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?
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Filed Under: economy, systemic risk, timothy geithner, treasury, venture capital


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  1. identicon
    Anonymous Coward, 10 Apr 2009 @ 1:44pm

    Banks, Wall Street Firms, Hedge Funds, VC's, Insurance companies, Life Insurance companies, auto manufacturers, whats next?

    Health care, education.

    The govt. wants to control our major industries. Not regulate, control. It wants to be the major player. Why else do you think that the government is refusing to accept the TARP money is has given to banks? Why do you think a major player, that wanted to pay back close to a billion dollars in taxpayer money back to the government, was not allowed to?

    How would you feel if your bank wouldn't accept your mortgage payment in full? How would you feel if your credit card company wouldn't allow you to pay off your balance? You would think it wrong, correct?

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