Geeks Best Glamour for Political Gifts

Charles Payne
Posted: Mar 12, 2014 12:01 AM
Geeks Best Glamour for Political Gifts

Over the next few weeks, there will be a couple of birthdays which will resonate in California, big time. Harvey Weinstein will celebrate his 62nd birthday on March 19, and the "Jumpstart Our Business Startups Act" (JOBS Act) will mark its second year the first day of April.

Weinstein is a Hollywood legend known to everyone; the 'JOBS Act' is a gift known to many political donors, particularly in Silicon Valley.

While there probably will be typical birthday-related enthusiasm, the man many consider a kingmaker (and breaker...just ask Stallone) might be brooding over the fact his industry is not getting enough free stuff in California, of all places. On the one hand, I find it amazing that everyone has missed the bald-faced fact that the 'JOBS Act' has created a slew of instant millionaires, while pumping billions into President Obama's favorite industries of high technology and biotechnology. Engineering geeks and scientists are receiving huge economic windfalls from loopholes designed to circumvent the rules.

Going Public with Closed Kimono

When businesses sell shares to the public it is a big deal. It says we have arrived and plan to impact the world. Because these companies have been vetted, and for the most part already successful, there is typically a hearty appetite on Main Street to become part owners. Who wouldn't want to be part owner of a hot new business blazing a path of riches? Of course, there was a time when the system was broken, those hot IPOs were just extensions of hot dreams and business plans written on a napkin just days before. One of the highlights of the great tech bubble was the conveyer-belt IPO machine pumping out "hot" deals each week - stocks that began trading out the gate were up 100%; never looking back...until they all got their wings clipped and they never stopped free falling. The rules changed and it was open kimono time...let it all hang out for the public to see. No more selling the sizzle, we had to see the steak too. The IPO market dried up and hot deals faded away like smiles on Manhattan streets.

That all changed with the 'JOBS Act,' which allowed companies to bypass a lot of things we used to call "due diligence" on Wall Street.

  • Two-year financials instead of three
  • Phase in internal controls audits
  • Exempt public company accounting oversight board rules
  • Extended confidentially
  • Executive compensation disclosure, less than five officers

For an administration that came into office bragging about transparency, they erected one heck of an opaque wall around companies making less than $1.0 billion seeking to go public with very little scrutiny.

  • I say it is partly a political payoff
  • I say it has worked

When President Obama alienated even his limousine liberal friends on Wall Street, he leaned very heavily on Silicon Valley to make up for lost campaign donations. And boy did these guys step up, and in the process gained more leverage and more savvy about lobbying, and finding additional ways to get gifts from taxpayers. These emerging growth companies (EGC) have spouted like mad helping to fuel excitement in the stock market, and the economic windfall in California. (Tomorrow, I will look at the Dickensian transformation in California, which is producing a growing number of millionaires and food stamp recipients, while purportedly still the Golden State.)

The biggest (EGC) to come public is a company called Facebook (FB), run by a kid tossing around millions of dollars on both sides of the aisle, but mostly the Democrats.

By the end of the third quarter of last year, there were 158 U.S. IPOs +58% year-over-year, raising $35.0 billion. Of that total, 84% came public via the 'JOBS Act.' Industry Breakdown for EGC IPOs:

  • Technology 24%
  • Life Science (biotech) 23%
  • Real Estate 15%
  • Oil & Gas 11%
  • Financial Services 9%

Not on the list are Hollywood studios and production companies.

Hollywood and Whine

Wasserman's entire career was built around an unspoken credo: The deal, no matter how cynical, is an end in itself.
From article by Walter Shapiro in Slate, June 2002
"Lew Wasserman...The man who ruined the movies"

Perhaps there will never be a power broker with the likes of Lew Wasserman again, but Harvey Weinstein is the closest in today's Hollywood. Never shy, he recently went on a binge about the need for California to step up tax credits so filmmakers can stay in the Golden State while they work. Other locations, including New York City, many parts of Canada, and more recently Louisiana, have stepped up the wooing process with sweeter deals.

Only, one big budgeted movie was made in its entirety in California out of 41 films from 2012 to 2013.

However, it makes sense to seek out the best return on investment beginning with tax credits, which lower the costs that often make the moviemaking process a can't-miss proposition. Nevertheless, I remember the legendary Hollywood where honesty and creativity had higher priorities than tax credits. Maybe it is the lore. Perhaps Wasserman killed it when he created the blockbuster with 'Jaws' and got Jimmy Stewart a cut of profits for his starring role in 'Winchester 73', thereby transferring power from the studios to the actors.

Moreover, what happened to camaraderie on the left? Maybe it is the lore. But such a staunch liberal as Weinstein, is crushing his teamster buddies in the industry by following the money out of California.

There is more than a smidgen of hypocrisy for a big-time player on the left, who demands higher taxes on the rich and demonizes Wall Street for begging for even more taxpayer-fueled gifts, in order to make movies. In an era of higher minimum-wages for businesses, with the thinnest of profit margins and a new White House budget, is asking for even more taxes from the rich. Therefore, while giving tax breaks to companies for doing research and development (that is like paying an offensive lineman in the NFL a bonus to eat and lift weights) a Hollywood mogul wants a special carve out.

To say this is beyond the pale would be to consider this in logical terms. This industry specializes in make-believe and asks us for suspension of disbelief. This is the man who executive produced 'Jackie Brown' and 'Kill Bill' volumes one and two, but says his next mission is to destroy the gun industry and the image of gun ownership in America. As if most of Hollywood, California were an illusion, hiding flawed policy that makes the rich richer and the poor poorer.
The teamsters are threatening to circle the capitol in Sacramento, with hundreds of truckers in protest; they could instead get a map of the stars and go to the guys that are really abandoning them for a few extra bucks, because the unspoken credo is the deal no matter how cynical, is an end in itself.

Goodbye, Hollywood...hello, Bourbon Street.