Finance and Economics；Wall Street deregulation; The pendulum swings;
The “JOBS” act turns into a battle about America's capital markets.
For a brief moment, it appeared that American's fractious politicians and capital markets were all in agreement. House Bill 3606, unofficially referred to as the JOBS act and officially (stretching out the acronym) known as the “Jumpstart Our Business Start-up Act”, sailed through the House of Representatives by 390 votes to 23 on March 8th.
It was on its way to a similar endorsement in the Senate when the unthinkable seems to have happened: someone bothered to read the law. There they found a set of provisions that, depending on your point of view, either open the airways of asphyxiated financial markets or give free rein to rapacious companies and banks.
Over the past decade, Congress and aggressive prosecutors—notably New York's former attorney-general, Eliot Spitzer—have responded to various upheavals on Wall Street, including the dotcom bubble, the collapse of Enron and the financial crisis, by imposing extensive regulations. Whether these rules protected investors or improved overall market efficiency is a subject for debate. But they have definitely coincided with a period when the number of public companies in America has dropped in both absolute terms and relative to other countries. Critics charge that the rules have been devastating to the ability of entrepreneurial firms to access funding on public markets.
The JOBS act—or the House version of it, at least—is packed with provisions to reverse the regulatory tide. It allows “emerging growth companies” with under $1 billion in revenue, hardly small change, to skip various reporting requirements and internal audits. It amends accounting rules. It loosens compensation constraints. And it allows limited online “crowdfunding” by equity investors who are not designated as “sophisticated” (shorthand for being rich). The law also provides protection against often intrusive state regulations and reduces the restrictions on underwriters using public offerings to fund research.
Democrats have belatedly woken up to the act's radicalism. The proposal's support at first extended to the White House, which has since pulled back and demanded revisions. Opponents have become more vocal: trade unions, professors, regulators and others have lined up to criticise it. On March 20th, Harry Reid, the Senate majority leader, voiced scepticism over the link between the JOBS act and job creation. To survive, the bill must pass a vote in the Senate due to take place after The Economist had gone to press and then, harder still, win a presidential signature.
The bill is not perfect. A weakening of rules that require the broad dissemination of corporate information, rather than merely to the wealthy and connected, is its biggest flaw. But the pendulum of capital-markets regulation in America has swung in one direction for so long that when it started to reverse course, it was bound to do so with a vengeance.