Agreed this is a completely absurd move by the Treasury Department. What brought the financial industry to its knees was too much leverage. Venture capital firms don't use leverage, so they can't be a systemic risk.
And many people who have physical dollars also have credit card debt. Should we force dollars to follow the same rules?
Your comparison is absurd. You're making the case for regulating the same amount of leverage twice -- once when it's borrowed, and once when it's invested. That doesn't do anything but make life inconvenient for the folks who don't lever up.
Then it is the public and corporate pension funds, endowments, fund-of-funds, etc., that should face scrutiny, not the venture capital firms. Figuring out their expected return from their venture capital investments shouldn't be very difficult because of how long the industry has been around, not to mention that venture capital investments on average are only 1-3% of their portfolios (due to venture capital's lack of liquidity), so the amount of money at risk is insignificant compared to the size of the portfolio. If losing 1-3% will collapse an investors fund, then they were over-leveraged to begin with, just like Lehman Brothers.
If the Treasury Department is worried about how much people are putting into venture capital, then they should make a ceiling of 1-3% of the fund's portfolio being able to be invested in venture capital. No regulations are needed on venture capital firms.
