenders give people reasonable advice about what kind of mortgage people can afford, just like an honest auto mechanic gives reasonable advice to people on what repairs are necessary and don't suggest unnecessary services or repairs.

Just as sketchy auto mechanics who try to overcharge for repairs or encourage a customer to have entirely unnecessary service or repairs done, predatory lenders knowingly push people to purchase mortgage products that they cannot afford.

[refurb]

Not sure why you're getting downvoted, I think you make a good point.

You can't on one hand hold people who make bad money decisions unaccountable and at the same time say they should have access to all the high risk opportunities.

It has to be one or the other.

[themagician]

No more risk than penny stocks, options or other derivatives. Or existing "get rich quick" schemes.

[sjg007]

The new SEC rules that just went into effect should allow this right?

[themagician]

No. In fact, the SEC is trying to raise the limit to $2.5 million now because there are too many millionaires.

[Spooky23]

Gambling goes beyond table games. Pre-IPO startups are more like the propositions bet on at a sports book or racetrack.

Actually, there are a lot of parallels between a startup and a racehorse. If you evaluate a horse's past performance, trainer, position in the field, etc you can bend the odds. It's still gambling!