[Peace-discuss] Fw: Another Obama Betrayal

[David Johnson]

----- Original Message ----- 
From: David Johnson 
To: david johnson 
Sent: Wednesday, April 11, 2012 4:45 PM
Subject: Another Obama Betrayl 


(Another item in a long list of GOP agenda embraced by Obama. Taibbi writes 
"[The JOBS Act] is not just a sweeping piece of deregulation that will have an 
increase in securities fraud as an accidental, ancillary consequence. No, this 
law actually appears to have been specifically written to encourage fraud in the 
stock markets. Ostensibly, the law makes it easier for startup companies 
(particularly tech companies, whose lobbyists were a driving force behind its 
passage) to attract capital by, among other things, exempting them from 
independent accounting requirements for up to five years after they first begin 
selling shares in the stock market..: There's just no benefit that the JOBS Act 
brings to an honest startup company. In fact, it puts an honest company at a 
severe disadvantage, because now it has to compete against other, less 
scrupulous companies that can simply make their projections up on the backs of 
envelopes." -- Scott)


Why Obama's JOBS Act Couldn't Suck Worse

By Matt Taibbi
Rolling Stone (blog), April 9, 2012
http://www.rollingstone.com/politics/blogs/taibblog/why-obamas-jobs-act-couldnt-suck-worse-20120409

Boy, do I feel like an idiot. I've been out there on radio and TV in the last 
few months saying that I thought there was a chance Barack Obama was listening 
to the popular anger against Wall Street that drove the Occupy movement, that 
decisions like putting a for-real law enforcement guy like New York AG Eric 
Schneiderman in charge of a mortgage fraud task force meant he was at least 
willing to pay lip service to public outrage against the banks.

Then the JOBS Act happened.

The "Jumpstart Our Business Startups Act" (in addition to everything else, the 
Act has an annoying, redundant title) will very nearly legalize fraud in the 
stock market.

In fact, one could say this law is not just a sweeping piece of deregulation 
that will have an increase in securities fraud as an accidental, ancillary 
consequence. No, this law actually appears to have been specifically written to 
encourage fraud in the stock markets.

Ostensibly, the law makes it easier for startup companies (particularly tech 
companies, whose lobbyists were a driving force behind its passage) to attract 
capital by, among other things, exempting them from independent accounting 
requirements for up to five years after they first begin selling shares in the 
stock market.

The law also rolls back rules designed to prevent bank analysts from talking up 
a stock just to win business, a practice that was so pervasive in the tech-boom 
years as to be almost industry standard.

Even worse, the JOBS Act, incredibly, will allow executives to give 
"pre-prospectus" presentations to investors using PowerPoint and other tools in 
which they will not be held liable for misrepresentations. These firms will 
still be obligated to submit prospectuses before their IPOs, and they'll still 
be held liable for what's in those. But it'll be up to the investor to check and 
make sure that the prospectus matches the "pre-presentation."

The JOBS Act also loosens a whole range of other reporting requirements, and 
expands stock investment beyond "accredited investors," giving official sanction 
to the internet-based fundraising activity known as "crowdfunding."

But the big one, to me, is the bit about exempting firms from real independent 
tests of internal controls for five years.

When I first read this, I asked myself: how does a law exempting a Silicon 
Valley startup from independent accounting actually encourage investment? If 
American companies have to have their internal processes independently verified 
before and after they go public, doesn't that give investors all around the 
world a big reason to put their money here, instead of investing in, say, 
Mobbed-Up Siberian Aluminum LLC, or Bangalore Sweatshop Inc.?  

In other words, how does letting www.investonawhim.com go to market (and stay on 
the market for five years!) without publishing real numbers actually help the 
industry attract more financing in general, when the whole point of all of these 
controls is to make investment a less risky experience for the investor?

Get ready for the ostensible answer, because you won't believe it. Here's how 
CNN explained the reasoning behind that exemption:

||| Having 500 investors or raising $5 million previously forced a company to 
register with the SEC -- a costly endeavor. Filling out stacks of legal forms 
and undergoing independent accounting audits can cost hundreds of thousands of 
dollars. The law loosens requirements for most companies by raising several 
thresholds. |||

We needed Barack Obama and the congress to compromise the entire U.S. stock 
market because it's too expensive for a publicly-listed company with 
billion-dollar ambitions to hire an accountant? That almost sounds like a comedy 
routine:

||| SILICON VALLEY EXECUTIVE: Listen, IJustThoughtOfSomething.com is the hottest 
thing on the internet. We're so huge it hurts... I can't even walk to my corner 
bodega without women throwing me their phone numbers!

