The following editorial appeared in the St. Louis Post-Dispatch on Friday, March 16.
Under the category of “Be careful what you wish for, you just might get it” comes H.R. 3606, the “Jump-start Our Business Start-ups Act of 2012,” passed by the U.S. House of Representatives last week with huge (390-23) bipartisan support; it now is pending in the Senate.
Since the 2010 elections, commentators from both the left and the right have bemoaned congressional gridlock. Now lawmakers from both parties and President Barack Obama have linked arms in common cause – behind an awful piece of legislation.
The tortuously named JOBS Act is not to be confused with Obama’s jobs bill, a useful package of legislation that has been sliced, diced and left in tatters. H.R. 3606 is a package of mostly Republican measures ostensibly aimed at making it easier for “small” companies to raise capital. “Small” can mean “emerging companies” with annual revenues of up to $1 billion. The Senate Banking Committee last week heard testimony that 98 percent of all initial public offerings since 1970 would have qualified for the breaks in H.R. 3606.
And what breaks they are. Emerging companies would be freed from complying with pesky regulations that govern how much money they can raise with boiler-room-like Internet sales pitches. Companies registering as much as $50 million in shares, and with as many as 1,000 investors, would not have to register with the Securities and Exchange Commission. The bill would allow newly public small companies to hide financial information for years; this should be a boon for the poor, bedraggled hedge fund industry.
The idea is to make it easier for entrepreneurs to raise capital and avoid regulatory compliance costs. The effect almost certainly will be more fraud than jobs.
Lynn Turner, a former chief accountant for the SEC, told the Senate Banking Committee last week that “the proposed legislation is a dangerous and risky experiment with the U.S. capital markets and the savings of over 100 million Americans who depend on those markets. The evidence does not support the need for it. In fact, it contradicts it. I do not believe it will add jobs but may certainly result in investor losses.”
It’s not hard to understand why Republicans support this bill. Despite the lessons of the Enron failure and the 2008 financial collapse, their theology says that the heavy hand of regulation stifles the creative spirit of job-creators.
The mystery is why so many Democrats would support it. Perhaps because it’s an election year, and anything with a “jobs” label (however bogus) is hard to vote against. And there is campaign money to be raised in the business community.
But having sweated blood to pass the Dodd-Frank Financial Regulation bill in 2010, why would the Democrats now go so far in the other direction? Wall Street sold a lot of shlock in the walk-up to the market collapse; this bill would reopen the shlock market.
Senate Majority Leader Harry Reid, D-Nev., is considering slowing down the bill’s momentum by adding an extension of funding authorization for the Export-Import Bank. The bank underwrites purchases of U.S.-made goods, usually aircraft; the Republicans view it as corporate welfare for foreign companies.
Whatever the tactic, Reid and Senate Democrats should hold to the principle that markets work best when they are well regulated. Sometimes gridlock is good.