Capital Markets

Bye-Bye, Wall Street

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Whoops!

Wanna little bad news before taking off for your three-day weekend? Chew on this bummer from the Wall Street Journal: "U.S. Falls Behind in Stock Listings."

A combination of mergers, fewer U.S. IPOs, lower listing costs abroad and a shift in how investors and stockbrokers do their jobs has driven down the number of U.S. stock listings by a startling 43% since the peak in 1997—all during a period when the number of listings outside the U.S. has more than doubled.

The result is some 3,800 fewer companies trade on the U.S. exchanges today than in 1997, according to consulting firm Capital Markets Advisory Partners. Abroad, there are nearly eight times as many listings as in the U.S., with Hong Kong, China and India among the leading venues.

"We're losing the ecosystem that has helped buoy the U.S. economy over decades," said Kate Mitchell, co-founder of Scale Venture Partners, a Silicon Valley venture-capital firm.

Swell!

The annual supply of U.S. IPOs since 2000 has averaged just 156, down 71% from the pace in the 1990s, according to Capital Markets Advisory.

Some U.S. start-ups that in the past might have turned to a U.S. exchange when they needed capital now list abroad, where fees are lower and they don't face costs such as complying with the Sarbanes-Oxley corporate-governance law.

Who *am* I?

What's that you say about George W. Bush's then-ballyhooed, now-forgotten "crackdown on Wall Street"?

When privately held U.S. companies do proceed with IPO plans, some now look abroad. HaloSource Inc., a water-purification company, is based in Seattle but last fall chose to list its shares in London.

Because it doesn't trade in the U.S., HaloSource has a lower cost of regulatory compliance, is less exposed to shareholder suits and pays less for directors' and officers' liability insurance, according to James Thompson, chief financial officer. "The savings are pretty significant," he said.

Small U.S. public companies' costs to comply with securities law rose about $1.7 million, to roughly $2.8 million a year, after Sarbanes-Oxley passed in 2002, according to a 2007 study by law firm Foley & Lardner.

Well, that wasn't totally predictable!

Reason on Sarbanes-Oxley here. And here's a bad video of a good song. Happy Memorial Day!

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  1. Just out of curiosity, has anyone ever filed the paperwork to do a fake IPO for a bullshit company in a low-reg country, raked in some quick bucks from dumbasses & day traders who didn’t do their research, and then just pocketed the money?

    If not, anyone wanna go in with me on a fake IPO for a bullshit company in a low-reg country so that we can make some quick money off of dumbasses and day traders who haven’t done their research?

    1. We can pay Lebed to pump it up on his newsletters.

    2. You’d probably make more money looking for loose change behind the couch.

    3. Why bother when you can do a reverse IPO of a failed but reporting company in the USA, and sell stock in a complete bullshit company right here at home?

    4. Jim, just from the way you phrased the question/suggestion, I have to get in on that action.

    5. I’m ready to invest in this venture, but first please send me a $500 bank transmission fee, so I can transfer the money to your account.

  2. don’t face costs such as complying with the Sarbanes-Oxley corporate-governance law.

    […]

    Because it doesn’t trade in the U.S., HaloSource has a lower cost of regulatory compliance, is less exposed to shareholder suits and pays less for directors’ and officers’ liability insurance,

    To some, so much of what’s listed are features of the system, not bugs.

  3. It’s so time to take the handcuffs off Wall Street.

    I don’t know what you may have heard, but Wall Street isn’t to blame for what Barack Obama did.

    1. It’s so time to take the handcuffs off Wall Street.

      Can we take them off the rest of us at the same time? Looks like if Michelle Obama gets her way, my diet will be illegal.

      1. I survive off of raw milk, pot brownies and various foods fried in saturated fat.

    2. don’t know what you may have heard, but Wall Street isn’t to blame for what Barack Obama did.

      Sure they are,
      They paid for him after all.

    1. Looks like Time the Avenger has caught up with Martin Chambers.

      Here’s another better Pretenders song from the same album

      http://www.youtube.com/watch?v…..re=related

      1. And er Chrissy appears to have chosen the Patti Smith approach to aging!

  4. Felix Salmon at Reuters has been on this tip for some time.

    The dwindling of exchange-listed companies has an important information implication: A lot of mainstream financial coverage consists of telling you which way stock indexes are moving and not much else. But that information is much less relevant now than it was when publicly traded companies represented a larger percentage of U.S. economic activity.

    This is only a problem if American entrepreneurs are desperate for funds and not getting them. I don’t know how you’d measure that, but there needed to be a correction. During the dotcom era the IPO became (or was revealed to have been all along) a way of dumping garbage on the public. There’s nothing wrong with more companies remaining privately held and making money the old fashioned way. Not every company needs to be Giganticorp.

    1. During the dotcom era the IPO became (or was revealed to have been all along) a way of dumping garbage on the public.

      And I worked for one of the premier garbage dumps in the early aughts.

      They used to call them ‘rollups’ which led me to create Paul’s Rule #2 of Business Wisdom.

      1. What are the others?

        1. Rule #1: See Rule #2
          Rule #3: There is no Rule #1

    2. Privately held companies can be afforded a little more vision and humanity without being sued into oblivion by their owners, so there’s that.

