Income of USD 200,000 doesn't make you rich (or smart)

Note to SEC: 200,000 Doesn't Mean You're Rich - James Grieff

"The Securities and Exchange Commission today approved an end to a long-standing rule that barred hedge funds and private investment groups from advertising to seek capital from the public...The 80-year-old ad ban placed limits on how certain funds could solicit money from the general public for "private placements" -- investment arrangements that are exempt from SEC registration rules and their accompanying financial disclosures...Although the SEC had to end the ban, it didn't have to leave intact outdated standards outlining which investors would be allowed to put money into private placements. For individuals, such "accredited investors" are still defined as those with annual incomes of USD 200,000 ( USD 300,000 for a couple) and a net worth of USD 1 million. To its credit, the agency two years ago decided to exclude a primary residence from the net worth calculation...Those thresholds were set in 1982, when USD 200,000 was worth a lot more than it is today. Thanks to inflation, you would need to make almost USD 500,000 a year to have the same standard of living."

A few years back I took the Series 24 exam to be a securities principle ie a person who supervises stock brokers and broker dealer firms.  As I was reading through the virtual telephone book of rules I wondered which rules had been violated that led to the 2007-2008 meltdown.  The only ones that I could find were possibly disclosure rules - in that some MBS/CMO salesmen may have known that they were selling securities that had a significant probability of going into default and yet they did not reveal this to the customer.  However considering the banks held on to a lot of these same securities themselves I question how much the CMO salesmen really knew.

That is a bit of a sad commentary - all these securities rules (and there are a ton) and they don't protect us from a major financial meltdown.  How much good are the rules really doing?  What it appeared to me was that the focus of the rules were to protect the individual retail investor from unscrupulous con men.  But that was not what nearly took down the system.  On the other hand if not for the existence of that telephone book sized set of rules to cover the behavior of securities salesmen perhaps unscrupulous con men would be a huge problem.  We don't see a huge problem now because the rules are in place.  And this is the point that I want to make - the change referenced in the Grieff article loosens the reigns a bit.  We should be very careful when doing this.  Maybe advertising should be allowed but the rules were there for a purpose.  And Grieff is right to suggest that now might be a good time to update the income requirements.