Time to Trust Each Other
Dave is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As we celebrate the 30th anniversary since its enactment, with little fanfare, Reg D offerings (a.k.a "private placements") have surpassed public debt as the number one capital raising offering method.
Moreover, as shown in the chart, Public equity (IPO-type registrations) is actually dwarfed by Reg D offerings.
Just think how far we have come since the enactment of the Reg D exemption in 1982...
I recently found this speech on the then-new regulation by SEC Commissioner Aulana Peters to a group of attorneys in 1986. Commissioner Peters expressed concern over what she considered then to be an alarmingly large amount of capital being raised using the Reg D exemption -- $50 billion (compared with $275 registered offerings in that year). She was very anxious about potential fraud.
In the 30 years that have followed, Reg D has proven to be a very important and relatively safe form of deregulation. I think it provides strong insight into how the new Crowdfunding law will play out.
But Shouldn't We Still Fear the Fraud?
Our largest banks, who act as underwriters to the public debt and equity offerings, are not only being charged with fraud, but they are being repeatedly charged with the same fraud.
This article is particularly disturbing:
"Nearly all of the biggest financial companies, Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), JPMorgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC) among them, have settled fraud cases by promising the S.E.C. that they would never again violate an antifraud law, only to do it again in another case a few years later.
A New York Times analysis of enforcement actions during the last 15 years found at least 51 cases in which 19 Wall Street firms had broken antifraud laws they had agreed never to breach. "
Matt Taibbi, one of the last true hard-hitting investigative journalists, recently came out with a must read article called "The Scam Wall Street Learned From the Mafia:"
"Along with virtually every major bank and finance company on Wall Street – not just GE (NYSE: GE), but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America."
So, I started thinking, if we can't trust Wall Street. Who can we trust?
I then ran a quick Google search for "Politician Corruption." It yielded 20,100,000 hits and news articles only 4 hours old about politicians who have been convicted of corruption and fraud charges.
I submit that it's time we recognize that we actually do not have a "choice" in whom we trust.
Not to get too Žižek here, but by doing nothing, by not chosing, we are in fact making a choice. It is an affirmative choice to accept the status quo corruption of our financial institutions and politicians.
The only real option is to start trusting each other.
Crowdfunding is an opportunity to make a radical break from the Wastelands from Wall Street to Washington.
Happy Birthday, Reg D - We hope your offspring Crowdfunding law will prove as positive a change as you have over the last 30 years!
DaveHarvilicz has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America and JPMorgan Chase & Co. Motley Fool newsletter services recommend Goldman Sachs Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.