INVESTOR: I'd love to invest. Can I see your numbers from last year?

SILICON VALLEY EXECUTIVE: Well, that's just the thing. We painted the bathrooms 
last March, and then we also had that Vitamin Water machine put in the lounge. 
You know, the one next to the ping-pong table? So we just didn't have any money 
left over for an accountant. But I estimate our revenues for 2014 to be $4.2 
billion.

INVESTOR: Sounds hot! Where do I send the check? |||

There's just no benefit that the JOBS Act brings to an honest startup company. 
In fact, it puts an honest company at a severe disadvantage, because now it has 
to compete against other, less scrupulous companies that can simply make their 
projections up on the backs of envelopes.

This is like formally eliminating steroid testing for the first five years of a 
baseball player's career. Yes, you can pretty much bet that you'll see a lot of 
home runs in the first few years after you institute a rule like that. But you'd 
better be ready to stick a lot of asterisks in the record books ten or fifteen 
years down the line.

In the same way, get ready for an avalanche of shareholder suits ten years from 
now, since post-factum civil litigation will be the only real regulation of the 
startup market. In fact, there are already supporters talking up future lawsuits 
as an appropriate tool to replace the regulations being wiped out by this bill.

The JOBS Act seems like it will invite a replay of the disastrous tech-stock 
bubble of the late nineties. That mess was made possible by a historic collapse 
in accounting standards, with the great investment banks the pioneers of the 
collapse. In the old days, in the fifties and sixties for instance, you would 
never take a company public that wasn't profitable at the time of the IPO, or 
didn't have a multi-year track record of solid revenues.

When the banks stopped insisting on proven track records or real profitability 
before taking a company public, there was a sudden explosion of stock-market 
investment into heretofore unknown internet firms. Companies with no track 
records went from having literally no revenues at all to having five or six 
billion dollars' worth of market capitalization overnight. Banks explained that 
the new way to measure a company was by the quality of its ideas, not boring old 
indicators like revenues.

Even Alan Greenspan told the world that technology had made such great advances 
that the traditional laws of economics no longer applied, that there was  "new 
paradigm," and that it was possible to have long-term growth without inflation. 
He essentially told the world that the bubble wasn't a bubble, because all that 
phony growth was not phony at all, it was just a whole bunch of people properly 
evaluating great new ideas, albeit before they had actually performed.

And we later found out, of course, a lot of that value wasn't value at all. And 
a lot of that sharp growth in the nineties was actually caused by complex fraud 
schemes like "spinning" and "laddering,", wherein banks artificially pumped up 
startup stocks in exchange for future business, or rigged the IPOs so that they 
would have fake "bumps" in investment at pre-arranged times.

Sometimes the companies themselves were the victims in the fraud scams, and 
sometimes the company executives were beneficiaries of fraud. But in virtually 
all of these schemes, the casual investor was the big dupe in the con. When the 
dot-com bubble finally collapsed, costing the world about $5 trillion in losses, 
the major victims were ordinary people. We can expect a replay of the same thing 
now, only on a much bigger scale.

The finance world is buzzing over this bill. The reactions I've heard so far 
range from minutes-long guffaws of dark laughter to bloodcurdling, 
I-can't-freaking-believe-they-went-this-far outrage. "I thought I had lost the 
ability to be shocked," one friend of mine, a former regulator, told me this 
weekend, chuckling at the sheer stones it took to push the law. "But this thing 
is just inspired. They broke the mold with this one."

There are some crazy side-stories that I'll get to later in the week, including 
the hilarious influence certain preposterous individuals had in pushing this 
bill (most notably Steve Case, former co-founder of AOL and a veteran of 
multiple accounting fraud scandals, who was recruited by both parties to lobby 
the bill). There are also some remarkable contradictions in the arguments the 
bill's supporters made when they pushed for the bill's passage. Anyway, more on 
this to come.

In the meantime, let's just say this is a dramatic step taken by Barack Obama. 
Nobody should have any illusions about where he stands on Wall Street corruption 
after this thing. Boss Tweed himself couldn't have done any worse.

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