Emerging Financial Organisms

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.