Here’s some more alternative investing nostalgia, this time jetting us back to the summer of 1986. As 1978 (and then 1981) saw substantial cuts to the capital gains tax, a subsequent boom in venture capital and private equity occurred. 1986 saw congress increase capital gains and VC’s across America cried foul. It’s not terribly difficult to connect that the benefits that a lower capital gains tax presents to venture capitalists will benefit entrepreneurship and emerging sectors, while any changes to the corporate tax rate will most significantly impact more mature companies.
Many people in finance, or finance related industries, fail to view their businesses with any adequate historical perspective. In my experience investment bankers are probably the most guilty of this offense. There have been banking crises as long as there’s been a banking industry, yet the same binge and purge tactics prevail amongst the banks. The dilemma is often exacerbated by business journalists trying to turn every story that goes to print into instant history. For all the writers that penned that the credit crunch would kill private equity, they were simply rehashing the same drivel they wrote when the junk bond market collapsed two decades before. It’s simply another chapter for the industry.