Sunday, July 14, 2013

As Washington D.C. changes the Investment and Finance Landscape

Last week U.S. Senators Elizabeth Warren, John McCain, Maria Cantwell and Anugus King introduced a banking bill being called “The 21st Century Glass-Steagall Act” which intends “to reduce risks to the financial system by limiting banks’ abilities to engage in certain risky activities and limiting conflicts of interest, to reinstate certain Glass-Steagall Act protections that were appealed by the Gramm-Leach-Bliley Act, and for other purposes.” (Note: Glass-Steagall was passed in 1933 to address banking problems that led to the Great Depression. In 1999, Gramm-Leach, which reversed Glass-Steagall, was passed in the U.S. Senate by a vote of 90 to 8).

In addition, Federal Reserve Chairman Ben Bernanke, while speaking at the National Bureau of Economic Research (Cambridge, MA) said that the central bank will likely continue to provide economic stimulus "for the foreseeable future” and “we need to be more accommodative".

Finally, the Securities and Exchange Commission announced that it will eliminate a ban on “general solicitation” and “general advertising” of private securities offerings that has been in place since the Securities Act of 1933 was passed. This change is part of the Jumpstart Our Business Startups Act (JOBS Act) and should become effective within 60 days.

  • Regarding the 21st Century Glass-Steagall Act – While Wall Street may be resistive to this bill and some cynics suggest a final version will be watered down with a provision citing “compliance with any or all of the above provisions is purely voluntary", a desire to break up the “too big to fall, too big to jail” banks is a view shared by many Americans on Main Street.
  • Regarding Bernanke’s comments - Since late May, global markets have had many strong negative and positive moves triggered by suggestions of reduced stimulus. While his recent remarks reduce short-term concerns that the Fed will decrease stimulus in the short term, last week’s strong market move is another indication that the current era of investing is mostly a game of chasing central banker stimulus efforts, while positioning for their eventual withdrawal.
  • Regarding the JOBS Act - Given the broad media coverage of investing and global market dynamics, lifting the advertising ban seems to make sense. At the same time, questions remain on how this and other potential changes by the S.E.C. will improve the dynamics crowd funding, which seeks to democratize the investment process by connecting individual investors with small start-up efforts.

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