Financing Investment In A World Without Maturity Transformation

http://www.macroresilience.com/2013/10/08/financing-investment-in-a-world-without-maturity-transformation/

by timf • 13 years ago

48 32 13 years ago

PaulHoule• 13 years ago

The "accredited investor" thing has to end.

There are ETFs today that anybody can buy that will only give complete information to "accredited investors". That doesn't protect consumers.

Daniel_Newby• 13 years ago

We need a constitutional amemdment to apply the equal protection clause to the federal government.

acro• 13 years ago

Usually it's the other way around. By law normal investors have to be educated about all possible risks involved. Accredited investors don't need such information since they supposedly know those things already.

dev_jim• 13 years ago

If it trades on the public U.S. equity markets then there's no special information available to accredited investors.

antocv• 13 years ago

I liked the part where he says Kickstarter sucks because you donate your money to them without a stakeholder position or ownership in your investment of any kind. Its the reason Ive kept my money in my wallet and not thrown it around on kickstarter-projects, instead donated to FSF, EFF and Wikileaks among others.

Any takers to start up a kickstarter-clone without donation but part ownership? With pledges for more money to throw into project when it reaches a threshold and so on. Basically what we had 100 years ago with normal public stock traded companies but in a digital world.

pja2• 13 years ago

My understanding is that doing this is complicated because selling securities which are not tradeable on open liquid markets to non-accredited individuals is frowned upon by the SEC (and similar entities in the EU). That's not to say that it's impossible to do: there's just a legal thicket to navigate & the legislators have teeth! (This might be why VCs have stayed away? They must have been pitched this idea over and over again in the last couple of years. Of course funding a competitor for your own revenue stream might not be something that your average VC is going to do either :) )

Kickstarter is fantastic for funding things which are ready to go but just need the capital to pay for volume manufacture up front. If the product isn't ready to ship in that form & their asking for funding to get it into that state then it's much more risky. I've funded things on kickstarter which were pretty much "I'd like to print this comic / book / whatever, if I can get a bunch of pre-orders in up front then everyone wins." Kickstarter is amazing for those kind of creator-driven projects.

fennecfoxen• 13 years ago

He doesn't say that. He says "I have nothing against the kickstarter approach" but it's insane and it sucks that they're legally forbidden from giving you an ownership stake. way-to-keep-the-little-guy-down etc

pja2• 13 years ago

NB The JOBS act is supposed to enable this kind of crowdfunding for startups, but the SEC are dragging their feet over it apparently: http://www.nytimes.com/2012/12/27/business/smallbusiness/why...

ma2rten• 13 years ago

A former college of mine set out to start a company like that:

https://www.sprowd.com/

I didn't follow them since then. Looks like they tried to crowd-fund themselves, but failed. However, he seemed very passionate about this idea. So, I would be surprised if they'd give it up easily.

losvedir• 13 years ago

Sounds a lot like WeFunder[1], which currently only allows accredited investors to take part, I believe, but because of the recent JOBS act will allow ordinary people to invest in the coming years.

[1] http://wefunder.com/

melling• 13 years ago

I don't see why it's important that you become an owner. You are helping to fund what you believe is a worthwhile product.

When you buy an Android or iOS phone, for example, you are helping to fund a company. You don't get ownership for that company.

By funding individuals, or small groups, I believe that most are efficiently using the funds, and you are getting products that most larger companies couldn't be bothered with.

kazagistar• 13 years ago

The problem is, you don't have any assurance of getting anything.

My condition for kickstarters is some kind of open sourcing clause, so that even if the creator fails, you are still assured of some kind of partially finished product.

dublinben• 13 years ago

I completely agree with you and the author. It's why I only support crowdfunding projects which aim to freely release their product upon completion. I'm happy to contribute to a bounty to release a new work into the public domain, but I'm certainly not going to provide free capital to a commercial entity which will retain all future profits for itself.

macroresilience3• 13 years ago

As the comment by 'pja' highlights, most of the restrictions to such an approach are legal.

The least restricted market in this regards is the United Kingdom where there are quite a few businesses in the crowdfunding/peer-to-peer lending space already - for equity funding see Seedrs[1] and Crowdcube[2].There's even instances of SMEs raising equity from the public directly e.g. Brewdog[3].

The UK regulator (FCA) is just catching up so things may change next year[4].

