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Securities Investing Inches Toward Freedom

If you have ideas that could become the basis for a company except you need investors to help you make it a reality, progressive politics still makes your life difficult, but the world just got a tiny bit brighter. It’s all about the crowd.

Here’s a weird piece in Bloomberg-Business Week online titled “SEC Lifts Ban on Hedge Fund Advertizing. Hilarity Ensues” that tells a little about the news but laced with the ever-present progressive caution. The author, Sheelah Kolhatkar, seems to think very ill of freedom, and has an extremely low opinion of the public.

A more balanced article on the emergence of crowd funding appears in WSJ.

The JOBS Act passed almost two years ago loosened the 80-year old ban on advertising securities offerings, charging the SEC to come up with rules to make it happen. You’d naturally think more freedom is better, but for 80 years the SEC has been all about limiting freedom in the securities market, in the name of “protecting unsophisticated investors.”

The argument for limiting freedom goes like this: People are too stupid to know what’s good for them, so they need smart people like the SEC regulators to look out for them. It’s the typical Progressive argument for intrusive government. But much of the rest of the world is seeing how flimsy that whole notion of investors needing protection from the boogeyman is and they are loosening the reins on investing (Italy leads the pack. See also the rules in Australia and the UK). Congress–and even Head Government Worker Obama–were pretty much forced to agree to allow more freedom in the securities markets in order to keep the US close to competitive in international securities markets.

I’m sure the SEC still hates freedom, but the latest rule change, to permit advertising by hedge funds to accredited investors, is certainly a step forward for both investors and the entrepreneurs who are looking for them. Wouldn’t it be great if Progressives were finally silenced and the SEC’s new role became one of educating “unsophisticated investors” instead of limiting their freedom to participate in the great ideas floating around in entrepreneur’s heads? Yeah, looking for true freedom from the so-called “smart people in government” is probably too much to hope for right away. But we’re inching our way there.

The real danger of looser securities markets might not be to investors, but to eager entrepreneurs who give away too much of their company in order to get investors too early. You’d best be protecting your intellectual property before you start looking for $ from people you don’t know.

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