The impact of this change on the economy could be disastrous. Its stabilizing effect would be to stabilize the economy on a path of much less growth, and it would mean fewer start-ups, slower expansion for new businesses and correspondingly fewer new jobs and contributions to the GDP. It will also reduce the rate of growth of state and federal tax revenues and those losses will have to be made up from other sources, probably more taxes on consumption and income, which will further drive down the economy. For consumers it means less choice in your 401K or IRA or other investment fund, more regulation, and arbitrary limits on the upward mobility which has been the great hallmark of the American dream.
The only winners in this scenario are the established megacorporations who will see less competition and more control of the marketplace and will likely end up being able to buy out small companies when they reach the size that the might have gone public because those companies will have no other way to get the capital they need to continue to grow. It means fewer, bigger companies which owe their increasingly monopolistic power to the government.
This is not a good model of a business environment for the United States or for its people. It's making the rich richer and the poor poorer, stealing opportunity from the middle class and handing it to the ultra-rich. It shows the hypocrisy of the Democrats whose rank and file love anti-corporate rhetoric, yet keep supporting a leadership which is clearly willing to sacrifice the welfare of the people in order to enrich their fat cat corporate allies and buy their loyalty.
Article comments
— go to most recent comments1 - Glenn Contrarian
Dave -
As always, the Democrats are trying to take choice away from the public and limit risk for people whether they want it limited or not. Risk brings reward, and by eliminating risk you also eliminate the rewards that can come with it.
That's the laissez-faire way of thinking. But you know what?
From 1921-1933, we had Harding, Coolidge, and Hoover. We had easy credit and wild speculation. We also wound up with the Great Depression that a Democrat had to fix.
From 1981-1992, we had Reagan and Bush 41. We had relatively easy credit and unregulated thrifts. We also wound up with the '82-83 recession, the S&L/thrift crisis, and the recession which followed it.
From 2001-2008 we had Bush 43. We had easy credit and wild speculation. We also wound up with the Great Recession.
The only Republican presidents who didn't lead the nation into a major economic crisis were Eisenhower and Nixon (the Arab Oil Embargo doesn't count). But neither one was a big proponent of laissez-faire, either, were they?
Dave, on the one hand I've seen your claim that it's a logical error to associate the Republicans with the three worst economic crises of our nation's history since 1900 that just so happened to occur on or at the end of their watch.
On the other hand, how many times do we have to watch history repeat itself before we get a clue (human nature being what it is) maybe, just maybe laissez-faire ain't such a bright idea after all.
"By their fruits shall ye know them." Politically speaking, this means we should judge not on rhetoric, but on RESULTS.
2 - Dave Nalle
You already know the fallaciousness of this argument, Glenn. If you accept the questionable premise that tax policy can even cause a recession or a depression then...
The Depression came from Wilson's policies and the post-war crash. It was delayed by Harding and Coolidge and then made worse by Hoover and FDR.
The 1983-1985 recession was the result of the Ford and Carter administrations and the arab oil embargo and was reversed by Reagan's open economic policies.
The current recession probably was caused by Bush and his monetary policy, excessive spending and not feeble tax cuts. And boy has it been made worse by Obama.
All depending, of course, if you believe that minor changes in tax policy can actually shift the economy that much. The truth is more likely that recessions are just cyclical and likely not really caused by government policies at all.
Dave
3 - Dave Nalle
Oh, and I forgot to mention that as usual you are trying to distract from the subject of the article, which is not general influences on the economy, but the direct and immediate effect which this new bill will have on investors and businesses, which is something which is much easier to identify clearly.
Dave
4 - Arch Conservative
Aren't we supposed to be talking about how anyone that beleives our national borders actually mean something is a racist?
The economoy? That's so Monday.
5 - roger nowosielski
"American Dream," Dave? I would hope you'd come up with an apter metaphor. That concept went out the window at the turn of the last century, with the Jazz Age.
Look to Great Gatsby or The Last Tycoon for some of the sub-themes.
6 - roger nowosielski
"The truth is more likely that recessions are just cyclical and likely not really caused by government policies at all."
BTW, I do happen to agree with the above. I haven't the faintest what possess such as Kenn, and then even Glenn, to imagine and to argue otherwise.
7 - Baronius
Dave, great article. Up until now, the BC articles on the financial reform bill have been short on specifics. Kudos for changing that. Also, great point about mercantilism.
8 - Glenn Contrarian
Dave -
The truth is more likely that recessions are just cyclical and likely not really caused by government policies at all.
Ah. So it JUST SO HAPPENED that the worst three economic crises since WWI were during or in the closing years of Republican administrations of 8-12 years in duration.
And it JUST SO HAPPENED that these particular sets of Republican administrations were also the ONLY Republican administrations that were firm believers in laissez-faire economics.
