ShmoopTube

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principles of finance a la shmoop the government's job and non job so what

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is the government's job when it comes to helping us manage our finances or even

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think about finance or set up the laws you know set the table for the way we

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govern ourselves as it relates to finance well is it their job to guide us

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into what stock we should buy yourself no definitely not [Uncle Sam putting up wooden sign]

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is it their job to make a level playing field so that everyone gets treated

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equally ish yeah more or less and that's at least the goal even though it doesn't

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happen in real life well we have to start by looking back for our country's [black hole of money]

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long and sordid history as it relates to financial dealings

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well after myriad screwing Sauveur of innocent to mostly farmer types trying [unhappy farmers]

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to invest like the well-educated and rare at the time anyway college

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graduates of the early 20th century America the government stepped in [happy college graduates]

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through various means trying to shelter the average citizen from doing stupid

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things with their money and there are ethical questions here right is it the

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government's job to prevent people from doing stupid things with their own money [man makes a suit out of money]

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mmm well people smoke people drive 98 miles an hour in the highway people

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don't wear a helmet when they're driving on the motorcycle they watch hours of

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reality TV shows well the government allows smoking why isn't crazy investing

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in that category as well hmm and for that matter why don't we ban the lottery

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as well that's just about the dumbest quote investment decision unquote one [lottery tickets]

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can make but in fact the government doesn't try to prevent those kinds of

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stupid things rather it's the job of the regulator's of the government to require [bottles of alcoholic drinks]

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disclosure of risks hopefully so that they're understandable for more or less

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everyone when investment opportunities come along it is not the government's

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job to prevent the doing of stupid things yeah smokers know that cigarettes

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are bad for them the badness is disclosed the same goes for investing

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risks ie on page 14 of whatever investing prospectus well it'll probably

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say something like the company believes that the chemicals will make the cows [pages flipping in book]

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fart Chanel number five instead of producing ozone destroying methane [highlighted passages in book]

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however it may also make them nuclear reactive in which case well good luck

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for all of us tiny little mushroom clouds horns even [explosion]

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if a bunch of farms get nuked the badness then was disclosed so you know

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lawyers go away well the key distinction between public

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and private investing is that public investing carries much more of the

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weight of government regulators behind it the hurdles companies must jump

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through in order to be listed on the New York Stock Exchange our high hurdles [woman jumps through hurdles]

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long periods of audited financials deep disclosures of the business practices of [writing on white board]

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the company the management what they did and whether that arrest in Rio really

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was about heroin and meth dealing and then what about the board of directors

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what's their history do they know finance or do they just know baseball

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and football like Bo hundreds of audit requirements the list goes on and on and

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on well this set of strictures applies to

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publicly traded stocks and bonds and here are the regulations for private

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investments ie when Arsenio Q public decides to invest in hedge funds R Us

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yeah pretty much nothing why mmm alright we're thinking well what about investing

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in another kind of private fund like you know a hedge fund

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it's like private equity hedge fund venture capital what about them well now

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most hedge funds required that the investor declare that they have a net [writing on white board]

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worth of over n millions of dollars or income levels above 250 grand 500 grand

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something like that or that they are a self-proclaimed financial expert in one

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form or another and they can demonstrate it and it doesn't mean they just took

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this crappy yet remote finance course but that's it relatively no regulations [tumble weeds roll through town]

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applied a private investing other than that investors must live by a more or

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less whatever is written in a contract that they've signed that indenture thing

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yeah that matters so then a bunch of journalists who clearly never took this

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crappy all right it's not so crappy finance course right endlessly about how

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unfair it is to the common man that they didn't get to invest half their

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hard-earned savings in the original round of Google that these private

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venture capital funds are only for the rich and generally not very famous well

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the reality is 99% of venture capital funds are awful

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they're awful investments like you put in a million dollars and all you get

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back is a mug that says thank you for playing come again about a third of [a mug next to a pile of money]

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those funds don't even return half of the money put into them and another [pie charts]

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third are lucky to return all the original principal capital invested

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still another 30% do worse than a typical growth index mutual fund and in

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which pretty much anyone with $250 or more can invest and buy so should we

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keep people from buying venture capital funds when we know they'll lose most of

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their money it's basically one flavor or another of the lottery yeah should we [lottery tickets]

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protect that kind of common man well in general the attitude of the government

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has been that if private wealthy people want to take a lot of risk trying to

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find a lottery ticket well then they shouldn't have to be protected in the

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same way the government protects the average honest farmer saving six

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thousand dollars a year to hopefully put his kid through college so they don't

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have to be farmers well ultimately this is a question without an answer some

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people will forever argue that the government should get more involved in

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the world of finance regulated heavily while others will argue that the feds

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should you know keep their hands out and let the money do the talking either way

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it's a balancing act on one hand trying to protect the little guy and on the

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other hand trying not to overburden businesses and corporations with

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government intervention so yeah like walking a tightrope across

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shark-infested waters it's always Shark Week around here it's month [Uncle Sam walking a tight rope above sharks]

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