Who says American politicians can't come together to get things done any more?
Demonstrating that disregard for sound financial regulation knows no party, the Senate on Thursday passed the Jumpstart Our Business Startups Act, or JOBS Act, rolling back investor-protection regulations, some of which date back to the 1930s, and some of which have been passed as recently as 2002 in the wake of Wall Street shenanigans from the 1990s tech bubble to Enron.
The bill, which was supported by both parties, with the urging of small and big businesses, passed fairly easily, despite long and loud complaints from many quarters that the act would break down investor protections left and right, setting the stage for future financial scandals and crises.
The bill purports to make it much easier for small firms to raise money, either through private "crowdfunding," essentially raising money online, or by going public. At its heart is the persistent myth, relentlessly propounded by Wall Street, that there are a million Facebooks out there waiting to thrive and create jobs if only the government would just get the heck out of the way.
It's really not true, but it sounds like a good thing to be in favor of during election season. The Obama administration immediately leaped to take credit for the bill, with a statement from White House press secretary Jay Carney:
The President is grateful that the Senate acted in a bipartisan way to move forward key ideas the President proposed last fall that will help our small businesses and startups access capital they need to grow and create jobs.
So we get this bill, which will likely create few "jobs," unless -- as Jesse Eisinger wrote recently at ProPublica, your job is scamming investors or writing about financial crimes and crises. So financial journalists are certainly grateful for it.
Senate Democrats did manage to curb some of the bill's more outlandish aspects by providing some investor protections. Despite that, the House is expected to pass the Senate's bill, which still includes some of the worst features originally passed by the House.
Investment banks can now issue research reports on the companies they take public -- meaning we'll be back to the days when analysts can pump up "POS" stocks they then dump on unwitting customers -- removing a prohibition set by Sarbanes-Oxley in 2002.
Web sites can pitch new companies directly to investors, raising the specter of "boiler rooms" preying on your grandmother to pry away her retirement money.
The investor protections added to the bill include greater financial disclosure and a requirement that web sites pitching crowdfunded companies register with the Securities and Exchange Commission. But another amendment with more protections was rejected.
Dan Primack at Fortune has a more detailed explanation of the bill's moving parts and the pros and cons of each. He's far less vehement than others about the downside of the bill, but still thinks it's a solution in search of a problem.
"These changes are being proposed to cure an IPO crisis that simply does not exist," Primack writes.
Some of the other reactions from around the web have been more scorching.
Senator Carl Levin (D-Mich.) wrote (emphasis added):
We are about to embark upon the most sweeping deregulatory effort and assault on investor protection in decades. ... If we pass this bill, it will allow vast new opportunities for fraud and abuse in capital markets. Rather than growing our economy, we are courting the next accounting scandal, the next stock bubble, the next financial crisis. If this bill passes, we will look back at our votes today with deep regret. We should not adopt this bill today. We should return it to committee, we should have hearings, we should have opportunities to amend this bill. Adopting this bill will put us in a position of the most massive and mistaken deregulation of our capital markets in decades.
Senator Bernie Sanders (I-Vt.) wrote:
At best, this bill could make it easier for con artists to defraud seniors out of their entire life savings by convincing them to invest in worthless companies. At worst, this bill has the potential to create the next Enron or Arthur Andersen scandal or an even worse financial crisis.
With the country still suffering from high unemployment and hard times in the wake of the financial crisis, it is almost unbelievable that the Senate would rush passage of measures that will undermine transparency and accountability in the capital markets, and expose our families to a new round of fraud and abuse. But that is what they have done.
San Jose Mercury News columnist Chris O'Brien says Silicon Valley has let the attractive "crowdfunding" parts of the bill blind them to its face-peelingly horrible parts:
Indeed, many references I see to the bill still refer to it as a "crowdfunding" bill, as if that was all there was to it. It's important to note that the actual bill reflects several other bills that were rolled up a few weeks back. Most of this bill represents a staggering rollback of investor protections, and a major rewrite of the rules governing at least 90 percent of all IPOs.
This could all be much ado about nothing. The Epicurean Dealmaker, an anonymous blogging dealmaker, wrote on Wednesday that the JOBS Act might change very little about how companies raise money, for better or for worse. He concluded, though, with a reminder:
In any event, you may rest assured that one perennial truth about entrepreneurial business funding markets will never change, no matter what changes to the legislative and regulatory environment may occur: The retail investor will always get screwed.