President Trump is in the process of selecting a number of government leaders for important positions in his new administration. The Federal Trade Commission alone currently has three empty seats to fill. How might Trump’s picks for those positions affect us real estate investors?
Tech-giants Google and Amazon could be rather heavily affected by President Trump’s selection of a chairperson for the Federal Trade Commission (FTC). Shortly after his inauguration, the president replaced former FTC chairwomen Edith Ramirez with Maureen Ohlhausen, one of two remaining members of the five-person FTC commission and the only remaining Republican.
At that time, incidentally, the Washington Post speculated that Ohlhausen had some knowledge that she might ultimately be Trump’s pick for the permanent position, citing a public statement that she made shortly after her selection about her commitment to a “free, honest, and competitive marketplace.”
The FTC is basically in charge of enforcing ethical, consumer-protective behavior of companies, as determined by the FTC. This means that among other things, it’s responsible for, as it describes itself, “protecting consumers and promoting competition” by collecting complaints about consumer abuses, refusing to authorize business transactions and mergers that might result in a monopoly, and enacting regulations designed to protect consumers. Like most government agencies, it’s not really focused on limiting its own power.
The issue for Google, specifically, with the FTC arises because of investigations opened under former President Obama’s administration concerning whether or not the search giant pressured mobile-phone makers to install Google apps on their phones. Now that Trump is in office, Google also is likely concerned because of Trump’s close association with Peter Thiel, a Silicon-Valley billionaire notorious for his conservative viewpoints and dedicated support of Donald Trump’s presidency. Thiel has often accused Google of being a monopoly, and Trump’s FTC pick could take those accusations to heart and create serious headaches for Alphabet along with possible legal actions.
On-line giant, Amazon, also has a lot at stake. According to the Guardian, Amazon founder Jeff Bezos has made an enemy of the new President. The battles started last year when Trump tweeted, “ If Amazon ever had to pay fair taxes, its stock would crash and it would crumble like a paper bag. The Washington Post scam is saving it!” The Washington Post is owned through Bezos’s personal investment firm.
Later on the campaign trail, Trump said of Bezos and Amazon, “Believe me, if I become president, oh do they have problems, they are going to have such problems.” He then told Fox news that Amazon is “getting away with murder tax-wise” and has a “huge antitrust problem because he’s [Bezos] controlling so much”.
When Trump was elected president, Bezos changed his tone and tweeted, “Congratulations to Donald Trump. I for one give him my most open mind and wish him great success in his service to the country.”
So the question for Google and Amazon and all business owners, including real estate investors, is whether a Trump administration will select an FTC chair who believes that companies need more or less regulation?
At first glance, one would think the choice would be for less regulation – since that has been one of Trump’s stated goals. If Trump retains Olhausen permanently, then it is likely that Google will slide by unscathed because she was on the FTC when it elected to drop charges against the company before. The New York Post quoted an anonymous source on Olhausen’s take on the situation that said, “It is pretty hard for her to be anti-Google at this point.”
The other likely possibility is Utah attorney general Sean Reyes, who criticized the decision to drop the Google investigation at the time it was made and wrote a letter to the FTC last year encouraging it to open a new Alphabet probe in light of “new information and developments.”
Coming back to what this could mean for real estate investors… You won’t have to uninstall Chrome as your homepage! The bigger issue is what type of precedent could be set if the FTC ends up regulating Google or Amazon.
The FTC passes hundreds, thousands, of regulations every year, and a lot of them have to do with real estate, investing, funding, and lending.
We need to keep an eye on this because however the FTC treats the “big guys” in our country may eventually trickle on down to the little guys.
That was exactly the problem with Dodd Frank. Many of those regulations were meant to prevent the “banks that are too big to fail” from making decisions that could lead to another government bail-out. But unfortunately, the side-affect was that many of the smaller banks couldn’t afford to keep up with so much new legislation, and ended up closing up or getting eaten up by the big banks – helping them get even bigger.
According to the President’s Council of Economic Advisers, more than one in five U.S. banks have disappeared. Over 1700 small banks have shut down or have been gobbled up – that’s more than one every business day since Dodd-Frank was enacted. And virtually no new banks have been formed, which affects small businesses who rely on local banks for business loans.
President Trump was elected because he promised he wouldn’t do what the rest of the D.C. guys have done. That means he could select an FTC leader that cracks down on monopolies – which could affect some of our best known tech giants. While at the same time, he could be de-regulating Dodd Frank, which would benefit smaller banks, and therefore smaller business – including us real estate investors, private lenders and crowd funders.
This would be fantastic for our investors at Real Wealth Network. I have been receiving a lot of emails from frustrated investors who would like to invest in some of our lucrative syndications, but can’t because they are not accredited investors. I tell them that it’s not my fault!
The U.S. Securities and Exchange Commission, the SEC, sets the guidelines as to how companies can raise money. It loosened up ever so slightly with the JOBS Act, signed by Obama back in April of 2012. The JOBS Act, which stands for Jumpstart Our Business Startups (JOBS) Act required the SEC to rewrite the rules on capital formation. That’s what gave birth to the new crowdfunding rules.
Before crowdfunding, start-ups could only raise money from friends and family. You had to have a ‘pre-existing relationship” if you were going to try to raise money for your new business or real estate deal. And even so, only 35 non-accredited investors could participate. The rest had to be accredited – which means they have to earn $200,000 as an individual, $300,000 as a married couple or have a million dollar net worth.
The JOBS ACT opened things up a bit, allowing companies to raise money from people they don’t know. So for the first time, syndicators could announce their deals to the public and even advertise. But, there was one very important caveat to this change. NO non-accredited investors could invest in a Reg D 506C (crowdfunding.)
So basically, the JOBS ACT only allowed “wealthy” people to become more wealthy. It has helped more small businesses and real estate investors to raise capital, but it hasn’t helped the “little” guy get into those juicy “big” deals.
The fear on Capitol Hill seems to be that if you’re not accredited, you aren’t sophisticated enough to understand the investment and therefore you’d be at risk. But I think that is absolute baloney! I know from experience that some of the most educated of investors are not accredited, while some of the most uneducated investors are accredited.
Now, to be fair, the JOBS ACT did allow one type of crowdfunding to accept non-accredited investors. It’s called Title III and allows a company to raise up to one million dollars in one year and allows non-accredited investors to participate. But it is highly regulated, making it a bit cost-prohibitive for a start-up, and comes with more liability to the crowdfunder. Still it’s better than nothing.
In summary, there’s a chance Trump could put regulations on mega-corporations like Google or Amazon via the FTC. Mega corporations do need to be policed as it does help the free market. But at the same time, over-regulation can trickle down and hurt the smaller companies. It’s a balancing act, for sure!
There’s also a chance President Trump will succeed in deregulating Dodd Frank and maybe even the JOBS Act to help the little guys get in the game. But the risk is loosening things up for the big players to further dominate and swallow up the little guys through acquisitions.
Since Trump is a real estate guy, there’s a strong chance that regulations will be good for the real estate industry and for investors. It remains to be seen whether those benefits will help billionaire investors and the Mom & Pops.
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