Back in the 1950s the way to pass any bill in Congress was to put “National Defense” in the title. That’s how President Eisenhower got the interstate highway system built.
Now, all you have to do is say the word “jobs” and you could get Rick Santorum to face Mecca five times a day.
All other concerns must be brushed aside, so if covering Denver in toxic sludge produced 500 new jobs, then it’s pour, baby, pour!
The most recent example of jobs hysteria was the, well, JOBS Act—Jumpstart Our Business Startups—passed with rare bipartisan support and signed by President Obama.
The law addresses a real problem—a huge drop-off in the number of initial public offerings. And since some studies show companies generate a lot of jobs in the years after they go public, it’s a Good Thing to make the road to an IPO easier. I even think newly public companies and their executives should be exempt from capital gains taxes for their first five years in business.
But the JOBS act helps entrepreneurs and venture capitalists while it screws investors by stripping some basic protections. Companies with gross revenues of less than $1 billion a year (a LOT of companies) will now be exempt from basic SEC financial reporting and auditing requirements, and start-up CEOs will be able to tout stocks in ways they never did before.
Also, the threshold for being a “qualified investor” who can invest in these companies drops a lot, and private companies can have a lot more investors before they have to go public. Here’s a sympathetic view of what’s in this legislation.
The idea is to unleash the power of “crowdsourcing” to fund more startups and cut the red tape in going public.
That’s good, but it undoes a lot of the hard-won protections put in after the Enron and WorldCom scandals and New York Attorney General Eliot Spitzer’s settlement with Wall Street firms.
Its main target, of course, is the Sarbanes-Oxley Act, a bête noire for conservatives since it passed the House 423-3 and the Senate 99-1, with near-unanimous Republican votes.
But short memories aside, those acts addressed real problems. I’ve spoken with hundreds of investors who took a beating in the dot.com bust. Some of it was their own fault, but there was a lot of misleading information in those days. The JOBS Act will only open the door for more of it in a part of the market that’s a magnet for the scum of the earth.
As Matt Taibbi, one of Wall Street’s most scathing critics, put it:
…One could say this law is not just a sweeping piece of deregulation that will have an increase in securities fraud as an accidental, ancillary consequence. No, this law actually appears to have been specifically written to encourage fraud in the stock markets.
…This is like formally eliminating steroid testing for the first five years of a baseball player’s career. Yes, you can pretty much bet that you’ll see a lot of home runs in the first few years …. But you’d better be ready to stick a lot of asterisks in the record books ten or fifteen years down the line.
And he’s hardly the only one to push back. SEC chairman Mary Schapiro and former chairman Arthur Levitt opposed it, as did the financial analysts’ organization, the CFA Institute, and the Consumer Federation of America.
Some changes were made in the face of the criticism, but not many. When you’re talking jobs in an election year, politicians will run over everybody like a steamroller, and long-suffering investors are expendable.