"The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:
1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;" (SEC.gov)
Quoted from Michael Lewis Bloomberg interview:
"Just how human the financial markets were on the buy side was very interesting to me. There were several layers to the interest. I can remember the first thing that grabbed me was, I was shocked that these big firms that used to essentially be the smart money at the poker table had become the dumb money and I was really curious how that had happened.... I'd watched them change over the years and adapt to the world in ways that enabled people to continue to get paid large sums of money in them. I mean, the outrageous behavior that I described in Liars Poker that didn't exist, the places got much more corporate, got much more sanitized, all at preserving pay checks."
I agree 100% with what Lewis says below.
"It was insane the credit default swaps were not regulated as insurance, and that they aren't. It's insane that everything (a security) that's created isn't traded on screens with a clearing house so people can see what the prices should be. The problem is it's totally hidden."
Why can't retail investors own part of the "senior bank debt" on a publicly traded company's balance sheet, and hedge or speculate using a credit default swap (insurance) using a publicly traded CDS market. If risky illiquid small cap stocks and options can be bought and sold through online brokers, why can't the same be done with publicly traded illiquid senior secured debt, junior debt and OTC derivatives through a centralized exchange, even if institutions are the majority holders? Retail investors would still need to be accredited investors with capital requirements. As a result there would be lower transaction costs for the corporation, more business for online brokers, more liquidity, more price transparency, less marketability risk and would provide more investment opportunities and risk management techniques for the retail investor. No? Transparent investing and trading would be open to everybody with capital across every asset class. I see the NYSE is making moves in the bond space, being the largest electronically traded centralized bond market in the US.
What about tradable mortgage bonds? Read A Danish fix for the US mortgage crisis by George Soros at GeorgeSoros.com. Hat tip @edwardrooster.
"I would recommend the system of mortgage credit used in Denmark, where loan-to-value ratios and underwriting standards are strictly enforced by a single, strong regulator. These mortgages are transformed into instantly tradable bonds. Cover for the bonds is provided by both the mortgages and the credit of the financial institutions issuing them. The mortgages remain on the balance sheets of the issuers, eliminating the moral hazard inherent in the US system, which is based on earning fees from selling them on to the market.
The standardisation of mortgages in the Danish system promotes transparency and liquidity. Householders can prepay their mortgages at any time by buying the bonds. Since house values and bond prices tend to move in unison this arrangement reduces the danger of householders' equity falling into negative territory. For the issuing banks, owning these bonds carries lower capital requirements so the bonds sell at a premium to ordinary covered bonds. This system has survived and provided affordable home mortgages since its creation shortly after the great Copenhagen fire of 1795.
I pioneered the introduction of the Danish system in Mexico with the support of Paul O'Neill, when he was Treasury secretary. With modification, it offers a long-term solution to providing affordable mortgages in the US." [Source: GeorgeSoros.com]
I was also told to check out secondmarket.com which is, as of today on their website, a $10 billion market for illiquid assets which includes auction rate securities, bankruptcy claims, collateralized debt obligations, Limited Partnership (LP) interests, mortgage backed securities, private company stock, restricted securities, whole loans, and coming soon, TruPS (trust preferred securities), 363 bankruptcy sales, private REITs and asset backed securities. That is genius. There's already a peer-to-peer consumer debt marketplace at Prosper.com and you can also buy and sell receivables at Receivablesxchange.com.