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[personal profile] giandujakiss
A Colossal Mistake of Historic Proportions: The “JOBS” bill
From the 1970s until recently, Congress allowed and encouraged a great deal of financial market deregulation – allowing big banks to become larger, to expand their scope, and to take on more risks. This legislative agenda was largely bipartisan, up to and including the effective repeal of the Glass-Steagall Act at the end of the 1990s. After due legislative consideration, the way was cleared for megabanks to combine commercial and investment banking on a complex global scale. The scene was set for the 2008 financial crisis – and the awful recession from which we are only now beginning to emerge.

With the so-called JOBS bill, on which the Senate is due to vote Tuesday, Congress is about to make the same kind of mistake again – this time abandoning much of the 1930s-era securities legislation that both served investors well and helped make the US one of the best places in the world to raise capital. We find ourselves again on a bipartisan route to disaster.

The idea behind the JOBS bill is that our existing securities laws – requiring a great deal of disclosure – are significantly holding back the economy.

The bill’s proponents point out that Initial Public Offerings (IPOs) of stock are way down. That is true – but that is also exactly what you should expect when the economy teeters on the brink of an economic depression and then struggles to recover because households’ still have a great deal of debt. And the longer term trends over the past decade are global...

[Y]ou 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 allow “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.
Unions Oppose ‘Jobs’ Bill; Wall Street Eschews ‘Invest’ Act
Welcome to Washington, where unions don’t like “jobs” and Wall Street doesn’t want to “invest.” The name of Congress’s latest piece of election-year engineering could confuse almost anyone.

The “jobs” measure would make it easier for companies with annual revenues of as much as $1 billion to launch initial public offerings, in part by temporarily rolling back corporate governance and accounting rules enacted in response to the Enron and WorldCom scandals. The bill also would make a variety of technical changes to the securities laws so privately held companies could raise more cash.

On Saturday, Richard Trumka, president of the AFL-CIO, issued an e-mail alert to 800,000 members with the subject line “The JOBS (killing) ACT.” Mr. Trumka urged members to call their senators to “smack down deregulation,” warning in part that the bill would weaken the Securities and Exchange Commission.

“Our members are deeply concerned about why anyone would try to deregulate the financial sector after the financial crisis revealed what happens when there are no rules for Wall Street,” said Jeff Hauser, a spokesman for the AFL-CIO, adding that 35,000 members had contacted their lawmakers in response to the alert.

In lieu of the “jobs” bill, Mr. Trumka urged his members to vote in favor of a substitute bill promoted by a small group of Senate Democrats ...that would prune less from existing securities regulation than the House-passed jobs bill. The substitute, dubbed the “INVEST in America Act,” would incorporate an array of changes called for by SEC Chairman Mary Schapiro and institutional investors.

Although the Obama administration signaled last week that it backs the “invest” act, the measure is unlikely to garner enough Republican support to clear a crucial 60-vote threshold. Key groups within the finance industry also oppose the substitute measure.
More detail on what the Invest Act would change:
limits the companies that would qualify as "emerging companies" to those with less than $250 million in gross revenue and by eliminating the House bill's exemptions from accounting rules, say-on-pay and golden parachute vote requirements, and executive compensation disclosures. And it provides somewhat greater protection than the House bill against a resurgence in the kind of abusive securities analyst practices that fueled the tech stock bubble and bust.

... It includes stronger pro-investor provisions from the Senate Reg A bill, including requirements for audited financial statements, SEC authority to require up-front disclosure and periodic reporting, and a negligence-based litigation remedy. Importantly, it improves on that bill by limiting companies to raising $50 million through Regulation A offerings over three years, rather than once every 12 months, thus significantly reducing the risk that this provision will be used to evade public reporting requirements for larger companies.

... takes important steps to minimize the potential for harm, in particular by requiring that crowd-funding be conducted through an appropriately regulated Internet portal and requiring offerings of all sizes to provide financial information to investors subject to regulatory requirements appropriate to the size of the offering.
But Wall Street opposes it, so we can expect to see this passed about four months after the end of infinity.

So, the takeaway here is - do not ever, ever invest in a venture raising money online. Do not invest in any company that has not formally filed a registration statement that has been approved by the SEC. Do not invest in a company that has not distributed audited financial statements, preferably by a reputable accounting firm (not that I have much respect for those, but still.) Do not ever, ever invest in a company because of a cold call to your home - or let your elderly relatives/friends invest that way, because that's who they'll target. Because you will not be able to distinguish legit enterprises from fraud, and you will likely have few or no legal protections. You have been warned.

ETA: NYT weighs in.

Date: 2012-03-20 10:58 am (UTC)
alexseanchai: quill, ink bottle, and calligraphy (Default)
From: [personal profile] alexseanchai
...Kickstarter? *sad*

Date: 2012-03-20 12:26 pm (UTC)
ratcreature: RatCreature begs, holding a sign, that says: Will work for food, with "food" crossed out and replaced with  "comics". (work)
From: [personal profile] ratcreature
I thought kickstarter was more for things where you didn't expect to see your money back, let alone multiplied, but thought the project was worthwhile. I've never given money there, but aren't those donations? Like someone wants to make an indie film and can't get any art grant money or whatever, but you think the description is cool, so you pledge a small amount, like $50 or something, then they find a thousand other people who also like to see that film, and with a bit of luck and crows linking they might raise the money with enough pledges. That's not investing. I mean, afaik you aren't promised the film to become a surprise underground hit that will then launch a billion dollar franchise and you get awesome returns on the money.

Date: 2012-03-20 02:12 pm (UTC)
kore: (Default)
From: [personal profile] kore
Yiiiikes.

Date: 2012-03-21 12:51 am (UTC)
thirdblindmouse: Robin: "Are you gonna come quietly, or do I have to muss you up?" (do I have to muss you up?)
From: [personal profile] thirdblindmouse
A law I would like to see passed: congressional bills shall not be named in such a way as to be acronyms of English words. It's manipulative beyond an acceptable and unavoidable level, not to mention being insultingly transparent in its manipulation.

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