The Senate has passed the so-called JOBS Act. Now it goes back to the House for further debate. The legislation claims to roll back regulation that allegedly is making it harder for entrepreneurs to raise capital. Supporters say startups could more easily raise money from the general public. They would also face much less disclosure and internal audits than is now the case. It would also allow “crowd financing,” such as through internet solicitations.
The danger of the JOBS Act is that it is yet another piece of deregulation coming on top of two downturns, the Enron-Worldcomm-HealthSouth debacle and the housing bubble/financial panic, that were caused by just such measures. Indeed, it seeks to return America to a 1920s-style anything-goes environment for stock sales. (We saw how that turned out). MIT economist Simon Johnson calls it “a colossal mistake of historic proportions“:
We still have excessive leverage in our financial system today, despite the claims of the Federal Reserve. Allowing the unrestricted promotion of stocks in this fashion is a major step — again — down the path to economic self-destruction. 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 is the White House? Passive, as usual. The administration has recently become less supportive. As the Economist reports, “Democrats have belatedly woken up to the act’s radicalism.” Yet lobbying by the Wall Street boyz is intense and, as Johnson points out, “The White House is reportedly taken with the idea of crowd-financing and wants a quick political win in the form of legislation; the Obama administration is poised to concede too much to financial sector interests, again.”
So here we are again, ignoring the all-important Rule of Holes: “When in a hole, stop digging.”
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Today’s Econ Haiku:
All eyes on the court
Obamacare in the dock