Thursday, April 9, 2009

Clueless Tim Geithner Says Venture Capital Is A Systemic Risk

The Wall Street Street came out with this op-ed that had me scratching my head:

Is Silicon Valley a Systemic Risk?
Treasury decides to treat venture capitalists like hedge funds.

... The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."

Since then, venture investors have been trying to solve the mystery of how they could possibly threaten the financial system. Their work involves very little banking. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. The VCs and the companies in which they invest use little or no debt.

"I cannot imagine any venture fund being of a size to pose 'systemic risk,' so they either don't understand the nature of the business, or by including this provision they are sharing that their agenda is not the overt one disclosed," says Jack Biddle of Novak Biddle Venture Partners. What Washington needs to understand is that bank-style regulation could destroy the culture that created the microprocessor... (full article)

I'm sure Geithner is a smart man, but I agree with Jack Biddle above that he probably doesn't understand the nature of the business. Many smart people I met don't know the difference between venture capital, private equity, hedge funds, and other types of investment funds. It can get confusing, but Geithner is our Treasury Secretary! Either he doesn't get it and needs a "Venture Capital 101" class along with "Our Nation's Greatest Wealth and Job Creation Engine 101", or his staff must be really stupid or overworked and provided very poor research to him.

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