Financial Reform Bill Attacks the American Dream

The pending financial reform bill authored by lame duck Senator Chris Dodd (D-CT) and backed by the administration is another of the massive package of "reforms" we are apparently expected to encourage our representatives to pass before we really get to read it. Republicans are already being lambasted for opposing it while being unable to point to specific provisions which they object to, but as details of the bill begin to be leaked the reasons for opposing it become very clear.

Like previous financial legislation coming from the Democrats, including the disastrous health care bill which has enormous financial implications, this new bill is another exercise in managed corporatism aimed at reducing market freedom by creating a business environment which uses the law to favor select large corporations while shutting smaller companies and new start-up businesses out of the marketplace. The goal is clearly to reinvent American business on a monopolistic model where success is based on a company's relationship with the government rather than the quality of its products or services. It means fewer choices for consumers, fewer jobs, and higher costs, while all the profits are directed to a small and select segment of the wealthy elite in what is coming to be called "crony capitalism."

The model is sometimes called "fascist," but in many ways it is more reminiscent of the practices of mercantilism where corporations could only do business if they had a charter from the government and those charters were granted only to those with the right political connections and came with government contracts, subsidies, and bailouts as well as effective monopoly control over certain industries. This form of managed capitalism played a big role in the start of the American Revolution, as colonists struck out against the British East India Company's monopoly in the tea trade.

The latest example of the efforts of the Democrats in Congress and the administration to return us to this oppressive economic regime can be found in the typically misnamed "Restoring American Financial Stability Act" which uses the excuse of protecting consumers from risk to intervene in the investment market and exclude huge numbers of small and mid-sized investors from what have been the most lucrative investment opportunities of the past several decades, limiting access to those investments only to a very small number of the ultra-rich.

It all revolves around the concept of the "accredited investor" which has been an element of SEC regulation for decades. Traditionally a relatively low threshold was set for this class of investor at $200,000 in annual income or $1 million in assets. Section 412 of the new bill seeks to raise that limit enormously, to $449,000 or more in income and eliminate the value of an investor's home from the property qualification. The effect of these changes would be to eliminate 77% of the pool of accredited investors, prohibiting them from investing in most start-up businesses, initial public offerings, private stock offerings, and other forms of investment where the risk is relatively high but where profits are also proportionally higher. The bill also includes further limitations under "Regulation D" and in section 926 which would limit how start-up companies could raise money and allow state regulators a much greater role in controlling the formation of new businesses and stock offerings.

The problem is that the overwhelming majority of new job creation in the last two decades as well as much of the stock market growth and growth in personal wealth has come as a result of these small scale investors putting their money into new companies. It has driven our last two economic booms which came after the adoption of the original Regulation D in 1982.

As always, the Democrats are trying to take choice away from the public and limit risk for people whether they want it limited or not. Risk brings reward, and by eliminating risk you also eliminate the rewards that can come with it. Traditionally these have been decisions which Americans have made for themselves, using their own judgment to decide how much risk they can afford, and that's a trend which Chris Dodd and the Democrats want to stop dead, no matter what the cost. Their concern is that since 1982 the number of accredited investors has gone from 1.87% of households to 8.47% of households, and that means a larger portion of the economy and a larger portion of the stock market taken up by volatile, fast growing stocks. It has meant great opportunities for start-up businesses and for savvy investors with limited funds, but it also makes the investing environment proportionally more volatile.

Their intentions may be good, but the catch with regulation of this scope is that in addition to taking away opportunities for small investors to take a risk on a new offering and make a big profit, it also takes away a large source of funding for new businesses and established companies which want to go public. They will now have a much smaller class of investors to draw on, and there will be much less capital available in the market to fund the process of establishing new businesses or expanding existing businesses by going public and selling stock.

The impact of this change on the economy could be disastrous. Its stabilizing effect would be to stabilize the economy on a path of much less growth, and it would mean fewer start-ups, slower expansion for new businesses and correspondingly fewer new jobs and contributions to the GDP. It will also reduce the rate of growth of state and federal tax revenues and those losses will have to be made up from other sources, probably more taxes on consumption and income, which will further drive down the economy. For consumers it means less choice in your 401K or IRA or other investment fund, more regulation, and arbitrary limits on the upward mobility which has been the great hallmark of the American dream.

The only winners in this scenario are the established megacorporations who will see less competition and more control of the marketplace and will likely end up being able to buy out small companies when they reach the size that the might have gone public because those companies will have no other way to get the capital they need to continue to grow. It means fewer, bigger companies which owe their increasingly monopolistic power to the government.

This is not a good model of a business environment for the United States or for its people. It's making the rich richer and the poor poorer, stealing opportunity from the middle class and handing it to the ultra-rich. It shows the hypocrisy of the Democrats whose rank and file love anti-corporate rhetoric, yet keep supporting a leadership which is clearly willing to sacrifice the welfare of the people in order to enrich their fat cat corporate allies and buy their loyalty.

This article appeared previously on Blogcritics Magazine.


About Dave 536 Articles
Dave Nalle has worked as a magazine editor, a freelance writer, a capitol hill staffer, a game designer and taught college history for many years. He now designs fonts for a living and lives with his family in a small town just outside Austin where he is ex-president of the local Lions Club. He is on the board of the Republican Liberty Caucus and Politics Editor of Blogcritics Magazine. You can find his writings about fonts, art and graphic design at The Scriptorium. He also runs a conspiracy debunking site at

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