And it JUST SO HAPPENED that all three sets were alike in that they enabled easy credit and were against financial regulation.
And it JUST SO HAPPENED that the economy was able to recover after a Democrat took over in all three cases (it just got announced today that we've had three straight quarters of economic expansion).
And what didn't happen? NONE of these crises happened in the four decades following the Great Depression until 1982...when every one of the presidents - including Eisenhower and Nixon - were NOT adherents of laissez-faire economic theory. Despite the fact that we had greatly-increased regulation and top marginal tax rates at 70% and above for three of those decades!
When, oh WHEN will you pay attention to HISTORY, Dave?
...and btw - it's not so much the government policies that caused the economic crises - it was the deliberate lack of regulation that brought them about.
Moderation in everything, Dave. Too much regulation is a bad thing, I think you'll agree. But too little regulation is ALSO a bad thing, and anyone who really pays attention to American economic history should understand that.
9 - Glenn Contrarian
And Dave -
Oh, and I forgot to mention that as usual you are trying to distract from the subject of the article, which is not general influences on the economy, but the direct and immediate effect which this new bill will have on investors and businesses, which is something which is much easier to identify clearly.
So it's wrong - "distracting" - to point out what's happened with lack of regulation before?
Dave, you've given your qualifications on history before...which means that you of all people should appreciate the wisdom of George Santayana's maxim, "Those who cannot remember the past are condemned to repeat it."
You're against increased regulation of the financial markets (or if you're FOR it, I haven't seen you (or any Republicans or Libertarians) put forth any ideas to that effect)...but you're ignoring not only what happened after three sets of Republican laissez-faire economy administrations, but you're ALSO ignoring what DIDN'T happen during ANY of the non-laissez-faire administrations.
LEARN the lessons of history, Dave. It's not enough to just know history - one must also understand it.
10 - Baronius
The weather's beautiful today, Roger. You could go for a walk, clear your mind.
11 - handyguy
The goal is clearly to reinvent American business on a monopolistic model
Misleading distortion, aka bull puckey.
The principal goals of the bill are
- to set up an orderly system of dismantling large failing financial institutions,
- to require more transparent trading of derivatives, and
- to protect consumers from predatory lending practices.
If you devoted even one syllable of your article to those main provisions, I guess I missed it.
You concentrate on one relatively obscure provision of the bill having to do with the regulation of "angel investors." The SEC had requested this change long before the Obama administration, and the point apparently was to limit investing in hedge funds by less-wealthy investors.
Dodd has already said he was open to amending this portion of the legislation -- and there almost certainly will be many amendments proposed over the next couple of weeks. Your interpretation of the motivation for the proposed changes is just wacky. Do you have any backing evidence?
Someone reading just your article would get a very incomplete and distorted picture of the bill.
Are you deliberately trying to mislead? [Wouldn't be the first time.] Even your headline is outrageous and false.
12 - roger nowosielski
#11,
You've been overbearing of late, Baronius, on the other thread. Try to tread more lightly in the future, and all will be fine. Needling, the right kind of needling, is an art, take it from me.
The object is not to estrange your opponent but to win him/her over. You were doing nothing of the kind.
I'd like to believe you have good impulses left in you; otherwise, I wouldn't try. So let's get it on, shall we?
I'll drop my biting comments if you'll drop yours. Believe it or not, I do like you and would like to meet you in person.
13 - Mark
Interesting piece, Dave. Following up on Handyguy's #12 -- some documentation of the history. The SEC began looking closely at the consequences of hedge funds and pooled investment in 2000 culminating in this staff report in '03 (pdf). In '06 the Commission made recommendations (pdf) including the redefinition of 'accredited investor' based on what they held as their mandate given the intent of law to ensure that "only such persons who are capable of evaluating the merits and risks of an investment in private offerings may invest in one" p17...or at least only those who can afford the possible loss involved.
14 - Dave Nalle
Mark, that's a terribly difficult criteria to enforce and it's not in the bill. I can't imagine the stink which would be raised if there was some sort of mental and/or educational test for accredited investors.
IMO it's pure nanny statism, as are the restrictions which are addressed in this article. People need to be free to make decisions for themselves. They should address issues like Goldman Sachs selling utterly bogus investments which are designed to fail and treat that kind of behavior as fraud and punish it. If the SEC actually performed its supervisory role this sort of draconian law which restricts the right of citizens rather than going after the malefactors, would be unnecessary.
In any situation like this it is far more desirably to punish the wrongdoers and prevent further wrongdoing than to take liberty and choice away from consumers.
Dave
15 - Dave Nalle
Handy, I'm sorry I didn't write an article about the aspects of the bill you wanted someone to write an article about. Why don't you write it yourself? I wrote about an aspect of the bill which concerned me. I wouldn't have written an article at all if it had to be about the aspects of the bill which don't concern me.
to protect consumers from predatory lending practices.
