Let the great crowdfunding revolution begin ... soon
Recapping the day's news and newsmakers through the lens of CNBC.
New rules proposed by the Securities and Exchange Commission today would allow "crowdfunding" of new companies. The concept, which was given the legal go-ahead under last year's JOBS Act, could change the whole concept of start-up company financing.
No more will entrepreneurs have to go hat in hand to a few large financial institutions and venture capital firms that act as the gatekeepers of capital. They would be able to sell equity stakes online to a potential pool of millions of investors. In practice, many observers are worried about scam artists and fraudsters taking advantage of the new rules, so the SEC has been wrestling with how to allow the new funding practice without encouraging fraud—and that struggle runs to more than 500 pages in its crowdfunding release.
What is crowdfunding? Here you go.
"There is a great deal of excitement in the marketplace about the crowdfunding exemption."—SEC Chairwoman Mary Jo White
A recent court case poses the newest threat to the favored tax rate on carried interest, or profits earned by hedge funds and private equity funds. The legal case could lead to ordinary income tax rates as high as 39.6 percent on earnings of fund executives and employees, who have enjoyed the lower capital gains rate on "carried interest"—their share of fund profits. Critics have long called for eliminating this preferential treatment but have failed to make headway in Congress. The court found the PE firm was more than just a passive investor entitled to the long-term gains rate. If that is interpreted to mean that hedge and PE funds are controlling entities, their profits could be considered income, and taxed at the higher rate.
"It may now be that this battle to tax carried interest is not won or lost in the halls of Congress over high-minded concepts of fairness or equity, but rather in the halls of the IRS by applying common sense presumptions that existed all along."—Ohio State law professor Steven M. Davidoff
Cat on a hot tin roof
Caterpillar, the world's largest maker of earth-moving equipment, moved the market into a negative mood today, posting disappointing results and cutting its full-year forecast. A read on the global economy, Caterpillar seems stuck in the mud—the company said it had temporarily shuttered some plants, furloughed thousands of salaried and management employees, and reduced its full-time workforce by 3,000 workers during the third quarter. Over the past year, the company has cut 13,000 jobs - about 10 percent of the global total. Weak sales of mining equipment were especially worrisome.
"Our industrial favorites aren't necessarily in mining."—Tom Dwyer, managing director Canaccord Genuity
Boeing shares, in contrast to Caterpillar's, took off after reporting a 12 percent jump in profit, largely due to a 14 percent jump in aircraft deliveries. Boeing said it would ramp up production of its 787 Dreamliner.
One of the biggest issues plaguing the Dreamliner is false software messages, which cause airlines to either delay or cancel 787 flights as they check whether the warning about a particular component on the plane is signaling an actual issue or is a false message. The company said those false messages are nearly a third of the Dreamliner issues being raised. In September, Norwegian Air Shuttle took one of its Dreamliners out of service for maintenance work and testing so the airline could raise the reliability of the plane.
"It's on us to help them improve. ... It's frustrating."—Boeing Chairman and CEO Jim McNerney, on Dreamliner issues being felt experienced by the world's airlines
It's official: it is now far harder for the average U.S. household to afford a home. Prices are up more than 12 percent from a year ago, according to several reports, and the average rate on the 30-year fixed is a full percentage point higher than it was last spring. Rising home prices and higher mortgage rates are a toxic cocktail for homebuyers, pushing affordability down dramatically. Of the top 25 housing markets, just eight are considered "affordable" for a median-income household, according to a new report from Interest.com.
"The simple fact is that the very small improvement Americans have seen in their paychecks hasn't kept pace with a jump in home prices and mortgage rates."—Mike Sante, managing editor of Interest.com
—By Jeff Brown, Special to CNBC.com