Both Houses Pass JOBS Bills Ignoring Vocal Opposition

Updated 2:30 pm (New York time) 23 March 2012

Econintersect:  Thursday, March 22, the U.S. Senate passed by a vote of 76-23 an amended version of HR-3606, commonly called the “Jumpstart Our Business Start-ups Act” (JOBS Act) but officially titled “Reopening American Capital Markets to Emerging Growth Companies Act of 2011.”  The proponents of the legislation argue that if start-up companies have the opportunity to raise capital without the scrutiny of regulation more will do so and employment will increase.  Opponents have argued that the act will simply open the door for fraud and deceit to fleece the public.

Critics Abound

The bill had been criticized by the Securities and Exchange Commission, major media outlets and criminologists as a dangerous loosening of regulation.  A campaign was started this week by William K. Black, University of Missouri Kansas City, to marshal the academic community, legal and investment professionals and others who have expertise in the area of white collar crime to be active in opposition to the JOBS Act.  At this time the list of supporters for this effort is small in number, but represents some top names in the fields of finance and financial law.  The list at the time of writing is:

• William K. Black, Associate Professor of Economics and Law, University of Missouri-Kansas City

• Henry N. Pontell, Professor of Criminology, Law and Society, University of California, Irvine

• Gilbert Geis, Professor Emeritus of Criminology, Law and Society, University of California, Irvine

• Janet Tavakoli, President, Tavakoli Structured Finance, Inc.

• Barry Ritholtz, CEO; Director of Equity Research, Fusion IQ

• Lynn A. Stout, Distinguished Visiting Professor of Corporate and Business Law, Cornell Law School

Others who have spoken out against the legislation include Bloomberg, the New York Times, 21 consumer and investor groups and former New York governor Eliot Spitzer. Spitzer suggested the bill should be named the “Return Fraud to Wall Street in One Easy Step Act.”

MIT professor Simon Johnson, former Chief Economist for the IMF (International Monetary Fund), this to say the day before the Senate voted (emphasis added by Econintersect):

From the 1970s until recently, Congress allowed and encouraged a great deal of financial market deregulation – allowing big banks to become larger, to expand their scope, and to take on more risks.  This legislative agenda was largely bipartisan, up to and including the effective repeal of the Glass-Steagall Act at the end of the 1990s.  After due legislative consideration, the way was cleared for megabanks to combine commercial and investment banking on a complex global scale.  The scene was set for the 2008 financial crisis – and the awful recession from which we are only now beginning to emerge.

With the so-called JOBS bill, on which the Senate is due to vote Tuesday, Congress is about to make the same kind of mistake again – this time abandoning much of the 1930s-era securities legislation that both served investors well and helped make the US one of the best places in the world to raise capital.  We find ourselves again on a bipartisan route to disaster.

The Senate needs to slow down and do its job – we have two legislative bodies for a reason and the Senate’s historical role is partly to serve as a check on enthusiasms that may suddenly sweep the House.  To pass this legislation on Tuesday would be a grave mistake.

The idea behind the JOBS bill is that our existing securities laws – requiring a great deal of disclosure – are significantly holding back the economy.

The bill, HR3606, received bipartisan support in the House (only 23 Democrats voted against).  The bill’s title is JumpStart Our Business Startup Act, a clever slogan – but also a complete misrepresentation.

The premise is that the economy and startups are being held back by regulation, a favorite theme of House Republicans for the past 3 ½ years – ignoring completely the banking crisis that caused the recession.  Which regulations are supposedly to blame?

The bill’s proponents point out that Initial Public Offerings (IPOs) of stock are way down.  That is true – but that is also exactly what you should expect when the economy teeters on the brink of an economic depression and then struggles to recover because households’ still have a great deal of debt.  And the longer term trends over the past decade are global – and much more about the declining profitability of small business, rather than the specifics of regulation in the US (see this testimony by Jay Ritter).

Widespread Support

Supporters of the act include many business organizations, small business advocates, Forbes, U.S. Chamber of Commerce and over 5,000 signers of a letter urging passage of the legislation.

Kent Hoover, in The Business Journals, gave four reasons why the Senate passed the bill, why the House will accept the minor changes made by the Senate and President Obama will sign the bill into law next week:

1. Small business coupled with the internet has wide political support.
2. Weakening Sarbanes-Oxley accounting has been heavily pursued by industry lobbies.
3. Obama’s support made it hard for Democrats to say no.
4. Reauthorization of the Export-Import Bank, a move supported by Democrats, was attached to the bill.

It is expected that the House will quickly accept the Senate changes and the bill could be signed by the president late Monday or Tuesday.

John Lounsbury

Sources:

• JOBS Act:  Fraud-Friendly and Guarantees Full-Time Jobs for Criminologists (William K. Black, Henry Pontell, Gilbert Geis and Janet Tavakoli, GEI Opinion, 20 March 2012)

• The JOBS Act is so Criminogenic that it Guarantees Full-Time Jobs for Criminologists (William K. Black, Henry N. Pontell and Gilbert Geis, New Economic Perspectives, 19 March 2012)

• Small Biz Jobs Act Is a Bridge Too Far (Editors, Bloomberg, 18 March 2012)

• They Have Very Short Memories (Editors, The New York Times, 10 March 2012)

• Letter to U.S. Senators (21 organizations, mostly labor and consumer interests, Open Letter, 05 March 2012)

• Kill the JOBS Act! (Eliot Spitzer, Slate, 19 March 2012)

• Open Letter to Senate Leaders (More than 5,000 signers, 22 March 2012)

• Small Business Advocates Applaud Passage of JOBS Act in U.S. Senate) (PRNewsWire, 22March 2012)

• How The JOBS Act Can Help Spur Economic Growth (Eric Savitz, Forbes, 21 March 2012)

• A Colossal Mistake of Historic Proportions: The “JOBS” bill (Simon Johnson, Baseline Scenario, 19 March 2012)

• How the JOBS Act triumphed over its critics (Kent Hoover, The Business Journals, 22 March, 2012)