#matt levine
Yes, whether they are victim or not changes a lot about how to respond to it; if they are the target of a malicious scam we should use law enforcement resources etc to crack down on the scammer, while if they are just bad at investing we will sadly shake our heads. Similar to how we respond differently to murders and mountaineering accidents.
that’s not really about what we do about the person who lost their money, though. it’s about how we respond to the person who took it.
sure, if there’s a scammer sometimes you can recover some of the money lost and give it back, which is in some way about what happens to the person who lost their money, but there’s no guarantee of that either way
(re:this thread)
My disagreement is when you write
society … upon observing that bad things are happening, does have a moral obligation to try to minimise them
I would rather say that society should try to minimize bad things that are done to somebody, but if someone fucks up their own life, that’s their own decision to make and we don’t want society to interfere. Sometimes there’s a tradeoff when the utilitarian calculus so lopsided that it overrides the concerns for autonomy (things like involuntary psychiatric hospitalization, banning heroin, etc). But in general we don’t want society to make peoples’ decisions for them, even if it’s making “better” decisions in some sense.
A while back I linked Matt Levine’s fantasy investing regulations:
Anyone can invest all they want in a diversified portfolio of approved investments (non-penny-stock public companies, mutual funds and exchange-traded funds with modest fees, insured bank accounts, etc.).
Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.)
To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”
Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate.
Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling.
If an article ever appears in the Wall Street Journal in which you (or your lawyer) are quoted saying that you were just a simple dentist, didn’t understand what you were buying and were swindled by the seller’s flashy sales pitch, then you go to prison .
dentists almost certainly make enough that they qualify as accredited investors and the can currently buy dumb investments
Yes, that is the context for the piece.
Here is a rough summary of how U.S. securities law works:
Individuals can only invest in public companies that trade on stock exchanges, publish financial statements every three months, and are generally subject to a fairly strict regime of regulation and vetting.
Except dentists; dentists can invest in any dumb thing someone can dream up to sell them.
I mean, not literally just dentists, though dentists are the paradigm case. Radiologists too. Professional football players. Owners of successful pool-installation businesses. If you are moderately affluent—if you have a net worth of more than $1 million not counting your house, or an annual income of more than $200,000 a year—then you qualify as an “accredited investor” and can invest in private placements that are not subject to the disclosure and auditing requirements of the public markets. And if you are a bit more affluent, and you show a proclivity for this sort of thing, then you will be relentlessly hounded by brokers trying to sell you dodgy private placements.
Here is a Wall Street Journal article about how only 1.5 million households were accredited investors when the rules were put in place in 1982, but now 16 million are. There are the usual anecdotes about unsophisticated but nonetheless accredited investors (a health-care executive, an NFL offensive lineman) being swindled by brokers into putting all their money in bad investments, and the obvious complaints about the rule:
…
So what can you do? Raising the accredited-investor bar to protect the dentists from fraud seems sort of un-American; what does liberty mean if not the freedom to invest in far-fetched private placements? On the other hand, Securities and Exchange Commission Chairman Jay Clayton wants to broaden the accredited-investor definition, “such as by allowing in people who don’t meet income or wealth thresholds but have professional licenses or advanced education”—I assume mainly in dentistry—so that more people can buy dumb private placements. What kind of company do you think will want to raise $1,000 at a time from poor-but-credentialed investors, but won’t want to go public? Is the answer “the very good and fast-growing kind”? Really?
Yes, whether they are victim or not changes a lot about how to respond to it; if they are the target of a malicious scam we should use law enforcement resources etc to crack down on the scammer, while if they are just bad at investing we will sadly shake our heads. Similar to how we respond differently to murders and mountaineering accidents.
that’s not really about what we do about the person who lost their money, though. it’s about how we respond to the person who took it.
sure, if there’s a scammer sometimes you can recover some of the money lost and give it back, which is in some way about what happens to the person who lost their money, but there’s no guarantee of that either way
(re:this thread)
My disagreement is when you write
society … upon observing that bad things are happening, does have a moral obligation to try to minimise them
I would rather say that society should try to minimize bad things that are done to somebody, but if someone fucks up their own life, that’s their own decision to make and we don’t want society to interfere. Sometimes there’s a tradeoff when the utilitarian calculus so lopsided that it overrides the concerns for autonomy (things like involuntary psychiatric hospitalization, banning heroin, etc). But in general we don’t want society to make peoples’ decisions for them, even if it’s making “better” decisions in some sense.
