Despite this lack of alignment in the economic interests of the American people and Wall Street, the Bush and Obama administrations and Congress only consult large businesses and Wall Street when setting policy.  For instance, the Senate refused to hear testimony from individual inventors and startups when debating the “America Invents (not) Act.”  This Bill contains a special provision for Wall Street that allows Wall Street banks to attack “business method” patents that they are infringing.  This doesn’t extend to any other industry, only business methods—another Wall Street giveaway.  Wall Street is not interested in competing based on merit, it wants to compete on political connections and pedigree, which is clearly un-American.

Securities laws have consistently skewed the rules to favor large Wall Street firms, including Sarbanes Oxley and Dodd Frank, which are so complex they drive out startup and small investment banking firms.  The law on retirement saving was another big give away to Wall Street.  These laws pretty much restricted IRAs, etc. to investment products sold by Wall Street.  This drove investment dollars from home towns to New York to the detriment of main street and America.  Wall Street also has a vested interest in government debt, since they get a commission for placing government bonds and make commissions every time they are traded.  According to Charlie Munger 25% of the United States GDP is now earned by finance companies.  Finance companies facilitate purchasing and investing transactions the do not make anything and only provide finance services.  When they earn 25% of every dollar in the country, you can be assured that things are seriously out of whack.[2]

The interests and performance of Wall Street are no longer aligned with the interests of the American people.  Wall Street is un-American.

If theU.S.had not adopted the publication rule, Tewari’s process would have been (probably) a trade secret.  It is likely that Tewari eventually found that it was just too expensive to fight the “rejection equals quality” mentality of the Patent Office at the time they would have been arguing their case, although I did not examine the prior art.  But, because of the publication rule Tewari did not have this choice.  (If they did not foreign file, they could have opted out of publication, but the rules make this onerous.)  As a result, Mountain States was free to steal Tewari’s trade secrets.  This allowed a large company to free load off of the efforts of an innovative startup.  Even if Tewari was legitimately denied a patent, it most likely would have had a defensible trade secret.  Note that the Tewari’s patent application was published before they received their first office action.  Tewari had no opportunity to determine if it was going to get a fair deal from the patent office before their invention was publicly disclosed to the world.  The publication rules were sold under the theory that most patent application issue within 18 months.  Now days the pendency time for the first office action is 25.2 months – seven months after the patent application is published.

Tewari was denied the rights to their intellectual property because of the publication requirement.  A large, lazy, non-innovative company was the benefactor of this theft.  This undermines investment in start-up technology companies that create most emerging technologies and provide high quality, high paying jobs.  The publication requirement should be abolished.

As a cosmologist, you may be interested to know that my illustrious predecessor Galileo Galilei had his design for a compass stolen, by his one time protege Baldassar Capra.  I know that patent theft is one of the big issues that innovative SMEs face today.  Galileo described such theft as ‘worse than murder, the victim feels the loss of fame, honour and merited glory, obtained not by nature, fate or chance… but from studies, hard work and long vigils

As recently as 1986 Adobe had an IPO raising $6M.   None of these companies could have gone public in today’s environment even adjusting for inflation.  Virtually all the buyers at the time were individuals and there was a robust “over the counter” after market for young companies.

The article then explains that a company has to have a market valuation of $250M or more to be viable in today’s market.  My estimates are higher.  The article points out that a major reason for this change in the market is because of Sarbanes Oxley or SOX, which imposes onerous accounting requirements on companies.  The article then discusses some attempted solutions to this problem.  (I have suggested an alternative in my post Circumventing Sarbox and the IPO drought)

This has been a disaster for the venture capital industry.  As a result, VCs are looking for companies that can exit by M&A at earlier states.  VCs are also not investing in capital intensive companies.

Unfortunately, the article calls for half measures of curtailing but not eliminating SOX.  They suggest this course of action despite the fact that they do not single benefit provided by SOX.  The authors point out that:

The number of annualU.S.issuers listing IPOs onU.S.exchanges has declined since 1996 from 756 to a low of 36 in 2008 and 50 in 2009 and 120 last year according to Dealogic.  By contrast, there have been 346 Chinese issued IPOs listed onChinaexchanges in 2010 even though the U. S. GDP is 3x larger thanChina’s.

This is just one more example of how were are exporting our innovation and jobs overseas.

The insane thing about our securities laws is that in the U.S. you have to hire a lawyer to invest in a non-public company, but you can blow your money in Vegas, Atlantic City, etc freely.  One activity creates jobs and wealth and creates value.  The other is a less than zero sum that destroys wealth.

A number of movie theaters appear to be boycotting the movie.  If you want to demand that they bring the movie to your town click here.

