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A bunch of drunken 12-year-olds

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I’d laugh if so much wasn’t at stake. Congressman Jared Polis (D-CO) wrote an op-ed in the Wall Street Journal a while back when all the Motor City madness first surfaced. Polis, who made his fortune as an Internet entrepreneur before entering politics, wondered why so many Congressional staffers now fancied themselves financial wizards ? la J. Pierpont Morgan. He rightly noted he launched and ran multiple businesses, and he couldn’t make sense of Congress’s numbers, at least not without the benefit of time. But his colleagues had solutions at the ready just days after the frenzy began. His assessment (which isn’t a surprise to any of us): They don’t have a clue. It took guts, and didn’t make the freshman popular with the Beltway cocktail party crowd.

I’m reminded of all this as the administration’s desire to regulate venture capitalists is coming to light. According to Geithner, the need is there because they represent a systemic risk. It’s one of those horrific moments when the cockpit door flies open and you realize the pilots are drunken 12-year-olds.

According to the Journal, “The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital firms should be forced to register with the SEC, and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren’t “a threat to financial stability.”

Since then, VCs have been trying to figure out how they could possibly threaten the financial system. Their work involves very little banking, the paper writes. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. VCs and the companies in which they invest use little or no debt.

As Jack Biddle of Novak Biddle Venture Partners notes in the piece, either Geithner doesn’t know this or he’s masking a larger unknown agenda. Either way I’m joining the 12-year-olds in a drink.