It's funny how only when it comes to investments does the government care to "protect" people from their own free will. I present a sample list of fraudulent activities either not discouraged by the government or actively promoted:
* State lotto
* Psychic hotlines
* Supplements/vitamins of dubious value
* Regular stocks with wildly ridiculous P/E ratios
* Various forms of "insurance"
Which is to say, it's never been about protecting people from fraud and it's always been about limiting who's allowed to participate in the capital class activities.
Just because there are some things the government does not protect people against, does not mean that investments are the only thing the government protects people against.
> State lotto
Most gambling is either highly regulated or outright banned.
Also, gambling is a financial product, which arguably falls under the category of "investment".
> Supplements/vitamins of dubious value
Because these products are very carefully designed and marketed to avoid the heavy regulation that is applied to medical products
> Regular stocks with wildly ridiculous P/E ratios
These are investments, so this example doesn't really fit into your thesis that the government only regulates investments.
> Various forms of "insurance"
Insurance is a financial product that could also be viewed as an "investment". Further, many types of insurance are highly regulated.
My point is the government isn't "protecting" anyone with these regulations. They will happily watch you spend your life savings buying lotto tickets (not an investment) but if you actually want to put that money into a company, you're going to be scrutinized.
An even better example are the accredited investor laws, which also claim to "protect" people but in reality cut off all but the wealthy from the true upside to investing.
The difference is that a state lottery is completely transparent about their payouts. Companies will often lie about their expected payouts, hence the scrutiny.
> but in reality cut off all but the wealthy from the true upside to investing
I don't understand the logic here. There isn't a global conspiracy among rich people to stopping others from making money. It doesn't make any difference to Jeff Bezos on whether $1 million gets made by Peter Thiel or a regular person. In fact, Bezos would probably prefer the latter since they're more likely to spend their money on Amazon purchases.
The reason for accredited investor status is because losing money hurts more than winning money benefits unless if you have a lot of money to begin with. One regular person making $1 million doesn't make up for 10 regular people losing $50,000, even though that would be wildly EV positive.
I'm very skeptical that there are all these highly lucrative investments that small retail investors are missing out on once you adjust for risk. Many VCs don't actually have particularly great returns overall, for example. The idea that there's some magic money machine out there that only the private club has access to doesn't have a lot of evidence supporting it.
It gets really problematic when the money market doesn't allocate capital to productive investments. That's its ostensible and actually the only socially acceptable purpose.
We see people investing in dodgy companies, look at Theranos, not because the business idea is sound, but because the investors have powerful backers and can extract outsize return from inferior product.
And then there's bitcoin, which is not a medium of exchange, not a store of value, not a unit of account, but a pure object of speculation and now even Goldman Sachs advise to put the money there. The real world is not improved by clear-eyed people allocating funds to a Ponzi scheme.
I'm not seeing the problem. What you're saying is that you want to dictate how people spend their money. Why is buying penny stocks a concern to you but spending that same amount of money on travel, cars, beanie babies... is not?
People should be able to spend their money as they please. Again, this is a red herring because their is upside to be had in plenty of these investments. Contrary to the article penny stocks are nowhere near 100% fraudulent.
Regulation leads to regulatory capture which leads to power and information imbalances that are great substrate for fraud. The stock market (not just penny stocks) is highly regulated but I think we could all agree there's fraud happening.
Happy to read any links you have that has evidence contrary to that though.
Basically everything on your list is highly highly regulated except for vitamins which should be. They really should be. When you buy vitamins you have no idea if they work or do anything, it’s a giant waste of money. I’ve read some studies on the bioavailability of magnesium supplements and they range from 20 to 90% depending on the brand. FDA regulated Tylenol doesn’t range from 20 to 90% affective depending on whether I get the brand-name or generic. This is yet another argument in support of regulation. [1]
As for the reason these financial products are regulated, they lead in part to the great depression. State has an interest in it because it is in the states interest to maintain a functioning economy.
There are compelling arguments against regulations, particularly in industries that have no business being regulated like aestheticians. Or barbers. There is genuinely no good reason for that. But the suggested vitamins and drugs shouldn’t be regulated, but financial product should be regulated? I’m having a hard time with this one.
Article is about stocks, so the fact that governments aren't consistent in protections compared to other areas seems a bit off topic.
That said, whenever the failure to protect carries a very high cost one would hope those things would get weighted more heavily when protections are considered. Supplements in particular are interesting in that they appear increasingly _designed_ to skirt existing regulations. And as more and more are found doing significant harm the governments of various states have starting paying more attention.
Without getting into the specifics of weather particular substances have any meaningful effect vs placebo, part of the issue was that there’s no guarantee that there is even the thing on the label inside the pills or that their formulated in a way that actually makes them available to the body. For instance this study in magnesium supplementation shows a 20-90% absorption based on brand.
* State lotto
* Psychic hotlines
* Supplements/vitamins of dubious value
* Regular stocks with wildly ridiculous P/E ratios
* Various forms of "insurance"
Which is to say, it's never been about protecting people from fraud and it's always been about limiting who's allowed to participate in the capital class activities.