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.