"The key point here is that venture capital tends to (though, certainly not always...) invest in real innovation, nurturing concepts from idea to market and beyond. Private equity, however, is more about just moving money around and looking for quick hit opportunities to get increasing returns. One grows the economy. The other does not."
Really? How does private equity succeed, increase its investment or have a successful exit if it just moves money around? Turning around underperforming businesses is just as beneficial as investing in something new. Also, how many VCs are not looking for quick hit opportunities? How many VCs are not looking to increase returns? You hear this complaint constantly about the VC world.
If you actually look at what they do, I think you would find that VCs and PEs are similar businesses with similar objectives that might just be focused on different points of a company's maturity, and even that would be a gross over-generalization. There is far more overlap between VC and PE than you seem to realize.
How are you putting out an album for only $15,000?
Also, you asked how Grooveshark is compensating musicians. I'll tell you. By making their music accessible to people like me who otherwise would not have heard it. I actually purchase physical CDs, lots of them. I also purchase music through downloads. I can't begin to tell you how much was purchased after hearing it on Yahoo! Launch (way back when), Grooveshark (which I like a lot), Seeqpod (which I liked even more and miss terribly), and Pandora (which gets really repetitive really fast, thank you licensing deals). Or how many concerts I saw featuring those artists. Or how many other people I told about those artists who also purchased their products.
So go ahead and hide your music away until I'm ready to pay for the privilege to listen. Chances are I will never hear about it in the first place.
In addition, few musicians recoup anything. In fact, many of us make music without any expectation that we will be paid and are happy enough just to have people listen to it. The public does not owe you a living or even reimbursement of expenses for your contribution to humanity. It is your responsibility to give us a reason to buy.
I'm looking forward to reading the article but wanted to make one point about Mike's analysis about transparency vs. interconnectedness as a cause of the recent economic fallout.
There was no lack of transparency. There were reams of documents and information about any aspect of what people consider to be the problem instruments. The fact that they are complicated does mean the process was less "transparent." In addition, there are volumes of regulations as to what and how this information must be disclosed.
The fact that only a handful of people were able to accurately foresee the consequence and fewer still were actually willing to put their money where their mouth was and invest accordingly, shows that the issue was not lack of transparency, but lack of ability to predict the future. A few guys saw the warning signs and acted. The fact that what happened was so counter to conventional wisdom at the time shows a problem that is more indicative of cognitive dissonance than transparency.
I'm not sure "run the company better" is necessarily the consideration. Part of the appeal of VC money versus other types of funding is that the VCs have experience and networks from which the company can draw to expand.
Rather than taking over, the VCs want some influence over the management of the company or at least a veto right with respect to fundamental decisions (sell, merge, liquidate, etc...). While protective provisions in the investment documents can provide some of this, buying a large stake on a percentage basis is helpful as well.
That said, "because that's the way its done" is not always strong argument, but when you have the money you usually have the bargaining power. In addition, some investors are simply not interested in a small percentage, passive investments and only engage in transactions where they have a significant stake in the company and influence through ownership or board membership.
Of all of the causes of the financial crisis, transparency was not one of them. The entire chain of transactions included voluminous disclosure in forms dictated by the government. That difficult instruments are difficult to read and understand does not mean the process is not transparent.
Bad government policies caused this mess. From forcing financial institutions to loan money to people who could not possibly pay it back, to encouraging HLTV lending without down payment, to encouraging lending without due diligence, to mandating one-size-fits-all capital requirements and defining asset classes with credit ratings, to empowering the credit agencies and encouraging the use of modeling that is necessarily backward-looking, to providing implicit and explicit government guarantees of private debt, to acting in an arbitrary and panicked manner while controlling the fate of private institutions, etc, etc, etc. . .
All of this was blatant and extensively disclosed. Transparency was not lacking, except when the government was debating which companies would be propped up and which were allowed to fail and which got billions in taxpayer funding.
The idea that the 535 least qualified people in this country could manage the financial system to their political goals is what caused the financial crisis and will cause the next.
I have worked with entrepreneurs who tried EMR and harnassing the power of the Web, etc. . .
There are a number of reasons why it would take so long and doesn't work very well. Determining standards for coding procedures for something that can be a very individual circumstance, differences in treatment standards geographically and across specialties, administrative differences between providers, and so on.
There is also the question of who would develop the platform and the technological standards. If you think DVD vs. Blue Ray vs. Whatever or even Mp3 vs. Wav vs. Wma vs. AAC is a tough battle, wait until you see this fight. If the government decides who wins, you can bet the system will be miserable.
However, like Mike mentioned, none of this addresses the basic issue of cost. The excessive spending has little to do with paper records and everything to do with the third party payor system. If someone else (your employer, insurance company, Medicare, Medicaid, VA) is paying the freight, you do not have any incentive to shop around nor do the providers have any incentive to publish prices. Through various rationing provisions, there is an attempt to hold prices down, but political pressures exist to provide ever-expanding benefits. The move to universal health care will only exacerbate this issue as there is no incentive to incur additional capital costs for an expensive IT system when the government is adjusting your fees downward. It is the separation of payor from customer that drives medical costs.
It is foolish to believe a "risk manager" or some other regulator is going to be able to monitor and manage "systemic risk," whatever that is.
