Protecting Us from Ourselves
This blurb appeared in May 10th's Wall Street Breakfast at SeekingAlpha:
L.A. "alternative investment" firm Oaktree Capital Management LLC announced it will raise nearly $700 million in an offering -- but the shares will trade on a private market constructed by Goldman Sachs rather than on a public exchange. Oaktree will sell roughly 13% of itself for $40-44 a unit. The new market, to be called "GS Tradable Unregistered Equity OTC Market," or GSTrUE, will be accessible only to institutions and sophisticated investors, and Oaktree will be its first issue. By offering shares on GSTrUE, Oaktree will sidestep the regulatory oversight that accompanies public share offerings. In addition, shareholders, unlike those of companies whose shares trade on public markets, will have almost no say in how the company's business is conducted. Oaktree has assets worth approximately $42 billion. Fortress Investment Group was the first hedge fund to go public in January, and private investment firm the Blackstone Group has an IPO pending. "We expect that many of our most significant competitors will soon become public," wrote Oaktree founders Howard Marks and Bruce Karsh in the offering memo. "...Choosing not to do likewise would put us at a major disadvantage."My guess is that we will see more and more of these types of trading vehicles and exchanges which, thanks to regulation, are forced to exclude most small investors. In fact, this is the only possible result of regulation intended to protect people from themselves, since regulators obviously can't make people more knowledgeable or self-reliant, they can only provide "protection" by eliminating their choices and opportunities (in this case ensuring that small investors remain small and poor).
Of course investors have always had the choice NOT to invest in something they didn't understand, but now even if they do their homework they're prohibited from acting on their knowledge and trying to improve their own situation. And similar arguments hold in all such cases, e.g. when the FDA decides how much risk a dying person can take with his own life and body, or when the government forbids you to invest your own social security funds, or when the FCC decides that you can’t listen to profanity, etc. etc. In all such cases you already had the choice to do what the government now mandates, i.e. you could decide not to try an experimental drug, or to hand your retirement accounts over to a financial advisor, or to turn your radio or tv off -- but with regulation you no longer have any other choice, even if with all things considered, you deem it best for your life to do something different than the all-knowing government has decreed you must.
It's easy to simply put the blame on regulators, but in reality the vast majority of our intellectuals and therefore most average Americans approve of and even encourage these types of restrictions, so once again, the battle must be fought not at the political level but at a more basic philosophical one, including defining what is the good and why.