Is Silicon Valley a Systemic Risk?

http://online.wsj.com/article/SB123923644886203393.html

by fallentimes • 17 years ago

40 35 17 years ago

online.wsj.com

smidwap• 17 years ago

Can't wait to see Web 2.0 be the next regulated industry. Imagine the government trying to pull off a definition of that!

blackguardx• 17 years ago

This reads like an onion article in the beginning.

jacoblyles3• 17 years ago

One can always stamp out risk by reducing return.

timr4• 17 years ago

...what? That's nonsense.

You might be able to "stamp out" return by reducing risk, but the converse doesn't hold: there are plenty of ways to risk money without having any reasonable expectation of return.

jacoblyles3• 17 years ago

In other phrasing, return often requires risky behaviors. One is able to reduce risk (by outlawing risky behaviors) if one is willing to except a permanently lower level of return.

At the extreme, outlawing private investment (which is inherently risky) would reduce bubbles. I know of no price bubbles or market panics in North Korea.

philwelch• 17 years ago

I wonder how much longer it is before the looters discover the angel investors and seed-stage investors.

tsally3• 17 years ago

Yup, bite the hand that feeds you. Excellent plan. California has a stellar track record of producing essential things for the rest of America. I'd be willing to bet it's a better record than what is produced in Washington. Please, don't fuck up the goldmine that is the Valley with uninformed regulation like this.

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On a related note, our financial system is so convoluted that our Treasury Secretary doesn't even understand it. His knee jerk reaction is to regulate everything. The complexity of our economy on a national scale has grown beyond the reasoning ability of most people.

I have an idea. How about we simplify things. Reduce the role of the government and give states more control over the situation. Competition between states would produce a far more optimal result than the behemoth that is the government can produce. It's what we would (read: should) do with a large failing company, why not with this?

rjurney8• 17 years ago

My state can't manage to legalize alcohol purchases on Sunday, and it just banned stem cell research. Not sure giving us more power is a good thing.

tsally3• 17 years ago

I think the fastest way to put and end to garbage like this is to give states more power. Businesses will just move out of states with archaic legislatures like this one to a neighboring state that offers better incentives. Once the state treasury is empty, the legislature will come to their senses pretty quickly. On the other hand, if the government is handing out money to everyone, there is no incentive to move. Most countries have no opportunity to create internal competition. We do and we should take full advantage of it.

timr4• 17 years ago

"Yup, bite the hand that feeds you. Excellent plan."

I recall that hand giving us the finger about nine years ago, and it hasn't done a whole lot to make up for it since.

Given the number of pensions, trusts, endowments and other "essential" institutions that invest in venture funds, I don't think it's unreasonable or onerous to expect that they might have to report the identities of their investors to the eventual regulators of systemic risk. It's not like there isn't precedent for the VC sector to depress the economy.

rjurney8• 17 years ago

They invest in very limited amounts, and the amount they are allowed to invest in VC is quite limited by existing regulation, isn't it? If this crisis shows us anything, its that real estate and stocks/bonds are not safe investments, and diversification into VC is nothing if not prudent.

rjurney8• 17 years ago

I can't believe I'm saying this but... I'm feeling increasingly guilty for voting D in the last election, as the Nancy Pelosi 'nanny state' Democrats take over.

sown• 17 years ago

I understand. Somedays it feels like I can vote for either commies or facists and no one else.

davidw• 17 years ago

Probably not: the .com crash didn't take the rest of the economy with it. Can we avoid politics now?

tumult• 17 years ago

Honestly, it looks like it's a very small amount of work required on the part of VCs – and only the larger ones, at that.

But it's still stupid. I know we're not exactly an unbiased bunch when it comes to VC firms here on HN, but you don't have to spend too long thinking about it to figure out that VC is about as isolated a risk as one can make. If a firm managing a 401k is throwing money into startups, now that's a WTF scenario. But a VC firm putting money into startups? I'm pretty sure they know what they're getting into, and I haven't heard of VC firms repackaging investments into startups as default obligations to sell to other companies. I mean I guess they could? That seems quite a bit more insane than the already insane CDS stuff that was going on.

All of this knee-jerk legislation scares me. Both parties are guilty. Leave ALONE the sectors of the economy that aren't doing anything wrong.

biohacker422• 17 years ago

Do bananas need airbags? And other hastily thrown together concepts for scary sounding headlines.

trominos• 17 years ago

Read the article.

biohacker422• 17 years ago

I did but I thought that it was focusing on a one-of remark in many, many hours of congressional testimony designed to prevent a mob with pitchforks and torches storming wall street.

I just don't see this as something that will be policy, but I guess I could be wrong and too trusting of the Obama administration.

alecco• 17 years ago

Is the Wall St. Journal becoming the new Fox News? Seriously, there is a strong trend of articles against Silicon Valley and provoking animosity with the Democrats.

This opinion article has plenty of half-truths and fallacies. Don't let them play you.

mynameishere• 17 years ago

This article was certainly not "against Silicon Valley".

mindblink• 17 years ago

I actually sympathize with Geithner. You have to look at Geithner's approach from a system design point of view. All things being equal, financial instruments will prefer less regulation over more. As other areas of the financial system become more regulated, he has to be mindful of the money will just flow to unregulated areas.

An analogy would be like squeezing a circus balloon on one end, and unless there's equal pressure all around, the other sides will just expand.

anamax2• 17 years ago

> As other areas of the financial system become more regulated, he has to be mindful of the money will just flow to unregulated areas.

Presumably he believes that the sole justification of regulation is to produce more benefits than costs for some respectable definition of "benefits" and "costs". One of the costs is that money goes somewhere else.

If he's applying regulation to areas where the regulation does not produce more benefits than costs, where the "benefit" is "it reduces the costs of regulation in other areas", I think that we've wandered into no-respectable benefits and costs.

Is Silicon Valley a Systemic Risk?

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