Treasury Department Meddling In Venture Capital For No Good Reason
from the not-all-private-equity-is-the-same dept
The Wall Street Journal has an important editorial pointing out why it’s a mistake for Treasury Secretary Timothy Geither to include venture capital funds in his new regulatory plan to deal with “systemic risk.” There’s no doubt that highly leveraged hedge funds contributed greatly to the current economic situation creating a level of systemic risk that we’re only just coming to terms with. However, it’s not at all clear what venture capital has to do with that. Yes, both are unregulated funds of private equity, but that’s about where the similarities end. Venture capital relies very little on debt, and is usually a way for wealthy investors to bet money more long term on new innovations, rather than the sort of short-term speculation that is more common with hedge funds.
Yet, for some reason, they’re being lumped together and will have the same regulatory burdens. This could significantly hinder venture capitalists, similar to some other recent regulatory changes, creating unnecessary and wasteful burdens that are more for show than any actual effort to protect the economy. As the editorial points out: we’ve already stress tested the venture capital world, when the dot com bubble burst, it didn’t cause any systemic risk. No banks failed because of the bubble bursting. So why is the government suddenly acting like VCs are a threat to the widespread economy now?