I said last week that this week I was going to talk about the new so-called JOBS Act. It stands for the Jumpstart Our Business Startups Act, which one person described as a comically forced acronym. The bill passed the House overwhelmingly - bipartisan support! It pass the Senate overwhelmingly - bipartisan support! Barack Obama loves the thing! And who could be against it? It's a jobs bill! It's all about jobs!
Well, last week I said the bill was well-named because it's actually a bunch of j.o.s pushing b.s.
The supposed purpose of bill is to enable our dynamic entrepreneurs by helping them to better raise funds for start-ups, thus expanding jobs and reinvigorating the economy!
How does it do this? First by saving them money by exempting them from some federally-required accounting and reporting duties and second by making it easier for them to raise money by ending the ban on advertising for investors and by allowing for so-called "crowdfunding," which involves going on social media to raise large amounts of money from a large number of small investors.
In short, it allows them to raise millions of dollars without having to tell investors much of anything about the company or its finances. All those nasty disclosure requirements are gone, all those pesky accounting duties are gone, leaving only the brightly-colored brochures and the web ads full of "you too can be rich as Mitt Romney" dreams.
What could go wrong?
This can: One columnist who writes on economic matters said this will "open the floodgates to massive fraud" and that "crowdfunding could make the boiler room scams of the 1980s look like mere parking violations."
A state-level securities regulator said it "sacrifices essential investor protections" and lessens the ability of state regulators to oversee these companies’ efforts to raise capital. That is, they will essentially be unregulated.
A former official of the Securities and Exchange Commission said "This would be better known as the Bucket-shop and Penny-stock Fraud reauthorization Act of 2012" and another former SEC official called it "a disgrace."
There was a wonderful open letter written by six white-collar criminologists. These are the people whose job it is to suss out sophisticated financial frauds. In the letter, they thanked Congress and the President for supporting a measure "will provide us with job security for life."
In a more serious vein, they called the bill "an atrocity" and "something only a financial scavenger could love." They said the bill is "composed of a wish list of fraud-friendly provisions those intent on cheating have been dreaming about for decades."
And the Consumer Federation of America said it was done without evidence that these entrepreneurs actually are having difficulty raising capital - that is, it was passed without any evidence that there was a problem that needed solving.
We have been down this road before. For 40 years, we have been pushing for deregulation of this, then that, and then the other. We deregulated some financial institutions and got the S&L crisis. We passed some more deregulations, and we got Enron, WorldCom, and the rest. We deregulated some more, and we saw the whole financial industry melt down in 2007 and 2008. And what has been the response each time? To look around for some other area that we have yet to deregulate.
And we do it as even those who voted for the JOBS Act admit it won't accomplish anything: Nancy Pelosi voted for the thing and then described it as "meager."
On top of everything else, it very likely will decrease the creation of new jobs Because it increases the risk of fraud and therefore the risk to investors, it can have the perverse effect of raising the cost of capital for all companies - which means any honest entrepreneur who really does want to start a new company may well find it harder, not easier, to raise capital.
This all comes at a time when the economy still, in a word, sucks. Unemployment in March is expected to remain unchanged at 8.3%* and at the current rate of job growth it will take seven years to get unemployment back to pre-recession levels.
And what kind of jobs will there be? It's not only the number of jobs, it's the types of jobs that are available that's important. The Labor Department recently predicted that over a quarter of all new jobs over the next eight years will in areas of the economy that traditionally have lower pay, worse pensions, and fewer benefits.
Right now, 5.5 million people have been unemployed for at least six months and some three to five million more are "discouraged," meaning they have given up looking for work entirely. An increasing number of Americans say they struggle to buy food: About 19% - almost one out of every five - told a Gallup poll that they couldn't always afford to feed everyone in their family. Nearly a quarter of Americans live in families that spend more than half their income on housing - that is, on rent or mortgages. Earlier studies had indicated that about one in five Americans live in household that had trouble paying medical bills; a new government study finds that number is up to one in three. Over 20 million live in households with an income that is less than half of the federal poverty level. The portion of the population in that category is the highest in at least 35 years.
Meanwhile, the average CEO pay is now about 1000 times that of the average worker; as recently as 1970 it was 40 times.
