Posts Tagged ‘Barney Frank’

Regulating Venture Capital: Off the Hook Now But “Very Far From the Finish Line”

October 21, 2009

Earlier this year, Silicon Valley freaked out when U.S. Treasury Secretary Timothy Geithner told Congress that large venture capital firms should be declared as systemic risks and put under tight restrictions as part of the broader re-regulation of financial firms.

Such regulations would force VCs to register with the Securities and Exchange Commission, and submit regular reports on their investors and portfolios, costing firms up to $1 million. 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.”

But techies breathed a sigh of relief earlier this month when Financial Services Chairman Barney Frank proposed draft legislation rejecting the Treasury plan, carving out an exemption for VCs from the “Private Fund Investment Advisers Registration Act of 2009.” (see draft below)

That was good news for innovation. VCs do not pose a systemic risk to the economy, as Gordon Crovitz pointed out in this astute column in the Wall Street Journal. The venture capital industry is small compared to other capital markets. VCs do not use debt, so that sharply limits their risk. And they are not tightly interconnected with other financial firms, like AIG or Lehman Brothers.

But they do represent an incredibly important part of the economy that helps generate significant wealth and job creation–a unique economic pillar the Treasury Dept. should be strengthening, not weakening.

But National Venture Capital Association President Mark Heesen says the VC industry is not out of the woods yet. “We are very far from the finish line, but in a better place than many expected at this point,” Heesen wrote me in an email. “There is still no House or Senate bill, but House Chairman Frank’s comments certainly are encouraging.”

Financial reform hinges on, you guessed it, the passage of health care reform. “Many Senators sit on both Committees of jurisdiction so can’t focus of financial reform until they see how health care proceeds,” added Heesen.

To make sure VC regulation does not reappear in future versions of financial reform legislation, Heesen says the NVCA is continuing to work with the Administration and members of the House and Senate “to make certain Venture capitalists do not have to register under the 40 Act while giving the government the assurances they need to understand we do not pose a systemic risk to the economy.”

Discussion Draft of the Private Fund Investment Advisors Registration Act

Doh! Worst Predictions of 2008

December 26, 2008

My BusinessWeek colleague Peter Coy published his worst predictions of 2008–a year that probably embarrassed a lot of pundits and prognosticators.

Coy did not pull any punches. Rep. Barney Frank, President George W. Bush, investor T. Boone Pickens, scammer Bernard Madoff and even Federal reserve Chairman Ben Bernanke made the ignominous list.

Here are the top three:

1. “A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!” —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008

At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500.

2. AIG (AIG) “could have huge gains in the second quarter.” —Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008

AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.

3. “I think this is a case where Freddie Mac (FRE) and Fannie Mae (FNM) are fundamentally sound. They’re not in danger of going under…I think they are in good shape going forward.” —Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008

Care to add anymore?