Two Cheers for the JOBS Act
For nearly a century local investing has been essentially illegal, andWall Street has monopolized all the investment options for the averageinvestor. Thanks to the JOBS Act that President Barack Obama recentlysigned into law, local investing in job-creating small businesses is nowlegal.Unfortunately, there has been a tremendous amount of misinformationspread about this Act, much of it by liberals I usually admire. Theyshould be the people most eagerly embracing this bill for what it does --giving people a chance to revive Main Street economies across America.Jim Hightower, for example, condemns the bill for "deregulating WallStreet." In fact, the bill spells the end of Wall Street as we know it. Itallows the 99% of us who are not wealthy ("unaccredited investors") toput our money in the local businesses we love by removing what wereonce impossibly difficult and expensive legal hurdles. Those barrierswere so targeted against small business and small investors that theyresulted in almost none of our long-term savings -- now totaling $30trillion -- being invested into the local half of our economy. The JOBSAct ends this misallocation of capital for good.To me it's ironic, and disappointing, that folks like Hightower, RobertKuttner, and Eliot Spitzer were committed to the status quo and tomaintaining Wall Street's monopoly on capital. How could such greatthinkers get this issue so wrong?
Here are my top five reasons:First, the critics misunderstand who promoted this bill. Kuttner, forexample, blames Obama for being "always eager to curry favor withWall Street donors..." Wall Street lobbyists played, at most a peripheralrole, it was small business owners and "makers" like Woody Neiss andPaul Spinrad who led the charge. Innovative thinkers in the WhiteHouse, like Doug Rand at the Office of Science and Technology Policy,played a pivotal role in shaping the president's views aboutentrepreneurship. Non-Wall Street insiders like IndieGogo, acrowdfunding web site, and the nonprofit Sustainable Economies LawCenter, pushed hard as well.Second, the critics, who are justifiably skeptical of wholesalederegulation, don't like to concede that any form of regulation has been afailure. But any honest assessment of the history of securities law wouldobserve that we essentially regulated local finance out of existence whilepermitting Bernie Madoffs to operate freely. For decades, the SEC hasheld annual meetings where small business owners have urged reforms -- modest deregulations that could open up capital to small companies,such as allowing small-dollar, local investments to be exempted fromsecurities filings. The SEC never implemented any of those suggestions-- even a recommendation that $100 investments be exempted.Third, the critics have tremendously exagerrated the dangers of fraud.The casual reader of the liberal critiques might conclude that the sale of fraudulent securities is now legal, and that "boiler room" operations willbe set up to bilk grandma of her life savings. Yet state and federal lawsagainst securities fraud remain in effect.
In fact, the JOBS Act adds a number of new provisions for preventingfraud, by requiring that crowdfunding offerings only be made throughregistered intermediaries.Why, moreover, should anyone be banned from spending, investing, ordonating a couple of hundred dollars any damn way they please? EveryAmerican, irrespective of income, is allowed to lose their life's fortuneon lotteries and casinos. Why not allow more reasonable risk tasking onbuilding community economies? If grandma is not wealthy, the JOBSact limits her risk in any one business to the lesser of $2,000 or 5% herassets.Fourth, the critics do not appreciate that there are other approaches topreventing fraud. E- bay has all but eliminated fraud through consumerand business evaluations of one another. So have other crowdfundingsites in the United Kingdom. In other words, the SEC's premise -- thatthe only way to prevent fraud is by banning unaccredited investors frommaking their own judgments -- is flat out wrong.Perhaps the critics' most appalling misunderstanding is the fraudulenceof the status quo. Every day the SEC allows investment advisers on AMradio to hawk the stock market, promising 10-20% annual returns, whenin fact the returns -- once inflation and compounding are taken out -- arecloser to 3%. These misrepresentations have convinced Americans thatputting 100% of their savings into Fortune 500 companies is safer andprovides a better return than investing in local business. In reality, thestock market is becoming an increasingly dangerous and unregulatedcasino where trades are done by computers that cause flash crashes whenthey malfunction.
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