[1] http://www.seedrs.com/ [2]: http://www.crowdcube.com/ [3]: http://www.brewdog.com/equityforpunks [4]: http://www.reuters.com/article/2013/10/03/britain-crowdfundi...?

rayiner• 13 years ago

And the answer is that rates would be lower than they would be in a maturity-transforming system. Maturity-transforming banking is redundant – it only gives us recurrent financial crises. The idea that in the absence of bank maturity transformation, lending rates would explode has been disproven.

First, serious writers don't need to bold their punch-line sentences so you know that they're punchline sentences.

Second, showing low P2P lending rates in a tiny market during a period when lending rates are generally in the toilet does not "disprove" the need for banks.

simonh• 13 years ago

Indeed. In a tiny market, with low to non-existent legal and regulatory overhead. I know, let's make it a 'proper' market with legally enforceable terms and contractual relationships, leading to lots of legal and regulatory overhead. That's bound to fix the problem!

lake993• 13 years ago

I have nothing against the kickstarter approach. But it is insane to allow individuals to collectively donate millions to dollars to ventures without any ownership stake while at the same time barring them from funding the same projects and receiving an ownership stake in return.

In other words, "I have nothing against kickstarter, but it is insane to allow kickstarter to exist as it is". Contradiction alert!

Almost all the criticisms of capitalism are derived from the pathologies of institutional fiduciary capitalism.

Having read on and discussed the topic extensively, I'd say that "almost all" is completely unjustified.

However we can do better than allowing individuals to donate money on a hope and a prayer.

Odd seeing such a claim from a self-confessed supporter of capitalism.

If we want capitalism to become less selfish, we need to enable each individual to become a capitalist.

Does he mean like owners of capital assets doing what they wish with it, as long as it doesn't infringe on the rights of others?

sp332• 13 years ago

That comment isn't anti-Kickstarter. It's saying: since KS exists, why aren't we also allowed to do this better thing?

positivejam2• 13 years ago

Exactly. The article is not saying it's insane to allow Kickstarter donations, it's insane that current law makes it just fine to donate to a risky venture but not to invest and get a chance to share in the venture's upside.

macroresilience3• 13 years ago

on the "less selfish" nature of individual capitalism, I simply mean that our economic actions when we deal with our own money are often motivated by many considerations other than the purely economic. Kickstarter is an excellent example of this.

But when I act as a fiduciary responsible for investing someone else's money, I have to maximise economic return by law.

By allowing the masses to invest in small businesses, we obviously allow them to participate in the economic returns from these businesses. But we also allow them to express their more charitable altruistic goals within a well-developed framework where they can be more confident that their money is being put to good use. If nothing else, as an owner I am entitled to receive regular audited financial reports.

nknighthb2• 13 years ago

But when I act as a fiduciary responsible for investing someone else's money, I have to maximise economic return by law.

No, you don't! That you say this just highlights how uninformed and unqualified you are to have written this article.

kfk• 13 years ago

So, I invest/lend 100. The SME fails. Who is persecuting them? I don't want to chase each failed SME to get the money back.

I mean, you still need middle men. Nobody has willing, knowledge or time to rate, follow and persecute a bunch of SME's.

I would love laws and tools to lend to companies I know well although. Like companies of friends or friends of friends. But that is impossible now. Another big topic is discounting invoices, somebody here? Interesting topic with real hassle.

cowls2• 13 years ago

I think you misunderstand, If you invest in a business that fails, you lose your money..

You dont get to "persecute" anyone. Thats the risk of the investment

brazzy• 13 years ago

So con men who do nothing but run sham businesses and live off invested money have nothing to fear?

There must obviously be some sort of redress in the case of ouright fraud. But then, how do you distinguish malice from incompetence?

That's how the SEC got started...

microcolonel• 13 years ago

Banks are big because people's money is forced in by monetary supply inflation; it loses value when they actually save it.

Banks are crap because of regulation in a forced market: You basically have to put your money in a bank to counteract inflation, but becoming a bank is VERY difficult, so is competing with ones which will always be bailed out.

U.S. has the same issue with healthcare. Becoming a healthcare provider in the U.S. is incredibly difficult, even moreso becoming a healthcare insurer, and as such they consolidate and crapify as far as they can without making it bad enough to justify competing with them despite the regulatory barriers. Then all your drugs have to be FDA approved(which takes more than a decade at least), and many of them will be produced under one or more patents which also raise the cost of the medication.

Financing Investment In A World Without Maturity Transformation

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