By restricting consumer choices rather than by actually regulating the industry. Again, punishing the innocent rather than the guilty. Nanny statism.
If you devoted even one syllable of your article to those main provisions, I guess I missed it.
Again, why would I write an article critical of the parts of the bill which aren't abusive?
You concentrate on one relatively obscure provision of the bill having to do with the regulation of "angel investors." The SEC had requested this change long before the Obama administration, and the point apparently was to limit investing in hedge funds by less-wealthy investors.
But this is not what the bill does. It limits ALL investment in IPOs and start-ups. In fact, it contains no provisions specific to hedge funds.
Dodd has already said he was open to amending this portion of the legislation -- and there almost certainly will be many amendments proposed over the next couple of weeks.
So good thing I wrote this article to help raise awareness of the need to amend the bill.
Your interpretation of the motivation for the proposed changes is just wacky. Do you have any backing evidence?
I didn't write about motivations, I wrote about the obvious effects of the bill and drew obvious conclusions. The evidence is in the text of the bill.
Someone reading just your article would get a very incomplete and distorted picture of the bill.
But they would get an accurate picture of what the effects of this section of the bill would be, and that's the point.
Are you deliberately trying to mislead? [Wouldn't be the first time.] Even your headline is outrageous and false.
Again, Handy, that's just your rather biased opinion. As always, I'm writing an editorial opinion based on facts, which you haven't tried to dispute (because they are true). If your conclusion from those facts is different, then that's your opinion, but it doesn't actually negate mine.
Your black and white view of the world is tedious.
Dave
16 - Dr Dreadful
I wouldn't have written an article at all if it had to be about the aspects of the bill which don't concern me.
So, Meester Nalle, you admit zat zere are aspects of ze bill vhich don't concern you. Hmm...
17 - handyguy
...aspects of the bill which don't concern me...
...Such as big Wall St firms threatening to drag the economy down with them;
or dangerously underregulated derivatives that might drag the economy down with them;
or credit card and payday loan companies preying on vulnerable people.
Sorry, but I don't believe you don't have an opinion about those issues. And if it weren't for those issues, there wouldn't be a big national discussion of finance reform.
For the record, I wasn't agreeing or disagreeing with your opinion on the quite arcane subject of changing the definition of "accredited investor."
But saying the bill is an exercise in "managed corporatism" and then using only that example is weird. Not everyone who has analyzed that portion agrees with your interpretation of how many investors will be affected and what the results will be for venture capital.
One of the main reasons for changing the definition is that it's never been adjusted for inflation. But implying that Chris Dodd is doing it to help megacorporations at the expense of smaller companies is an unsupported stretch.
And using that whopper of a headline is downright embarrassing if you want your piece to be taken seriously.
18 - Mark
handyguy, there have been other similar pieces lately. And for another sympathetic presentation see these guys and their report.
19 - Baronius
Roger, this race discussion has been crossing too many threads. I just posted an explanation for my words on the Boyd thread on Christine's thread.
20 - handyguy
If Dave's article had the reasonable tone and title of the Xconomy article Mark links to in 19, I probably wouldn't have even commented on it.
What I object to is the unrelenting propagandizing, gratuitous Dem-bashing, and idiotic apocalyptic rhetoric.
21 - roger nowosielski
I read your response to zing, Baronius; still thinking about it.
22 - handyguy
The truth is more likely that recessions are just cyclical and likely not really caused by government policies at all.
Like Roger, I agree with this.
If Dave actually means it, it doesn't seem to stop him and others on here from yelling about government policies that will "destroy our freedoms" or lead to economic apoclalypse, or turn the US into Argentina, or "attack the American dream."
All together now: roll your eyes and sigh. You may now rejoin the real world.
23 - Glenn Contrarian
Roger and Handy -
The cause of the recessions and Depression were NOT the government policies...but the lack of proper government regulation. It's just like having a road network without speed limits, stop signs, traffic signals, lane markers, and road shoulders. Such might make for faster travel for some, but for most will end up in a traffic jam of epic proportions.
24 - handyguy
The problem with government regulation is that they get it wrong as often as they get it right. Motives are mixed, bills get compromised, bills have unintended consequences [which is Dave's point here, although I think it's written through the wrong end of the telescope].
That doesn't mean we shouldn't have regulation, just be skeptical.
25 - roger nowosielski
That's another point entirely, Glenn. Indeed, I'd tend to agree that deregulation started by Reagan led to the creation of the bubbles and the present crisis. So yes, when you allow capitalism run amok, shit happens.
An extreme example which proves the point: in a planned/managed economy (e.g., such as under the old Soviet system), there aren't business cycles to speak of.