President Barack Obama signs the JOBS act in the Rose Garden of the White House.
Joshua Roberts/Getty Images
A number of people, many of them enthusiastic supporters of President Obama, wrote in to complain about my last piece about the JOBS Act. The gist of many of these letters was that the new deregulatory law could in no way be described as "Obama's JOBS Act."
"This was a Republican bill, birthed by Eric Cantor in the House, and driven by overwhelming Republican support," wrote in one emailer. "All Obama did was sign it. It’s totally dishonest to call it an Obama bill."
Okay, let’s talk about that. But first, a quick note on the bill itself, since I think some people misunderstand the objection to the bill.
No one is arguing that America's regulatory framework isn’t convoluted and imperfect, or that raising money for small companies hasn’t been a severe pain in the ass for quite some time. Undoubtedly this new law will make it easier for new firms to attract startup capital and go public, both good things.
But this bill accomplishes those things at the cost of slashing investor protections to a degree that isn’t just unnecessary, but stone-cold crazy. It includes ideas that just ten or fifteen years ago were conclusively proven to result in wide-scale fraud.
For instance, if this bill is supposedly about increasing access to capital for small businesses, why do we also need to repeal the conflict-of-interest ban on bank analysts talking up startup firms in an attempt to gain their investment banking business? Wasn’t it just ten minutes ago that Eliot Spitzer had to drag the entire financial services industry into court for pumping up worthless stocks in order to get their business?
People have apparently forgotten just how crooked the IPO market was during the tech boom. Banks and underwriters were openly, nakedly, offering to sell their research in exchange for investment banking business. Piper Jaffray, for instance, made a pitch to be the investment banker for a medical startup called TheraSense Inc. by including in its pitch materials mock copies of mock research reports – reports that included a "strong buy" recommendation. The "mock" report contained drooling descriptions of the hypothetical sales of TheraSense, calling the company’s fictional sales "nothing short of breathtaking."
Piper Jaffray won TheraSense’s business, pocketed $3,785,512 in investment banking fees, and promptly made good on its promise by issuing a "strong buy" recommendation on the stock.
Merrill Lynch, Bear Stearns, Chase, Lehman, Morgan Stanley: they all did essentially the same stuff. Many of them tied the compensation of their analysts directly to their ability to attract investment banking business, i.e. how much they were willing to prostitute themselves for fees. When a Goldman analyst was asked in a questionnaire to list his top three goals for the year 2000, he answered, "1. Get more investment banking revenue. 2. Get more investment banking revenue. 3. Get more investment banking revenue."
Why do we want to go back to those days? And would anyone really argue that we couldn’t come up with a way to, say, legalize crowdfunding without also legalizing the sale of financial research?
This bill is full of things like this, ideas that either have no objective justification, or are already proven losers. It also contains all sorts of lunatic fine-print items that have people in Washington in a panic (including a little-discussed section governing the SEC registration of banks). And while many of the underlying ideas in it are laudable – like for instance the crowdfunding idea – they’re executed in this bill in such a way that even relatively moderate, probusiness critics worry about the potential for excesses.
Columbia Law Professor John Coffee, for instance, who’s not exactly a hair-on-fire, anti-market reformer, told the Senate last year that the removal of the requirement for broker-dealer registrations for those soliciting investment on the internet was so carelessly done, you could have renamed the proposed bill the "Boiler Room Legalization Act of 2011."
"It’s not even bringing us back to the nineties," says a former regulator and Washington-based lawyer. "It’s bringing us back to the Twenties. It’s bringing us back to the penny stock era."
One Senate staffer put it to me this way: "Even the people who are rabid supporters of this thing are saying, 'Wow, I didn’t expect it to come out this extreme.'"
But the worst thing about this law is the way it got passed. It was herded into the books with great speed by key figures in both parties, sidestepping the usual process of having the more dangerous and idiotic provisions stripped out through congressional negotiations.
Read more:
http://www.rollingstone.com/politics/blogs/taibblog/yes-virginia-this-is-obama-s-jobs-act-20120412#ixzz1scouri00