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10 April 2012

Power To The People 1%

Taibbi eviscerates the "JOBS Act", which sounds like, well, it's a jobs program but actually removes criminal penalties for some fraud in high finance. For example:

But the big one, to me, is the bit about exempting firms from real independent tests of internal controls for five years.

When I first read this, I asked myself: how does a law exempting a Silicon Valley startup from independent accounting actually encourage investment? If American companies have to have their internal processes independently verified before and after they go public, doesn't that give investors all around the world a big reason to put their money here, instead of investing in, say, Mobbed-Up Siberian Aluminum LLC, or Bangalore Sweatshop Inc.?

In other words, how does letting www.investonawhim.com go to market (and stay on the market for five years!) without publishing real numbers actually help the industry attract more financing in general, when the whole point of all of these controls is to make investment a less risky experience for the investor?

The justification for this is that filling out legal forms and conducting independent audits is expensive.

Heavens!

In the end, the burden is further transferred to investors:

There's just no benefit that the JOBS Act brings to an honest startup company. In fact, it puts an honest company at a severe disadvantage, because now it has to compete against other, less scrupulous companies that can simply make their projections up on the backs of envelopes.

[...]

In the same way, get ready for an avalanche of shareholder suits ten years from now, since post-factum civil litigation will be the only real regulation of the startup market. In fact, there are already supporters talking up future lawsuits as an appropriate tool to replace the regulations being wiped out by this bill.

I'm sure in the near future we'll see some "tort reform" legislation that will address the issue of this sort of lawsuit.

And:

The JOBS Act seems like it will invite a replay of the disastrous tech-stock bubble of the late nineties. That mess was made possible by a historic collapse in accounting standards, with the great investment banks the pioneers of the collapse. In the old days, in the fifties and sixties for instance, you would never take a company public that wasn't profitable at the time of the IPO, or didn't have a multi-year track record of solid revenues.

Can anyone explain to me how this legislation is helpful to the nation in any real way? The economy is already shaky, do we really need to introduce even more incentives to inflate bubbles and rip-off people?

And can anyone explain to me how neoliberal economics, as practiced by the current and former Democratic presidents and their party, differs from traditional Wall Street Republican economics? (Perhaps it's even gone further than that.)

And as a bonus, can anyone explain to me how we, as a People, became so goddamned stupid?


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Comments

gyma

Just finished reading Taibbi's entire post and this is why we're no longer playing the market. Sure our earnings are ridiculously minuscule, but we won't be taken to the cleaners again, either. As Taibbi said, the people who will be hurt are the individual investors (meaning everyone who has an IRA invested in the market). I think Matt might be underestimating the hurt because institutional investors will likely get their clocks cleaned, too.

I can't help but wonder if the JOBS Act will end up being Obama's equivalent to the repeal of Glass-Steagall.

spork_incident

Killing G-S was the absolute worst thing that could have been done. Everything else is gravy.


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