YU News
The Problem with Government Regulation is that the Rich Get Richer
By Richard J. Bishirjian, Ph.D.
Sep 28, 2008, 10:55

Robert Reich, Secretary of Labor in the Clinton Administration, raised an important issue on the George Stephanopoulos television program on Sunday, September 28, 2008.  He said,

If the top 1% earns 20% of all income, what explains that?

About eight years ago during the height of the dotcom bubble, my alma mater reported that in the last 12 months its endowment had grown by $1 billion.  That was an interesting achievement and was attributed the University’s decision to risk $1 million each in a number of high tech IPOs that were available to accredited investors.

The top 1% of income earners in the United States qualify as “accredited” investors, a term created during the financial reforms of the Great Depression.  That legislation is still on the books and its intention to protect ignorant investors from being fleeced by Wall Street sharpies was accomplished sixty years ago.  Today a greater proportion of the population has some college education and a high degree of literacy is enjoyed by millions more Americans than in 1933. 

Yet, if a smart 20 something wants in on a Private Placement for an Internet startup, his gross income of $35,000 to $40,000 disqualifies him.  So only the rich are legally permitted to take risks that can propel them into the class of the super rich.

Yes, there is a growing disparity between wage earners and wealthy in America, but don’t blame that on greed.  Blame it on 1930 era legislation and lack of leadership of decades of SEC administrators.

During that dotcom bubble the Enforcement Division of the SEC was scouring the Internet for unregistered IPOs.  It found some and the Enforcement Division held a press conference that informed us that they closed down some unregistered stock offers that had raised $6 million from the sale unregistered securities. 

While the Enforcement Division’s chief was crowing about his success, Enron, MCI and a dozen other fraudulent companies with legally registered securities stole trillions of dollars from Americans whose only right was to purchase registered stocks that were publicly traded.

Had "unaccredited" wage earners been permitted to take some risks on unregistered security offerings, they might have been a lot better off.  That’s the problem with government regulation: the rich get richer and wage earners lose purchasing power and decline in wealth.  When you next hear someone say that the rich are getting richer, remind yourself that the only legal investments open to most investors are lottery tickets and registered stocks.