http://www.economist.com/node/21551481
This article discusses the JOBS act recently passed in Congress on March 27th. The act aims to loosen regulations on firms seeking an increase in capital, especially small businesses that often have trouble doing so. Over the last 10 years, initial public offerings from small businesses in the United States have fallen from just under 300 in 2001 to less than 50 in 2011. As the author notes, there are other ways for firms to acquire capital in the U.S., but public markets allow investors to get in and get out and provide the firms with quick cash. Because of the financial crisis, extremely strict accounting, communication, and other regulations have been put into place to ensure stability of the market and boost investor confidence. The problem, however, is that these regulations have become so extensive that it is actually disincentivizing capital investment. The JOBS act would loosen some auditing and communications regulations, thereby making it easier for firms to go public. Since this is a time in which we need public markets to help us recover from the last crash, deregulatory acts like these should be welcomed by consumers and investors alike.
This article discusses the JOBS act recently passed in Congress on March 27th. The act aims to loosen regulations on firms seeking an increase in capital, especially small businesses that often have trouble doing so. Over the last 10 years, initial public offerings from small businesses in the United States have fallen from just under 300 in 2001 to less than 50 in 2011. As the author notes, there are other ways for firms to acquire capital in the U.S., but public markets allow investors to get in and get out and provide the firms with quick cash. Because of the financial crisis, extremely strict accounting, communication, and other regulations have been put into place to ensure stability of the market and boost investor confidence. The problem, however, is that these regulations have become so extensive that it is actually disincentivizing capital investment. The JOBS act would loosen some auditing and communications regulations, thereby making it easier for firms to go public. Since this is a time in which we need public markets to help us recover from the last crash, deregulatory acts like these should be welcomed by consumers and investors alike.
5 comments:
Very interesting John! I didn't realize how much IPOs have fallen recently. Innovation is key in our economy and not having private investment really hinders economic growth.
This is a step in the right direction, but making it easier for small business to go public and obtain capital does not seem to solve the problem of high unemployment, something the acronym implies.
It is understandable that the government seeks some deregulatory policies to stimulate the economy; the DIDMCA 1980 (The Depository Institutions Deregulation and Monetary Control Act) can be a good example. However, as the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 is a tightening in regulation of the financial industry, it will be difficult for small businesses to finance themselves as the financial institutions are facing a more strict regulation and reluctant to borrow. Therefore, hoping small businesses to create more jobs is not really reasonable.
Okay so we are deregulating in order to get more firms to go public. If more firms go public then they can raise the excess capital they need to grow and expand--this means hiring new employees. Unfortunately just because people have jobs doesn't mean that they are going to spend money, the US savings rate is incredibly high now. Well they will spend more money, obviously, but their excess funds will go straight into the savings account or IRA. I don't think the major deregulatory steps that were introduced by the JOBs act are too terrible, I think it could work.
I agree that the JOBS act will encourage more investment in the current market. As it is easier to fund money for small companies which usually grow very fast (compared to large company), it is a policy that will facilitate the economic growth. However, there is another problem that the policy makers should have a concern. Under current market situation, most banks are reluctant to make loans to companies, especially to small companies who usually undertake a higher risk in order to achieve a higher profit. Therefore, how to incite banks’ willingness to make loans to small companies is another problem that the policy makers need to work on.
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