Friday, April 6, 2012

A Jobs Bill for Wall Street

The newest JOBS Act, an acronym for Jumpstart Our Business Startups Act recently sped through Congress with huge bipartisan support. The bill passed the Senate 73 to 26 last month following an even more lopsided 390-23 vote in the House of Representatives. Some say it received such large support in large measure to the IPO (Initial Public Offerings) Task Force which convinced members of Congress that 90% of job creation comes after companies go public. But many were against the bill, according to the North American Securities Administrators Association: State regulators claim the JOBS Act remains a “fundamentally flawed product of a rush to legislate,”

 This must not be confused with the expensive 447 billion dollar deficit ballooning JOBS BILL that Obama was calling for last September aimed at putting Americans back to work. That bill contained payroll tax cuts, investments in things like roads and schools, and less-publicized steps including everything from experiments in job training to a provision designed to prevent discrimination against the unemployed.

 Critics of the new legislation sight the dismantling of many investor protections Congress put in place a decade ago after accounting scandals at Enron and WorldCom. Small businesses will now find it easier to solicit and raise money, but scam artists will also  find it easier to dupe naive and less-sophisticated investors. It will be a bonanza for guys with fuzzy reputations that choose to step into the hedge fund business. The new JOBS Act opens the spigots up for creative upstarts and the established wanting to raise new capital. Under the new law hedge funds will be able to sponsor sporting events, begin advertising their funds in print, and promoting to the general public at large, this overturns a ban that dates back to the Securities Act of 1933.  

 Here's a look at the main points in the American Jobs Act, it is comprised of six bills that will make it easier for companies to go public and raise money. Supporters say fast-growing businesses will be able to use the new capital to hire more employees. The administration has urged  the legislation which arose from recommendations by the president’s Council on Jobs and Competitiveness. It increases private companies to have as many as 2,000 investors, instead of the current limit of 500, before going public or filing with the SEC. The bill even allows for online investments made through either a registered broker-dealer or a registered funding portal that is a third party not directly benefiting from the investments. The bill even has a "pathetic limit" on how much can be "pledged", all individual investor will be allowed to pledge at least $2,000, but contributions above that would be based on annual income or assets.

As we continue to recover from the worst economic downturn since the Great Depression this does not maintain oversight, transparency, and accountability over our financial markets. A Democratic House member of the New York delegation who opposed the bill, said the measure “won’t create jobs, but it will create fraud.” Barbara Roper, director of investor protection for the Consumer Federation of America, predicted wealthy Americans will receive mail and cold calls once the legislation becomes law. The legislation “paints a big target on wealthy investors who will get solicitations to invest in speculative start-up companies,” Roper said. She goes on to say “The ban on general advertising of private offering is gone. Most people will lose money because most of these companies will fail.”

The deputy director of the Council of Institutional Investors, said that after the dot. com bubble burst, Congress required public companies to hire external auditors to verify they have proper internal financial controls. This bill will roll back that requirement for a whole slew of companies and this applies to new companies with as much as $1 billion in revenue. Study after study has found that smaller public companies are more prone to financial reporting fraud. Consumer groups, AARP, the Council of Institutional Investors and the North American Securities Administrators Association are troubled by the planned rollback of consumer protections for people who invest in small businesses. Securities and Exchange Commission Chairwoman Mary Schapiro also wrote a letter to Congress expressing her concerns.

According to Bloomberg news, March 12, 2012, “The Jobs Act Won’t Create That Many Jobs.” Their opinion is the legislation should be named, “JOBS in Theory,” referencing overblown claims about new jobs in the JOBS Act. A lot of money may flow into hedge funds and while they do indirectly create jobs by investing in IPOs, stocks, derivatives, bonds and whatever they fancy will make money, are they job creators? When’s the last time you heard of job openings with a hedge fund? The theory behind this bill is that small companies provide the most robust job growth in America, which is a well-documented fact, but I see few of the small business owners I know that will benefit from this bill.

When all is said and done, the JOBS Act appears to be a misnomer, sadly this bill has more to do with allowing deal makers to raise money then helping small business create new jobs in the "real economy." How necessary is this new legislation, and why the big rush to finalize it when normally Congress can’t seem to agree on anything?  There are detractors who believe it is called the "JOBS Act" only to give political cover to those who voted for it, and to the president signing such a flawed bill. Looking closely it seems the bill was crafted on behalf of the highest ranks of capitalism and not to benefit small businesses. Maybe naming it the Wall Street Act would fit better. After many American investors have been scammed out of their money Washington politicians can then demand even larger and more government as they ask, how did this happen?

Footnote; This article has again become important because of several things taking place in Washington. This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.

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