It's already pretty bad -- one firm I talked to was planning an IPO last October, which they pulled after the markets sank. Prior to pulling, they had to spend $2.5mm preparing for the IPO in legal and regulatory fees (not including bank's underwriting fees).

Think about what that means: for a firm worth $100mm, they would have to spend 2.5% of their net worth just paying lawyers and accountants to comply with regulations. Never mind the ongoing costs of SOX implementation after the IPO.

Without knowing anything about the mechanics of IPO's I'm sure there's a great opportunity for a startup with a heavy finance background. The amounts charged are absolutely absurd.

Non-existent systemic risks???? Did you suddenly forget about the last year. Have you been asleep for the last 18 months? Systemic risks are very much existent.

And if banks and financial institutions are going to cry for federal bailouts every time a "systemic risk" rears its ugly head, the only thing any responsible government official can do is put in regulation to make sure that the systemic risks are controlled.

The financial industry loves to complain about regulation but it is the financial industry that brought this on their own heads by (1) fuckign up, and (2) asking the taxpayer to pay for their fuckup.

As far as the rationale, it is different from what you said. The rationale is that certain parts of the economy are so intertwined that if one financial company craters it can cause a chain reaction disaster for multiple other completely healthy financial institutions. I am not sure I buy this logic, but again the financial industry used this very same logic to say it was not their fault when the economy imploded, so it is only fair that the same thinking should be applied to them now that the feds are starting to regulate them.

Now you could make somewhat of an argument that VCs are not systemic risks, and that may be true if they were mostly owned by wealthy individuals, but that's not the case. VCs are mostly owned by financial institutions that may borrow against their property, so if the value of a VC craters they may cause a sell off spiral in a larger financial institution. Again, I am not I believe the above sentence, but if you buy into the theory of systemic risks, it is pretty obvious that VCs are one.

Systemic risk is a risk that can cause the financial industry to collapse. VCs are not a systemic risk they are only $28 billion in size, are positively exposed to extreme market moves and are not leveraged. With a VC investment the most you lose is your initial investment. With any form of leverage you can possible lose more then your actual investment and are negatively exposed to extreme moves in the market. If a VC's principles are leveraged up that still does not change the systemic risk exposure of the VC fund. The institutional investor is the one carrying the systemic risk.

I meant only with respect to VCs, as to which I believe there is no credible argument to be made about their failure potentially triggering any form of systematic financial crisis.

The rest of the whole sorry mess has been a disaster, one initially triggered by the bogus subprime paper generated through the Fannie/Freddie programs, and it is in that direction that regulators should focus their efforts, not on an an industry that had nothing whatever to do with this fiasco (a point also made in passing by the author of this article).