A Romney Win Ends the Capital Strike

Capital sidelined by onerous regulations will flood back into market

     

investorpoliticsletters2 A Romney Win Ends the Capital StrikeHere’s the ugly truth the left-wing doesn’t want you to know about: There has been an ongoing capital strike in this country, and that’s one of the reasons why unemployment remains high and why two million people have given up looking for work. Of course, there’s a reason why there’s a capital strike at all. For that, you can thank the anti-business, anti-capitalist President Barack Obama.

Now, the capital strike is not the result of the wealthy deliberately keeping its boot pressed on the necks of the Left because of ideology. This isn’t Ayn Rand’s entrepreneur-hero John Galt saying that, “We are on strike, we, the men of the mind. We are on strike against self-immolation. We are on strike against the creed of unearned rewards and unrewarded duties. We are on strike against the dogma that the pursuit of one’s happiness is evil. We are on strike against the doctrine that life is guilt.”

This capital strike is because President Obama has instituted so many onerous regulations that private equity, and even public companies, do not want to invest their risk capital into industries that might be targeted. As a broker of some of the $2 trillion — that’s trillion –- of private equity sitting on the sidelines, I can report from personal experience that this is the reason. Here’s a synopsis of a situation I had with a financier of small businesses named Joe:

Joe has a credit line with a Gigantic American Bank. The Federal Reserve has slapped the Bank, and all other banks big and small, with new regulations regarding how they loan their money and who they loan it to, and issued a mountain of compliance rules. The Bank cannot rely on their internal compliance auditors any longer, either. They must use independent auditors.

The Bank, to remain in compliance, must shove all these same regulations and compliance rules onto whomever they loan money to, including Joe, who also must engage an independent compliance auditor. Joe must shove all these same regulations and compliance rules onto whomever he loans money to, including these entrepreneurs, who also must engage an independent compliance auditor.

The cost of all these regulations and compliance audits, at the entrepreneur level alone, is $30,000. It costs a heck of a lot more as you move up the chain. The entrepreneurs cannot afford this. As a result, the entrepreneurs’ dreams of starting their own businesses die on the vine. They now must go back into the depressed job market to (not) find a job. Sixty other jobs that would have been created by these entrepreneurs never get created. The money these employees would have spent never enters the economy.

The commission I would’ve earned by brokering the deal is never earned, so that money never gets spent into the economy. Joe never earns the interest he would have earned on the deal, so that money never gets spent into the economy, or invested in any other businesses. The Bank never earns the interest it would’ve earned from the financier, so it has less money to grow, return to shareholders, or to hire other people to work at the Bank. The independent auditors don’t even get hired because no deal exists to audit.

 
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