Reports coming out of Washington last week suggest the SEC might consider loosening up the rules on selling stock inprivately held companies. Why not? It’s just the latest in astring of legislative attacks and regulatory missteps, not tomention the biggest market collapse since the Great Depression,that appear to represent the end of American Capitalism.

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Now, most normal folk don’t give a rat’s behind about matters ofhigh finance, which is generally why things like this go unnoticed.That’s too bad, because the end of American Capitalism might justalso mean the end to your 401(k), IRA or any other retirementplan.

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What’s happening and why should you be concerned?

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Following the 1929 market crash and the hemorrhaging thatoccurred in the years after, the government came out with a seriesof actions and regulations to avoid a repeat. Among the manypre-SEC era problems with the markets included the lack ofcredibility in financial reporting. The Securities Laws enacted inthe 1930s required publicly traded companies to conform to certainstandards. These standards were meant to protect the commoninvestor (who really wasn’t that common back then) fromunscrupulous salesmen.

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Really rich investors were allowed to continue to invest inprivate companies, but the government put a cap on how manyinvestors those private companies could have. Beyond that,companies had to go public to raise more capital. This encouragedcompanies to enter into the public market and fed a growing need ofthe (by now) common investor’s desire to own stock.

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This, in essence, is what we called “American Capitalism.” It’scalled “American” because we are all owners – we are allcapitalists. The promise of America was that everyone could own apiece of the business.

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Not only was this promised, it was (and continues to be)encouraged. Tax laws gave more favorable treatment to capital gainscompared to earned income. The rise of the twin towers of the IRAand the 401(k) – and with these the growth of the mutual fundindustry – all but sealed the deal for American Capitalism. Thecountry, its citizens and its businesses thrived as the planetsaligned and boosted markets – at least until the Internetbubble-burst in 2000.

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As happens during financial crises, politicians found severalconvenient scapegoats for these losses during the first few yearsof the new Millennium. Congress, drunk with hypocrisy, passed anelixir called “Sarbanes Oxley” while the SEC enacted somethingcalled “Reg FD” and thus began the end of American Capitalism.

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I spoke to a CEO of a publicly traded company during this era ofthe beginning of the end. When I asked how he dealt with the newregulations regarding company news announcements, he said, “There’sno upside in optimism.” He predicted the new laws would discouragecompanies from going private. Within a year, he had left the publicworld for the private world.

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But his prediction rang true. In the 1990s, we saw an annualaverage of 500 IPOs. Today that number is down to 130 per year.

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This could dramatically damage your own IRA, 401(k) or pensionplan because it’s reducing the number of public companies – thelifeblood of growth in retirement plans. With more money chasingfewer stocks, the Law of Supply and Demand could cause stock pricesto inflate beyond normal valuations. This, in turn, can likely tolead to more volatility, placing more downside risk in the kind of“buy and hold” portfolio typically associated with retirementplans. The last few years might be a testament to that increasedvolatility.

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Many feel the Facebook-Goldman Sachs snafu prompted the SEC’sventure into relaxing the private investment rules. In olden days,investigative reporters might follow the trail of politicaldonations to see if the potentially favorable treatment might havecome about for less than honorable reasons.

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Ironically, just as the SEC is considering this major rule tobenefit the elite few, it claims it doesn’t have the time orresources to consider the harm done to investors by 12b-1 fees, where theobvious conflict of interest sucks unnecessary fees from 401k plansevery day.

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Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).