State of Innovation

Patents and Innovation Economics

Financial Regulation Does Not Work

In an article entitled “Sheila Bair: Two Years After Dodd-Frank, Why Isn’t Anything Fixed? , it points out that the LIBOR scandal, the MF Global’s bankruptcy, JP Morgan Chase’s “London Whale” and his trading losses, Barclays’ rate fixing, Peregrine Financial’s fraud have all happened despite the 2,319 page Dodd Frank Act has not stopped.  A decade earlier we passed Sarbanes Oxley, which according to its sponsors was going to stop financial fraud, increase investor confidence in the market and in the accounting statements of public companies, and lower the cost to raise capital.  But SOX did not accomplish any of this.  It did not stop Lehman Brothers, AIG or any of the other financial problems uncovered in the 2008 meltdown.  Even more ironic is that no one has gone to jail from these scandals, despite the CEO and others executive officers having to swear that their financial statements were accurate.  So what is Ms. Bair, the 19th Chairman of the FDIC, solution – MORE REGULATION.  Has Ms. Bair ever heard of the definition of insanity?

Ms. Bair argues that this proves that markets are not “self correcting.”  But she fails to note that the US Government always bails out big Banks and Wall Street.  Since the crisis of 2008, we have bailed on the banks with TARP, with zero interest rate loans from the Federal Reserve, and with QE1-3.  Pat Choate has shown that we bailed on banks and Wall Street at least eight times in the thirty years before that.  The markets are not self correcting because the Government does not allow them to work.  The Federal Reserve is nothing more than a Bank bailout protection mechanism.  Wall Street got special provisions in the America Invents Act to exempt them from competition from innovative startups.  Wall Street is acting rationally, because it knows there are no consequences to for failure, but huge upsides if they succeed.  That is not how the MARKET works Ms. BAIR – but it is how government works.

Every academic study has shown that Financial Regulation fails to achieve its goals and in fact hurts investors.  For instance, see Liu, Tung, Santoni, Gary J., Stone, Courtenay C., Federal Securities Regulations and Stock Market Returns. This paper surveys several papers that all show securities regulation has been a failure.  Here are some of the effects of SOX.  In 1996 60% of worldwide IPOs went public in theUS.  In 2005 only 20% of worldwide IPOs were in theUS.  TheUS is the only major country to have fewer public companies today than a decade ago.  There has been more than a 90% decline in the number of IPOs.  This particularly hurts the technology startup market.  It costs around $3 Million a year to comply with SOX as a publicly traded company.

What financial regulation does is increases the cost of obtaining funding for startup and eliminates competition among financial companies.

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July 20, 2012 Posted by | -Economics, -Legal, Innovation, News, Regulation | , , , , , , , , | Leave a comment

Repeal of Sarbanes Oxley and Dodd Frank Proposed

According to US News.  Newt Gingrich is proposing to repeal Sarbanes Oxley and Dodd Frank on his inaugural day.  SOX has killed innovation by making it impossible for technology startups to get funding.

At his speech at the Republican Jewish Coalition’s 2012 Republican Presidential Candidates Forum this afternoon, Gingrich urged attendees to help vote a large Republican majority into the House and Senate in 2012 so Congress could immediately pass repeals of the Affordable Care Act and the financial regulations Sarbanes-Oxley and Dodd-Frank.

This would be an excellent start, now we just need him to repeal the America Invents Act and roll back spending to 2007 levels.

 

December 9, 2011 Posted by | News, Regulation | , , , , | 2 Comments

Washington Post Suggest Producers and Parasites are Interchangeable

Do Government Regulations Really Kill Jobs? opinion November 14,2011 Washington Post by  Jia Lynn Lang, explores the concept that one industry’s losses on overbearing regulations are another industry’s  boon.  Leaving aside the Broken Window Fallacy introduced by Bastiat that’s been around over 160 years for the moment, let’s look into the brilliant mind of Roger Noll, an economics professor at Stanford and co-director of the university’s program on regulatory policy. “Some people identify with the beneficiaries, others identify with those who bear the cost, and no amount of argument is ever going to change their minds.”  This is a leading economist paid by a major university to come up with this explanation to downplay the absolute economic wreck the US regulation and tax policies have had on our country.  You cannot make this stuff up.  By “some people” identifying with the beneficiaries, is the esteemed professor suggesting parasites are interchangeable with producers?  Some will identify with thieves, others with the victims, according to the Stanford professor.  Since the author of this article has only plumbed the depths of a few “economists, ”  I’d like to introduce her to some basic facts in from a relatively short snapshot in History.

From 1998-2000, the US saw 4470 IPOs or Initial Public Offerings.  From 2001-2010, that number fell almost 4/5th in ONE DECADE.  What the heck happened??  A little beauty  of a regulatory law, just under 60 pages, sponsored by legislators Sarbanes and Oxley in 2002.  What about that horrible tech bubble that caused the stock market to tumble in 2000?  That “bubble” was the strongest contributor to the U.S.’s position as the undisputed economic and technological leader of the world.  It resulted in disruptive technologies that changed the world and every one of our lives and is still doing so today.  Then we passed SOX.  This was supposed to stop bubbles from occurring.  Fast forward to 2008.  Well, there weren’t many IPOs for your money to invest in-which left real estate all by its lonesome.  Hmmm, that SOX sure did work on real estate.

Today, we are getting ready to face the regulatory tsunami of Dodd-Frank.  This nifty law is over 2300 pages.  What sane US company wants to stay on this island?

Well, it’s possible Sarbanes, Oxley, Dodd and Frank might cook up a new law to force them to stay here.  Slavery, 2012 style.

 

November 15, 2011 Posted by | -Economics, Regulation, Regulatory bill of Rights | , , , , , , , , | Leave a comment

Complainer in Chief: US Business Lazy

According to a Fox News story, President Obama: U.S. Gotten a Bit “Lazy” on Attracting Businesses, “President Obama said that the United States has gotten a “little bit lazy” when it comes to bringing in new businesses in to the states”.  He said some of the advantages of the US are its stability, and its innovative free market culture.

I guess I am just a little confused how a 2300 page health care law provides stability or how the government taking over 1/7th of the economy is free market?  How is a patent law (AIA) written by large companies to entrench their position furthering our innovation?  How does Dodd Frank also over 2300 pages further the free market?  Or contribute to stability?  How does interfering with Boeing’s decision to move to South Carolina result in stability?  How is that a free market?

Of course Obama is such a narcissist that he would never look at his own idiotic policies and how they are causing the slowdown in American business.  It is doubtful that Obama really wants the US to be successful.  So, his speech was really an exercise in DOUBLESPEAK.  1984 predicted the future it just took twenty five years longer than Orwell thought.

 

November 13, 2011 Posted by | -Economics, Innovation, News, Patents | , , , , , , | Leave a comment