On a bipartisan 73-26 vote, the Senate passed its version of the so-called JOBS bill, which has very little to do with creating jobs. This happy acronym stands for Jump-Start Our Business Startups. Whenever you hear the word "bipartisan" you know you're going to be fracked as they used to say on Battlestar Galactica.
One issue is crowdfunding, which is a euphemism for unsolicited hoodwinking of the public. From The Huffington Post's JOBS Act: Senate Passes Small Business Investment Bill—
The legislation combines six smaller bills that change Securities and Exchange Commission [SEC] rules so small businesses can attract investors and go public with less red tape and cost. It eases rules on advertising and permits startups to use the Internet and other social media to solicit a large number of small-scale investors...
The measure would remove SEC regulations preventing small businesses from using advertisements to solicit investors, raise from 500 to 2,000 the number of shareholders a company or community bank can have before it must register with the SEC, and allow smaller companies to sell up to $50 million in shares, compared with $5 million now, without filing some SEC paperwork.
It also encourages the practice of "crowdfunding," in which the Internet is used to raise capital from a large number of smaller investors. The measure as it passed the House limits individual contributions to $10,000 or 10 percent of the investor's annual income.
Senate Democrats managed to insert some "protection" for investors into the legislation. The House had passed a version (by a 390-23 vote) which allowed no-holds-barred rape of the public.
The Senate passed, by 64-35, an amendment on crowdfunding that requires websites to register with the SEC, requires promoters who are paid by a company to reveal that fact and requires a company trying to raise money to provide information about its financial condition, business plan and shareholder risks. It limits investments to 5 percent of annual income for those earning under $100,000 a year, or 10 percent for those earning more than $100,000.
Hopey-Changey had expressed support for the House version before this tepid amendment was passed. Does anyone really take seriously the notion that registering with the SEC is going to deter con men? What does the SEC do under current law outside of looking the other way? The bill's sponsors didn't use an honest acronym to describe this bill because they needed to hide its real intent. How about the somewhat awkward acronym TASBEM? That stands for There's A Sucker Born Every Minute. At least this acronym is ugly, just like the bill itself.
The Baseline Scenario's Simon Johnson, former chief economist of the IMF and a person who is serious about America in every way in which I am not, enlightened us about the House version. (He wrote this before the Senate vote.)
The idea behind the JOBS bill is that our existing securities laws – requiring a great deal of disclosure – are significantly holding back the economy.
Professor John Coates hit the nail on the head:
“While the various proposals being considered have been characterized as promoting jobs and economic growth by reducing regulatory burdens and costs, it is better to understand them as changing, in similar ways, the balance that existing securities laws and regulations have struck between the transaction costs of raising capital, on the one hand, and the combined costs of fraud risk and asymmetric and unverifiable information, on the other hand.” (See p.3 of this December 2011 testimony.)
In other words, you will be ripped off more. Knowing this, any smart investor will want to be better compensated for investing in a particular firm – this raises, not lowers, the cost of capital. The effect on job creation is likely to be negative, not positive...
Sensible securities laws protect everyone – including entrepreneurs who can raise capital more cheaply. The only people who lose out are those who prefer to run scams of various kinds...
Perhaps the worst parts of the bill are those provisions that would [make] “crowd-financing” exempt from the usual Securities and Exchange Commission disclosure requirements. A new venture could raise up to $1-2 million through internet solicitations, as long as no investor puts in more than $10,000 (section 301 of HR3606). The level of disclosure would be minimal and there would be no real penalties for outright lying. There would also be no effective oversight of such stock promotion – returning us precisely to the situation that prevailed in the 1920s.
This might well pump up the value of particular stocks – that was the experience of the 1920s, after all. But ephemeral stock market bubbles are not without real consequences. The crash of 1929 was made possible by the lack of constraints on what stock promoters could say and do. Combined with excessive leverage, this led directly to the Great Depression...
The legislation would also undo many parts of the 2002 Sarbanes-Oxley law, which was created in the wake of accounting scandals at the likes of Enron and WorldCom. The proposed new rules have been crafted hastily and pushed through in a great rush – presumably because the election season is upon us.
Where are the supposed guardians of our financial system?
That's the difference between Simon and me. He asks where the guardians of our financial system are. I say What guardians? I don't see no stinking guardians.
New York Times columnist Gail Collins hit the nail on the head in The Senate Overachieves.
You could also call it the Just Open Bucket Shops Act.
But it’s for small businesses! Small business is the heartbeat of the American economy, partly because the way politicians define it, the term includes virtually everyone. Enterprises so tiny that they are hardly a business. Endeavors so big that Republicans can argue that raising taxes on the richest 1 percent would be a terrible blow to small business owners.
These days, we are all small businesses.
And it was bipartisan! “Democrats are eager to move this bill forward,” said the Senate majority leader, Harry Reid. One of the biggest complaints about the bill in the House was from Democrats who claimed the Republicans had stolen it from them.
When it comes to deregulating business, all of the worst ideas in the modern history of Congress have been bipartisan to the core. People, when you see Republicans and Democrats together, holding hands and talking about unleashing the magic of the marketplace, hide your wallets.
Maybe we’ve had too much legislative achievement already.
The water is full of sharks. And you can bet that our craven Congress will do their best to accommodate these would-be thieves. So hang on to your wallets. Congress and the President are about to unleash an army of grifters who want to fleece an often unsuspecting public. Keep in mind that this is a bipartisan effort, as Collins wrote. It has always been that way. Screwing the public in the name of serving it is the American Way.
History will record that this—the so-called JOBS bill—was the way the political system responded in 2012 to the greatest economic crisis since the Great Depression.
Bonus Video — Ernie Ford's Sixteen Tons