Craig Pirrong at the Organizations & Markets blog weighs in on the quizzical financial constraints placed on start ups under proposed financial reform legislation.
The most fascinating question is the political economy one: whose interest is served by this provision? The most likely explanation is that incumbents — including, no doubt, one-time startups — having made theirs prefer to make it harder for others to displace them. They liked creative destruction on the way up, but the idea of being swept away in some future gale is far less appealing. So hobble potential future competitors, future creative destroyers, by increasing the costs startups incur to raise capital. This pernicious provision also gives advantages to big investors, venture capitalists, and existing companies who would face less competition in supplying capital to potential startups.
I’m not sure I buy that — who is this group of now-successful former start ups banding together to create barriers to entry? On the other hand, I don’t have a better explanation.