Gail Collins weighed in on the JOBS Act today in a column glibly titled “The Senate Overachieves”. Normally, I love her work – everything she does is glib, and I honestly feel there is a glib shortage in America – but this time I believe her winking nonchalance has descended into full-on flippancy. Worse than that, I’m pretty disappointed that she couldn’t work into the column that Mitt Romney once drove to Canada with the dog strapped to the roof. But I digress.
Securities regulation is a serious matter (and kind of my job). That doesn’t mean we can’t have fun discussing it, but great zingers can only go so far. Dismissing reforms because they let smaller businesses avoid excessively expensive auditing requirements makes sense, even if this means reducing (by a small amount) Sarbannes-Oxley’s reach. Just because Sarbannes-Oxley and Dodd-Frank were passed to correct egregious regulatory gaps doesn’t mean that they cannot still overreach. If anything, it makes just such overreaching more likely.
Crowdfunding does present a larger potential for hucksters to shill worthless stock. But that is still fraud, and still illegal, regardless of the medium used to do it.
For what it’s worth, I think a lot of securities regulation are misguided attempts to treat symptoms of the problems rather than the problems themselves. So long as there are massive incentives to innovate new products and skirt regulatory requirements, firms will do so, and will pay their lawyers handsomely to make it happen within the confines of the law.
Rather, I believe that approaches towards fixing the fundamental flaws in the market must be addressed. No recession or crisis will be caused by minimized auditing of mid-cap companies, or small start-ups raising a few hundred thousand over the internet. As I noted in my last post, regulations that incentivize companies to stay small in order to avoid disproportionately larger regulatory burdens are counterproductive.
Instead, we need to work to realign the incentives of market participants with the incentives of the economy in general. The Economist mentioned the interim Kay review last week, “it is easy to forget what the main economic functions of the equity markets are supposed to be.” I agree with John Kay, the review’s author: the markets should promote long-term growth, not short-term profits. And, for what it’s worth, Warren Buffet, Judge Richard Posner and Nassim Taleb, among others, also agree (oh my, am I clumsy! Just dropping those names all over the place!).
So, Gail’s barbed wit hit the wrong target this time, not unlike how some regulations aimed to prevent awful abuses end up frustrating legitimate businesses from growing. The JOBS Act has its flaws too: the “emerging growth companies” that get to avoid some of the registration requirements of the ’33 Act are defined to include companies with $1 Billion in revenue. If you make $1 Billion, you aren’t emerging anymore. You’ve emerged. But these call for sensible amendments, not lambasting the entire bill.