Back in August we faulted the Wall Street Journal for its editorial proposing special lax regulatory treatment for venture capital. The Journal has a follow-up editorial today that suffers from some of the same flaws. Says the Journal: "Barney Frank has rejected a Treasury plan to subject venture capital firms to 'systemic risk' regulation. Now he has to ignore the whining from hedge funds and private equity firms that want venture investors to suffer under the same regulation that Washington has in mind for them." Since when is it "whining" for successful, job-creating American companies to defend their interests in Washington? What the Journal calls "whining" is protected under the First Amendment as the right of speech and of petitioning the government for redress of grievances.
The Journal goes on: "As a rule, VCs carry no debt, don't use derivatives and don't trade in the public markets. Since they had nothing to do with the credit meltdown, it remains a mystery why Treasury Secretary Timothy Geithner urged Congress to force them to register with the SEC as investment advisers, subject to staggering compliance burdens." Hedge funds and private equity firms didn't have much to do with the credit meltdown, either, so it's not clear why the Journal considers their Washington advocacy to be "whining." The Journal credits venture capital with being "the investment model that created Intel, Apple and Google," but Intel carries debt, and Intel, Apple, and Google shares are all traded in the public markets, so it's not clear why the Journal deems Intel, Apple, and Google's association with venture capital to carry virtue-by-association that does not extend to trading in the public markets. The conclusion we drew back in August applies this time around, too: "If excessive regulation is so bad for the venture capital business, maybe it's bad for all businesses."