There are two general definitions of bankruptcy: 1) your liabilities exceed your assets, and 2) your cash flow is not sufficient to cover your obligations.  The US is already bankrupt under the first definition.  So the question is when we will bankrupt based on the second (both) definitions?  I did a simple spreadsheet to figure out when this would occur.  I defined cash flow bankrupt as the point at which the payments on the interest plus the cost of Social Security and Medicare equaled 100% of the likely U.S. federal budget. Naturally, this involved some assumptions.  The assumptions included:

1) The inflation rate will increase by 1% a year for the next decade,

2) The number of retires on Medicare and Social Security will increase by 5000 per day (10000 baby boomers retiring a day less 5000 death a day),

3) The cost of retires today is $20,000 per year,

4) The US will grow at 2% per year,

5) The federal annual debt will increase at the rate of inflation,

6) The US will pay 1% over inflation for its debt (realized not unfunded), and

7) The cost of Social Security and Medicare per recipient will grow at the rate of inflation.

I believe the first assumption of inflation growing at 1% per year for the next decade with a starting level of 2% in 2011 is a very conservative estimate.  Where conservative means that it errs on the side of the US not going bankrupt.  The second assumption of 5000 net people per day going on Social Security and Medicare is based on the best estimates I can find.  Note that there is no cost associated with Obama care in this calculation, which makes this even more conservative.  The third assumption of the cost per retiree is based on the best available information I could find.  The fourth assumption of the US growth rate is extremely generous.  The long term growth rate of the US is 2% a year and presently it is very doubtful that US will grow at this rate this decade.  The fifth assumption that the federal debt will only grow at the rate of inflation over the next decade is almost laughable.  This would mean that the debt to GDP ration would actually decline.  The Tea Party Republicans wanted to cut $100 billion dollars from this years budget and they were said to be cutting it to the bone.  This $100 billion is just 1/16^th of the total deficit and only 1/37^th of the total budget.  The seventh assumption that Medicare and Social Security costs per retiree will only increase at the rate of inflation is much lower than the growth rate over the last 20 years.

Below is a chart that shows how the total recognized federal debt grows

Here is a chart of these costs as a percentage of the Federal Budget

Here is the spreadsheet for anyone who is interested

Is this not exactly what the U.S. government is doing today?  Tax law is not about equitably raising funds for the needs of the government, but a method of punishing the politically unpopular.  Patent Reform (America Invents Act) is not about protecting property rights, but weakening them for the politically connected large corporations.  TARP was not about saving the economy, it was about taking money from the People to support politically connected Wall Street banks.  Obama Care is not about helping the needy, it is about destroying the independence of the wealth producers in this country.  Has the Government and the politically favored groups put themselves at war with the People?  Is the U.S. on the verge of Dis-Integration?

The late Nobel laureate Julius Axelrod said, “Ninety-nine percent of the discoveries are made by 1 percent of the scientists.”

This elitist attitude contradicts all the available evidence.  As the book, The Most Powerful Idea in the World, discussed in Georges’ article points out, sustained economic growth does not happen until property rights for ideas (patents) are enacted.  This releases a flood of inventions, not by the elite, but by ordinary citizens.  It was the democratization of the inventing process that lifted the masses out of the Malthusian Trap.

Senator Chris Dodd’s 1,400-page financial reform bill contains many economic land mines, and here’s one of the worst: Provisions that would make it harder for business start-ups to raise seed capital. Currently, wealthy individuals who want to invest directly in a new business can do so with minimum interference from regulators. The law requires only that the investor be “accredited” by meeting thresholds for net worth ($1 million) or income ($250,000). Entrepreneurs depend on these “angel” investors, since many new businesses lack the collateral for bank loans and are too small to interest venture capitalists.

Mr. Dodd’s bill would change all this for the worse. Most preposterously, it would require that start-ups seeking angel investments file with the Securities and Exchange Commission and endure a 120-day review. Rare is the new company that doesn’t need immediate access to the capital it raises, and a four-month delay is the kind of rule popular in banana republics that create few new businesses.

The legislation also removes a federal pre-emption that prevents start-ups and investors from being subject to 50 different state regulators. The North American Securities Administrators Association, which represents state regulators, argues that federal pre-emption contributes to fraud. But angel investors don’t use broker-dealers and other middlemen linked to recent investment scandals. Nascent companies often seek financing from multiple investors in different states, and a state-by-state regulatory regime would mean higher compliance costs and more legal risks.

The Dodd bill also raises the net worth and income thresholds to $2.3 million and $450,000, respectively. The Angel Capital Association, a trade group, estimates that these provisions would disqualify about 77% of current accredited investors. Accreditation matters in luring other potential investors, such as venture capitalists who enter the picture once a company begins to mature.

Please see the full Article