Monday, January 6, 2014

Death Knell For Micro-Finance

There are days when it all seems just too clear:

On October 23, 2013 the Securities and Exchange Commission (SEC) issued the proposed rules for Regulation Crowdfunding. The 585-pages included an explanation of the rules, the feedback it received, and a cost/benefit analysis.

Please read the whole article, and as many of the comments as you can.

Costs? To be borne by those hoping to get a project off the ground via Kickstarter or a similar mechanism. Benefits? To the Omnipotent State and its financial hangers-on, whose interest in stifling venture capital efforts that evade their clutches is beyond disguise.

Regulation is a tool used by over-large firms to create barriers to new entrants into their fields. Its utility to established firms was well described by George Stigler in his work on regulatory capture. Regulatory agencies invariably go to large, established companies for the "experts" they need to "guide" their area of authority. The consequences could not be more obvious.

The importance of regulation to the protection of established firms from new competitors is the most important component of the Bigness Dynamic: the way in which Big Government nurtures giantism of other sorts, and teaches its Brobdingnagian clients to love, worship, and propitiate it. Wherever it's proposed that regulatory agencies extend their reach, you may rest assured that the "mature," established companies in those domains are poised and ready to pounce on the emergent levers of power.

The financial giants have long looked upon micro-finance -- the original term for "crowdfunding" -- as a looming threat to their baronies. It's thwarted their efforts in several foreign lands. Now that it's begun to make its power felt in these United States, the Big Players will wait no longer. The Omnipotent State will gladly oblige them; it's an opportunity to grow still further, with luscious prospects for baksheesh.

Micro-finance has been an inestimable blessing to nascent businesses in the Third World, and to many a small charity anywhere. Its emergence here was a bit tardy, but since then would-be developers and artists of several kinds have flocked to it in large numbers.

Inasmuch as new ventures are always a threat to established powers in their fields, the Big Players in finance have slavered for a way to throttle this engine for growth. It appears that their dreams -- and the nightmares of those who feared that the Establishment would find a way to derail their dreams -- are approaching reality.

What's that, Gentle Reader? You, as a conventional work-for-wages employee of a Fortune 5000 company, can't see how this development could affect you? Hm. Have you forever forsworn involvement in any independent venture, then? It's not unknown for a man to change his mind about such things, even late in life. And what about the jobs new, micro-financed ventures produce? Is it at all possible that one of those might someday be of interest to you...or to one of your children?

No man is an island,
Entire of itself,
Every man is a piece of the continent,
A part of the main.
If a clod be washed away by the sea,
Europe is the less.
As well as if a promontory were.
As well as if a manor of thy friend's
Or of thine own were:
Any man's death diminishes me,
Because I am involved in mankind,
And therefore never send to know for whom the bell tolls;
It tolls for thee.

John Donne

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