The problem with the Lehman bankruptcy was not the collateral effects of the collapse but the fact that the government acted in a manner that was so arbitrary, unpredictable and unrelated to past behavior that no one had any idea what the ground rules would be. That is not "too big to fail." That is regulatory failure. That is what left everyone scrambling to figure out how to manage their issues and too nervous to do anything until there was some clarity about what the government would permit or prohibit and the situation stabilized.
No amount of "transparency" or regulation is going to address these issues. These companies, public and private, are subject to voluminous reporting requirements to various agencies and government bodies already. There is no lack of "transparency" (a word that has lost all meaning in the last several years anyway).
The only thing that will discipline them is the notion that their failures will actually cause them to fail rather than fall into a governmental safety net.
There is no person or group of persons in government who are smart or capable enough to perform this function, particularly if when you consider the thousands that are already charged with performing these functions. Throwing more money into the regulatory black hole and tying down companies with more bureaucratic red tape and reporting requirements will do absolutely nothing to address any issue in the current environment.
How about Sarbanes-Oxley? Billions of dollars and the beginning of the transfer of capital markets from New York to London in the name of "transparency," increased reporting, enhanced criminal sanctions for things that were already illegal, bowing to the latest trends in corporate governance and enhanced accounting standards and internal controls to address issues of risk. It only took about 5 years until this altar to regulation, transparency, and risk management crumbled into the meltdown.
I assume by radical transparency, you suggest more frequent reporting. How would this promote long term vision? Why would this not cause investors to have even shorter vision for investment results? This puts aside the issue of whether a regulatory regime should promote one investment horizon over another.
As far as providing more information (per the link you provide in this post), what else do you propose they disclose? Even in the linked post, you observe how the volume of information could obscure rather than enlighten some readers.
Besides being one of the funniest people on the planet, LCK also seems like a reasonable guy. I've been a big fan for a long time, and now I look forward to purchasing the new DVD when it comes out. Honestly, I am only posting this comment because I am a fan. I have a feeling that the guy who posted the torrent will also remain a fan after this exchange. This seems like another example of Mike's discussions of the success in using various distribution channels in a comprehensive business plan, whether it was intended or not.
Why do people assume that just because someone is in government, are endowed with some kind of wisdom that allows them to regulate for everyone's benefit? Why is it a surprise that there are unintended consequences to legislation and regulation?
It is simple:
-There is no such thing as a free lunch.
-Government consists of people. Generally, these are mediocre people at best, a situation made worse by their insulation from consequences and lack of exposure to or compentency in business or anything requiring actual results.
Elected officials and bureaucrats can weigh political decisions that may affect directly their term in office. However, it is grossly mistaken to think they can weigh costs and benefits at large to the economy, the environment or anything else. They can restrict inputs through coercion, but they cannot dictate outcomes.
Ima, I hear you. I remember when 4 track cassette recorders were the big thing that brought multitrack recording to the masses. I remember passing out tapes. I remember reading 'zines from across the US and Europe to discover and feel connected to new music. If only current electronic distribution and communication were available back then! What may have been! Now, I have more recording power in my laptop than most studios had, and I get more feedback within hours of posting new material than I ever received in the old days.
Mike, I wish you would apply your excellent analysis of incentives and economics that you have written about in other areas to the political and economic situation described in this post.
It was not a house of cards that gets continually propped up. Instead, you have a government that continually produces regulation after regulation to address past problems (real or perceived) that merely create new crises. For example, consider how the actions of the FDIC, capital requirements and the CRA contributed to the current circumstances.
Build a sturdy house? How could you consider giving this task to the people who would currently have the authority to attempt it? Do you really want the Barney Frank National Bank, Nancy Pelosi Savings & Loan or Barack Obama Credit Union? These people could not qualify for the training program at a financial institution, let alone to design a new financial structure. It is scary enough that they, along with Geithner and Summers, are going to impose new regulations that will cause the next catastrophe. They have done a marvelous job of trying to destroy the current financial system. I can only imagine the success they would have building a new one.
I understand the reactions to the waiver. However, the part of the story I found interesting was the service using the waiver to get Yelp to remove a review. Even assuming they could identify the person commenting, if Yelp is not party to that waiver, they are not bound by it. Any dispute is between the doctor and patient, and the doctor can try to enforce it against the patient. However, I do not see how it can enforce an agreement against Yelp to which Yelp is not a party.
As a lawyer who has received those emails, it seemed obvious that they were fraud. However, I'm a corporate lawyer. I do not know if plaintiffs' lawyers get random clients over the Internet this way. When I get random calls, the first thing I ask is how the caller found my name. At least with referrals, you have something to verify.
It would not surprise me if someone overseas could dress up their operation to look legitimate. I wonder if he asked for a retainer. It has been my experience that the retainer request usually drives away prospective "clients" looking for free legal work or scams.
There is also a lot of uncertainty about the regulatory climate. No one wants to be the last lender to Lehman Brothers. No one wants to fund a company that is going to be regulated out of existence or whose competitors are going to be favored by the government. Many companies (that are able) are waiting for a better economic climate with better valuations, and if they are related to financial services, waiting to see if they can get their hands on cheap government money rather than more expensive VC money. In this climate it makes more sense to sit on the sidelines and wait things out.
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