Writing at National Review, the Manhattan Institute's Nicole Gelinas calls for the SEC to, in essence, step in and shut down Goldman Sachs's plan to let its clients invest in Facebook by counting each Goldman client as an individual investor for the purpose of the 500-investor limit, rather than counting them all as one:
At first glance, this arrangement appears to be none of our business. Goldman's rich clients often have their own high-priced advisers, and they should know what they're doing. If they want to pay hefty fees — "a 4 percent initial fee plus 5 percent of any profits," says Cohan – to run the risk of losing their own money in an opaque venture underwritten by an opaque investment firm, let 'em.
The problem is, though, that we're inching toward a financial world comprised not of public exchanges but of private agreements like this one.
A public financial marketplace is integral to capitalism. In an open and free marketplace, millions of investors with competing agendas can jostle to determine what Facebook is really worth, from nothing to hundreds of billions of dollars. Many people will be wrong, but chances are better that everyone won't be wrong all at once.
Under this deal, by contrast, just a handful of people at Goldman and its advisory and auditing firms will have an outsize say in what Facebook is "worth" on behalf of investors. Chances are greater that this roomful of people, whose bias is (probably) for Facebook to increase in value, will make a catastrophic mistake.
Eventually, real information about Facebook's value would get through. But it would take longer, and be more difficult, for the marketplace to correct mistakes. That means mistakes would have a bigger impact on the broader economy. (And politically and socially that means, yes, more bailouts and stimulus. Conservatives who don't like these things should start here, not there.)....
To discourage these transactions without forbidding them, the SEC should make clear that it will consider every individual potential investor in Goldman's Facebook vehicle as an individual investor for the purposes of public-disclosure requirements.
I'm not convinced. If anything, as one National Review commenter suggests, "Rather than demanding that the SEC extend its reach, maybe we should look at the regulation this sort of thing is intended to get around. This looks like a perfectly rational response to the ridiculous amount of regulation in place that gets triggered by a silly and arbitrary limit (500)." I think the way to avoid bailouts is to not have bailouts, rather than to interfere with private contracts between consenting parties on the grounds that if they go awry badly enough a bailout might be required down the road.