It was just a few weeks ago that Greg Smith, a former Goldman Sachs executive, resigned from the esteemed financial firm in an incredibly public way by writing an op-ed in The New York Times titled “Why I Am Leaving Goldman Sachs.”
Smith’s column highlighted with brutal honesty the truth about today’s financial services sector: Bankers and traders continuously push aside the interests of their clients and will stop at nothing to maximize profits for their firm and for themselves.
Given this fact – which has been continuously validated by events like the dot-com bubble, Enron scandal and recent sub-prime mortgage crisis – Congress would never approve legislation that loosened regulations on Wall Street, right?
Wrong.
Earlier this week, a bill called the JOBS Act – an acronym for “Jumpstart Our Business Startups” – passed through both the Senate and the House of Representatives, attempting to make it easier for startups to raise money by dramatically cutting regulations and disclosure requirements in order to sell stock.
In reality, the JOBS Act is detrimental legislation that would undo crucial investor protections, greatly reduce market transparency and distort the efficient allocation of capital.
Perhaps the most fundamentally flawed component of the JOBS Act is the lack of financial information companies will be required to provide to the public and to regulators if their gross revenue is less than $1 billion.
Under this measure, companies that earn less than $1 billion will not be subject to audits or disclosures from regulatory agencies.
Therefore, investment banks underwriting a company’s stock offering can publish reports that supply investors with unverifiable information that is often deliberately misleading.
 
This lack of transparency is exactly how speculative bubbles are fueled and scandals like Enron occur, causing unsophisticated investors to lose their life savings, which results in an overall distrust of the finance system and decline in economic activity.
Oh, and in case you were wondering, nearly 80 percent of firms going public generate less than $1 billion in gross revenue, meaning they will be able to bypass the usual audits and disclosures under the JOBS Act.
The JOBS Act also exempts firms from non-binding shareholder votes on executive pay and benefits package, which came as part of the Wall Street reform law.
This means shareholders have no control regarding how much compensation their CEO receives.
Because of this exemption, executives’ pay will again be tied to how much the stock of their firm rises. Consequently, executives will continue employing more of the same risky lending practices that caused the financial crisis and subsequent “Great Recession.”
More importantly, why is executive pay included in a bill whose goal is to help businesses raise capital more efficiently?
Members of Congress wouldn’t have a hidden agenda, would they?
Surprisingly, however, there is a hint of good in this bill: the allowance of small businesses to make use of a capital acquirement method known as “crowdfunding.”
Crowdfunding is a relatively new process by which businesses are able to quickly raise significant amounts of money from a large quantity of small donors over the Internet.
If proper oversights and regulations are implemented, crowdfunding will completely revolutionize and democratize the way our country invests in businesses by allowing “regular” people to participate in early-stage investment opportunities.
Although I ended on a positive note with the viability of crowdfunding, it is important to remember the JOBS Act is an overall bad bill with disastrous consequences.
Obama intends to sign this bill. If he does, he will undermine consumer safety and greatly decrease the transparency of publicly traded companies – two integral things he was passionate about improving when he ran for president.
I’m beginning to lose count of Obama’s broken campaign promises.
Jay Meyers is a 19-year-old economics freshman from Shreveport. Follow him on Twitter @TDR_jmeyers.
 
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Contact Jay Meyers at [email protected]