This is all at a time when there surely is more than enough work to be done: some $2 trillion in infrastructure repairs and maintenance to such as bridges, roads, public-transit systems, other public works projects. But the fact is, corporations are not going to do that because they see no profit in it.
I have said this over and over: Corporations won't hire you if they see no demand for the work you would do. If they don't see a profit in you, they won't hire you. A writer who gives employment advice wrote recently that the toughest interview question making the rounds in 2012 is: "Your job exists to help your employer achieve and maintain profitability. How do your efforts support these goals?" These interviewers are being upfront about it: Your job is to make profit for your employer. No profit, no job.
In an economy like this, only one agency will, only one agency can, generate the demand that will spur an economy, and that is government. And the single most effective way for government to spur that demand is to directly hire people and pay them to do needed work - like that $2 trillion in infrastructure repair, maintenance, and construction.
But are we talking about that? No. Instead, we are talking about opening up the door for massive fraud in the hope that maybe it might produce some piddling number of jobs.
Beyond that, what are we back to talking about? Deficit reduction. To cutting spending - or, more exactly, to some kinds of spending. What is and isn't on the chopping block shouldn't be too hard to guess.
Sources:
http://www.huffingtonpost.com/christopher-hytry-derrington/jobs-act-winners-losers_b_1378320.html
http://www.thefiscaltimes.com/Columns/2012/03/12/JOBS-Bill-Opens-Door-to-Growth-and%20Scam-Artists.aspx#page1
http://www.aesinternational.com/rossnaylor/general/7-ways-to-spot-a-boiler-room-scam/
http://www.forbes.com/sites/johnwasik/2012/03/23/potential-and-obvious-scams/
http://www.forbes.com/sites/johnwasik/2012/03/14/jobs-act-will-open-door-to-investment-scams/
http://www.advisorone.com/2012/03/13/jobs-bill-under-fire-by-sec-nasaa-consumer-advocat
http://www.huffingtonpost.com/simon-johnson/fiscal-affairs-a-colossal_b_1362060.html
http://www.huffingtonpost.com/2012/03/08/nancy-pelosi-mocks-house-gop-jobs-bill_n_1332340.html?icid=maing-grid10%7Chtmlws-sb-bb%7Cdl1%7Csec3_lnk3%26pLid%3D141980
http://neweconomicperspectives.org/2012/03/the-jobs-act-is-so-criminogenic-that-it-guarantees-full-time-jobs-for-criminologists.html
https://en.wikipedia.org/wiki/Savings_and_Loan_Crisis
http://www.huffingtonpost.com/2012/02/28/afford-food-hunger_n_1308020.html#s480207&title=Child_Poverty
http://frac.org/pdf/food_hardship_2011_report.pdf
http://online.wsj.com/public/resources/documents/Landscape2012.pdf
http://www.cdc.gov/nchs/data/nhis/earlyrelease/financial_burden_of_medical_care_032012.pdf
http://www.npr.org/blogs/health/2012/03/07/148171728/1-in-3-americans-is-having-a-hard-time-paying-medical-bills
http://www.reuters.com/article/2012/04/03/us-usa-economy-jobs-idUSBRE83212A20120403
http://jobs.aol.com/articles/2012/01/18/how-to-ace-the-worlds-toughest-interview-question/
http://www.huffingtonpost.com/2012/02/03/jobs-report-january-2012_n_1252774.html
http://www.nypost.com/p/news/business/no_middle_class_jobs_RmqavDfHtJhN93xEsicsiP
http://www.businessweek.com/news/2012-02-04/romney-s-very-poor-at-highest-in-35-years-as-safety-gaps-grow.html
http://news.firedoglake.com/2012/04/03/obama-to-attack-ryan-budget-today/
http://crooksandliars.com/blue-texan/president-obama-paul-ryans-budget-radic
http://abcnews.go.com/blogs/politics/2012/03/house-passes-ryan-budget-again-despite-unanimous-democratic-opposition/
http://www.washingtonpost.com/blogs/2chambers/post/house-approves-ryan-budget-plan-to-cut-spending-taxes/2012/03/29/gIQAdUXQjS_blog.html
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