A while back I linked Matt Levine’s fantasy investing regulations:
Anyone can invest all they want in a diversified portfolio of approved investments (non-penny-stock public companies, mutual funds and exchange-traded funds with modest fees, insured bank accounts, etc.).
Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.)
To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”
Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate.
Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling.
If an article ever appears in the Wall Street Journal in which you (or your lawyer) are quoted saying that you were just a simple dentist, didn’t understand what you were buying and were swindled by the seller’s flashy sales pitch, then you go to prison .
Still, as several people pointed out to me (on Twitter), Twitter has one important point of leverage. Here’s how I would do this negotiation:
Musk: I don’t want to pay $54.20 per share anymore, let’s do $42.
Me, the chairman of Twitter’s board, in this hypothetical: No, you signed a contract, pay us our money.
Musk: I’m going to ignore the contract and say some nonsense pretext about bot accounts, and my fans will believe me and somehow think that I’m the victim here. If you sue me, I’ll wage a scorched-earth fight and drag it out for years as the company implodes. I will blow up my financing, so I might be able to avoid closing and end up paying you a $1 billion termination fee, which is like $1.30 per share, basically nothing. Your shareholders will be much happier with $42 than with that catastrophic outcome.
Me: You’re not going to do that.
Musk: Oh yeah? Why not?
Me: Because we run Twitter. And if you walk, we are going to kick you off Twitter permanently. This will make it harder for you to connect with your fans and sell Teslas and keep up your company’s stock price; losing access to Twitter will cost you considerably more than the $46 billion you agreed to pay for it. Also though it will take away the main source of joy in your life. Without tweeting memes and trolling people, what will you have left? Sure, two hundred billion dollars, but what good does that do you if you can’t tweet?
Musk: Oh.
Me: Sixty bucks a share.
Obviously Twitter’s actual board of directors would never do this, because they are constantly forgetting that they run Twitter[9]; they don’t use it themselves, so they can’t imagine that the product might be important to people like Musk. But it is! His leverage in this negotiation is that, if he doesn’t get what he wants, he can walk away from buying Twitter. Twitter’s leverage is that he could never actually walk away from Twitter.
Do it cowards
The Fifth Circuit panel, by a 2-1 vote, agreed, for three reasons. One reason is that, by suing him in its own tribunal, the SEC deprived him of the right to a jury trial: The SEC fined him a million dollars for fraud, without having to prove its case to a jury. The Fifth Circuit found this unconstitutional under the Seventh Amendment, which guarantees a right to a jury in civil cases. I think I agree? At Bloomberg Opinion back in 2015, Noah Feldman wrote a good column about this case, saying that it was “worth noting, and mourning, this impending incremental erosion of the constitutional protections of a civil trial and the jury right that goes hand in hand with it.” The SEC has always had the power to bring fraud cases in federal court, and has a pretty good record there. But in 2010, Congress gave the SEC the power to pursue monetary penalties in its own courts if it wanted to. This always seems to causemoretrouble than it saves, and is apparently unconstitutional, and I am not sure the SEC will miss it all that much.
Another reason is that the process for appointing and removing SEC ALJs is unconstitutional, for reasons that honestly I find unbearably boring and so will not talk about.[6]
But the third reason is the nondelegation doctrine: The Fifth Circuit found that Congress unconstitutionally delegated to the SEC the power to decide whether to bring cases in federal court or before its own ALJs
This strikes me as a little weird — surely deciding what forum to sue in is an executive action, not a legislative one? — and not at all necessary to the decision. The court could have thrown out Jarkesy’s fine by saying that he was deprived of a jury trial, without talking about the nondelegation stuff.
But the panel is making a broader point here. The broader point is Justice Gorsuch’s point about political accountability, an excess of lawmaking, etc.; the opinion talks about those principles at length and cites Justice Gorsuch’s Gundy dissent. The point is that the nondelegation doctrine is alive again, and the Fifth Circuit is making a bet that the next time it goes before the Supreme Court it will win. The point is that the SEC’s actual legislative actions — writing rules about stock buybacks or swaps disclosure or climate change — are now in danger. It used to be accepted as a routine matter that the SEC could make rules under a very broad grant of power from Congress to regulate securities markets in the public interest.[8] I am not sure that is true anymore.
[8] Also, to be clear, the banking regulators, and the Environmental Protection Agency, and every other administrative agency. This is a finance column, and this case is about the SEC, so I am talking about the SEC. But the implications are much broader.
And there’s the matt levine take. I say this is a cowardly opinion, rule the FBI is unconstitutional Supreme Court
