Here’s a brief follow up, genetically if not literally similar to my post from earlier today about AI bubbles. Axios has a report on the public comments on the Securities and Exchange Commission’s proposal to “ease” (i.e., get rid of) the requirement that public companies issue quarterly disclosure reports. The SEC has received almost a quarter million comments (orders of magnitude more than normal) and they are almost universally against it. Some of this is organized, organizations or company that represent or advocate for investors trying to get people to write in. But it’s mainly that there is simply zero constituency for this: retail investors, institutional investors, former SEC chairs, academics who study business. According to Axios, the pro side was “the Chamber of Commerce, the Business Roundtable and Exxon Mobile.” As they note, the agency has to consider the comments. It’s not a vote. They can move forward regardless.
What struck me here is that it’s almost impossible to look at the current state of the U.S. economy, equity markets, trends in retail investing, the widespread public exposure to mutual funds and index funds, and the increasing inattention to white-collar crime and think that what the economy needs is less transparency. The current head of the SEC, Paul Atkins, has pitched these changes as a way to “make IPOs great again.” First of all, it’s not entirely clear why IPOs should be great again. We want new companies. New companies finding new points of market need, devising new services, finding ways to chip away at the dead wood of monopoly and bureaucratic sclerosis is important to the economy. But that’s not the same as a high-octane culture of IPOs. Indeed, to the extent there are fewer IPOs, it’s more tied to the growth of monopolies. If there are new ideas to be nurtured, it’s happening within the monopolies, or they’re bought out or snuffed out early by those monopolies to ward off future competitors.
But look at what Atkins wants to do and it’s pretty clearly a way to allow startups to go to market without disclosing so much about what they’re selling — upping the ratio of sizzle to steak. IPOs are largely selling hype and hope. That’s kind of in the nature of the beast. But that is offset by the need to at least put out a decent amount of fine print and data about what’s actually happening, real numbers stated with at least significant liability (civil and criminal) for falsification.
A lot of people don’t look under the hood. But they can. And retail investors are almost always listening to stock analysts and business reporters who at least should be. These new regulations really amount to locking the hood. Or at least greatly extending the window for game-playing and skullduggery before the requirement of occasionally popping the hood. Of course the whole world of memestocks is one in which sizzle has, one might say, reached escape velocity. We don’t care about the fundamentals. The more dead the company the better. But that is part of the problem, not part of the solution.
There are lots of reasons why this is bad for the economy. But it’s also out of step with the public mood. The single most pervasive belief, suspicion, anger in our world today is the belief that the deck is stacked for the insiders, the elites, the people with the inside track. This is literally an effort to give the insiders a bigger leg up. It’s no surprise that the public response to this regulation is so big and so almost universally negative. Truly no one wants this. And to the extent there are people who do want it, they know not to say it too publicly. As one of the experts interviewed by Axios put it, most proposed regulatory changes are obscure, hard to evaluate without a lot of technical knowledge. This is really simple. Anyone can understand it. Companies have to disclose less about the health of their businesses. It’s pretty hard to hear that and think, yes, that’s the kind of innovation we need to jumpstart this economy! Unless you want to bring a much hyped but struggling business to public equity markets and engineer a fat public exit with dumb public money. Then it makes lots of sense.
It’s not like equity market regulations don’t have a history of being contested. They have been forever. One of the biggest and most unwelcome post-global financial crisis reforms was requiring C-suite executives to sign off on these public disclosures and do so in a way that had real teeth. If they’re wrong, the CEO or CFO could be civilly or criminally liable. Giving the greed that is the fuel of capitalism more free reign is in the nature of Wall Street and public markets, the push and pull between advocates of transparency and well-functioning markets and the hunger of the sharks. But there’s an audacity to these proposals which operates on a different level.
It’s impossible to separate this impulse from the degenerate culture of Trump family and Trumpism generally, which is rife with forms of business that are often little different from confidence schemes, pyramids and swindles: random crypto coins, betting markets, government contractor startups with boards salted with the president’s sons. It’s a truism verging on cliche that Trump built his fortune and name on a form of low-rent capitalism almost indistinguishable from fraud. Hyping failing or non-existent businesses and then finding creative ways to unload them on unsuspecting investors, stiffing contractors, fast-talking fast enough that bankers who should have known better often were so bamboozled they kept lending him money. Just as northeastern old money brought its culture to government and the oil men of the southwest brought theirs, now Trump and his world has brought theirs. It’s swindles all the way down and increasingly a culture of swindlery.