Categories:Investments,Other,US

Just the facts, ma'am

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Regulations cost money to enforce and often create business frictions. But less regulation means less public protection.

In America, the topic is a political flashpoint, with Democrats tending to favor more rules, while Republicans and libertarians opt for laisser faire positions. Yet one key distinction is often drowned out in the cacophony: providing information differs from mandating or forbidding an activity.The devil is in the details.

In rare unity, both sides strongly supported the so-called JOBS bills, signed into law by President Obama last week. The new law, which has nothing to do with jobs except as a clumsy acronym (Jumpstart Our Business Startups) allows two exemptions. Newly public companies, with under $1 billion in revenues, are excused from independent audits; moreover, private companies can now raise up to $1m through selling shares.

Do not be fooled by cozy bipartisanship. A few holdouts among consumer and business advocates cried in the wilderness that investors could be defrauded. But theirs are the distinguished voices that matter. Securities & Exchange Commission (SEC) chair Mary Shapiro warned that the $1 billion exception, “is so broad that it would eliminate important protections for investors in even very large companies”. Lynn Turner, former SEC chief accountant, and Arthur Levitt, former SEC chair have also joined the criticism. (blog continues below)

It comes down to disclosure. I am reminded of a less serious squall last year. Another proposal for federal regulation of calorie content would have affected cinemas, as the Food and Drug Administration wanted concession stands to reveal the nutritional content of their snacks. A large popcorn with butter-flavored topping contains 1460 calories - who knew? The libertarian right cried “Nanny state”, and even the White House pitched in, and pressured the FDA to squash the proposal, apparently fearing public ridicule.

With or without displayed calories, popcorn would still have been sold and consumed. (Actually, studies indicate that nutritional labeling remains too confusing to be helpful.) But that again is the difference between banning a product and educating the public. As a perennial dieter, and as a conscientious investor, I would rather know accurately what I am putting in my mouth or my portfolio.

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Vanessa Drucker is the American Editor of Fund Strategy, based in New York City. She has worked as a financial journalist for 20 years. In the 1980s, she practiced banking and securities law on Wall Street, and is the author of two business novels. Vanessa can be contacted at vanessa.drucker@centaur.co.uk.

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