The essay is very interesting. It's not capable of bearing out its promised subject, because in fact regulation isn't changing very much at all, it turns out. Some bills that aren't going to pass have been introduced, and the SEC's enforcement mechanisms—never very quick in dealing with even small, let alone large, offenders—have not yet done more than open some investigations of "innovative" ways of putting investors at a disadvantage. In reality, your essay demonstrates instead a smaller point: disintermediation affects financial services businesses in the 21st century, including investment intermediaries. Eventually, though certainly not now or soon, those changes will imperatively require modification of a regulatory system built in the 20th century to constrain intermediaries in the interest of protecting investors.

This is undoubtedly correct, though there is ample evidence that your focus is too narrow in that: (1) you manage to write about financial regulation now without mentioning the larger and more well-known controversies about recent changes in financial industry regulation; and (2) you describe the changes that interest you primarily from a single perspective only: that of someone trying to get investment in a personal proprietary technology business. How the changes occurring in the disintermediation process might affect the process of achieving regulation's primary goal, the protection of investors, is ignored altogether. Because investors don't need protection from you, the implication seems to be, they don't need protection at all, and if investing in your business can be made easier, then the world as a whole is unambiguously better off.

As in your first essay, where too you were the measure of all things, there is an appealing simplicity in this. If the primary questions we should be dealing with concern not the three billion children who cannot afford the price of education, but people like you who can afford a copy of Photoshop, or whether you will be allowed to buy your first Porsche out of your online series A funding, this scope of analysis is sufficient. Although I'm surprised that you could revise this work in May 2012 without removing the now-absurd references to the "Facebook Era" in the obsoleting of securities regulation. Perhaps that's what you thought last November, which would not be a particularly strong evidence of your shrewdness even then; now the failure to reconsider the tone makes you sound completely tone deaf altogether.

A fuller account of the actual transformation of finance in the Internet society you could not give in 1,000 words, I believe. It is a severe enough criticism that this law school does not contain a course that attempts such an account even in fourteen weeks. (Every time I proposed to teach one, you will not be surprised to hear, deans and senior incumbent teachers scurried around to make up reasons to prevent me. A decade ago I gave up trying. In August 2008 I wrote and in September 2008 presented to the faculty a paper mentioning the inevitability of a major investment bank collapse within weeks or months, which had as little effect as though I had read box scores from the 1923 World Series instead.) But you begin your account in the middle of the weeds instead of at the top of the course, where you could use your 1,000 words to explain major architectural features rather than details. The proper place to begin, I think, is with the disappearance of money. From there, the central role of trust in exchange can be seen. This allows one to begin the analysis of the economy in which money is simply digital signatures indicative of trust in ability to exchange, and securities are actually signed guesses about future "earnings," that is, trust allocations from customers minus trust allocations to suppliers, workers and trusters. Building up all the subsequent propositions is somewhat intricate and subtle work; most existing "thinkers" find it simpler to pay no attention whatever to the fundamental changes, concentrating their attention altogether on minor, previously-relevant details. You have acquired the habit honestly, but it disserves you.

Effect of Technology on Regulation of Capital Markets

Emerging Financial Organisms

That's an interesting jumping off point. Any concrete examples of this type of finance prior to capitalism that I could look into? I agree with you on the contribution piece. People contribute to projects because they are cool, not to make money. This is somewhat true for some early stage angels as well (even if they do make money, that's not the most important goal). And I always have been partial to dinosaurs.

Given the mess of the first essay where the frame was wider, I went for a narrower exercise which was still relevant to my interests. I think envisioning the financial institutions of tomorrow is very compelling, but perhaps in another paper.

A misleading title. The actual subject might be better described as "one way technology is changing one aspect of financial regulation."

The important point is rather that this is contribution, not investment. Kickstarter contributors are neither loaning money at interest nor acquiring equity. You fudge this crucial point, by talking about their receiving benefits. A t-shirt or even an more expensive premium with a significant market value promised in return for a contribution (not contingent upon the success of the enterprise, I should point out) is not investment in the sense we are discussing.

Kickstarter is a mechanism for cooperative fundraising. It is part of another aspect of the 21st century economy enabled by the Net, a sector of trust-based, non-profit, or community-linked enterprises occupying ecological niches unreachable under 20th century conditions because of transactions costs and transportation expenses eliminated by the Net. The sector thus enabled is substantially larger than the existing global industrial economy. Its growth and development over the next hundred years is as large a change in the overall nature of humanity's material culture as the process we call "the Industrial Revolution." Everything we are talking about in this course, let alone in this essay, are small evanescent surface features on the immensity of that phenomenon.

One of the less evanescent surface phenomena is the decentralization of capital accumulation, as cooperative systems of finance—which have traditionally met enormous barriers of transactional complexity and cost, as well as hostile regulatory capture, but which are also more durable and older than finance capitalism by thousands of years—become hyper-functional and efficient under conditions of global hyper-connection. Thinking about Kickstarter plus PayPal can be helpful in modeling the primitive pre-eukaryotic form of the new financial organisms. And naturally you have a pretty good understanding of dinosaur neuroanatomy. It's the stuff in between you're not seeing quite as clearly.

This is so emphatically the least of the significance of what's going on that the essay winds up reminding me of the bird that flew ever faster in ever smaller circles until the inevitable happened, and ....

From my point of view, if the fate of Regulation D is the angle subtended by your telescope, this analysis is descriptively correct. It seems to me a little like explaining what's going to happen to one sandcastle on the beach in Thailand as the Boxing Day tsunami moves in. Some effort to describe the phenomena overall not in terms of traditional terminology, but rather in terms reflective of the situation at the other end of the process might be helpful.

It Actually Worked, or How Technology Is Changing Financial Regulation

Traditional Regulation Framework

Private Securities and Technology Innovation

Emerging Legal Foundation

Payment systems

The Web Challenges Securities Regulation

kickstarter http://www.crunchbase.com/company/kickstarter second market http://www.crunchbase.com/company/secondmarket sharespost http://www.crunchbase.com/company/sharespost

SEC investigation http://techcrunch.com/2010/12/28/sec-private-stock/

1) go through securities regulation that's relevant -- exemptions, HNW investors, disclosure, advantage etc

2) what people want -- access, on demand, law becomes inconvenience

3) technical solutions improve things for both companies and investors, not necessarily within law

4) law reform http://www.bloomberg.com/news/2011-11-02/u-s-house-approves-bills-to-help-firms-boost-capital-by-easing-sec-rules.html

Paper Title

-- By AlexeySokolin - 27 Nov 2011

Sources

http://www.paywithatweet.com/ http://www.paywithtweetz.com/

http://paymentsviews.com/2010/04/04/glenbrooks-model-for-social-payments-a-work-in-progress/ http://paymentsviews.com/2010/06/24/pay-with-a-tweet-a-social-payment-system/

http://andrewchenblog.com/2009/04/13/will-social-payment-platforms-really-work-long-term-guest-post-by-jay-weintraub/

http://paidcontent.org/article/419-google-to-buy-social-payment-provider-jambool/

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