      My gut tells me that privately held is probably more ideal for a libertarian society from a consequentialist perspective, even if libertarianism as a political ideology is agnostic on the question.

      1. There’s this thing called “scale”.

        If you’re to have a big impact on a market generally, you will need to scale up. Society shouldn’t limit itself to enterprises with scale that’s limited because it can only be financed by just a few people.

        There’s also something called “risk”.

        Smart people with a ton of money to invest find that taking huge risks with new innovations easier to take when their whole net worth isn’t riding on the outcome.

        And we all benefit from the risks the millions of investors out there take–often even from the risks that end up going belly up on the investors.

        We should never deprive ourselves of that benefit.

        Again, it seems to me that we tend to see the busts of recent years through the lens of what the government did because of risks that went bad. But the fact is that it wasn’t necessary for the government to do that. The assumption I often see looming in the background is that increased government involvement was an inevitable result of risk taking behavior, and so we need the government to limit the risks to the real economy.

        I say that risk taking behavior is the very stuff that economic growth is made of–we shouldn’t do anything to discourage it. We don’t need the government to protect us from risk taking behavior; if anything, we need something to protect risk taking behavior on Wall Street from the government.

        1. There’s this thing called “scale”.

          Bullshit.

          The only advantages that comes with huge size (as opposed to merely larger) is the ability to influence government to serve your ends.

          There’s also something called “risk”.

          There’s another thing called responsibility.

          Eliminate risk and responsibility, what could possibly go wrong?

          1. “The only advantages that comes with huge size (as opposed to merely larger) is the ability to influence government to serve your ends.”

            That’s absurd.

            http://en.wikipedia.org/wiki/Economies_of_scale

            “Eliminate risk and responsibility, what could possibly go wrong?”

            I think you meant to write, “Eliminate risk [without] responsibility, what could possibly go wrong?”

            And that’s exactly right. And that’s what both the Bush and Obama Administrations did–they bailed out Wall Street and Detroit and thus severely curtailed their responsibility.

            If economic growth necessarily entails risk, then don’t eliminate risk by fiat from above and sit around and wonder why the economic growth hasn’t shown up yet.

            Just because Obama and others protected Wall Street from their responsibilities doesn’t change anything about the fact that economic growth entails risk.

            Obama and others should never have absolved Wall Street or Detroit of their responsibilities, but just because he did something stupid like that is no reason to double down and kill the goose that was laying the golden eggs.

            Wall Street was the world’s greatest risk taking machine–it’s an engine of economic growth. Obama throwing wrenches in that machine is throwing wrenches in the engine of economic growth. Just because Obama doesn’t want to take responsibility for what he did–“they made me do it”?

            …is no reason to settle for tepid economic growth. How long are we supposed to suffer tepid economic growth–just because Obama wants to score political points? That’s a mighty shitty thing for a president to do to the American people–we deserve better leadership than that.

        2. My comment wasn’t really related to scale or risk, more that public companies tend to adopt many of the same bureaucratic tendencies as government agencies, to no one’s benefit.

          It could be because the principle-agent problem is more pronounced due to the collective nature of the principles, or that the measures taken to counteract the problem must be more severe and restrictive.

          1. I think when you’re dealing with something on a wide scale, the control mechanisms probably all require some of the same attributes. I’m sure that’s partially why the industry leaders change as the industry changes.

            I remember when people thought there was no way Apple could ever be as big as Compaq.

            1. “I think when you’re dealing with something on a wide scale, the control mechanisms probably all require some of the same attributes.”

              For both government and big businesses. You know what I mean!

    3. Just because some of the dot com stock investors got hosed, that doesn’t mean that stuff wasn’t good for the real economy.

      The same thing happened with a lot of the telcos and telco equipment stocks. Those stocks were bid up to ridiculous levels before the dot com bust, and when they cratered, a lot of people in the stock market got hurt…

      Meanwhile, people in the real economy ended up with cheap broadband because those guys laid thousands of miles of carbon fiber. Meanwhile, the infrastructure that makes smart phones possible was put in place at basically no cost to the taxpayer–or anybody who didn’t want to invest.

      I remember when Google bought Keyhole, and turned Keyhole into what is now the satellite image on Google Maps–that was an incredibly useful tool for a land developer. Its existence creates real value in the economy–it doesn’t cost a penny and it’s there because of Google’s valuation.

      No investment is ever as good as the investments we make in our own companies–because we know our own businesses better than anybody. Running a company isn’t something everybody is capable of, however, and diversification has real value by itself.

      It being hard to make speculative investments doesn’t mean it can’t be done well, and even if it doesn’t work out for the vanguard, pushing new innovations has benefits for the real economy. …regardless of whether this or that speculator make any money.

      I don’t think Apple would be what it is today if it hadn’t been for the iPod, and the iPod, quite frankly, wouldn’t be what it is without Napster. Just because Napster went the way of the buggy whip, doesn’t mean it didn’t make the world a better place for all of us consumers…

      And that’s the kind of creative destruction we’re losing And I think it’s directly attributable to the Obama Administration and its witch hunt on Wall Street.

      For the first two years that Obama was in office, people were scared to death of having a big pay day. And with an election year coming up, I think the witch hunt is about to go into phase two.

  5. RE: the video. Seemed like every second london filmed video from that area was about people walking to work in Westminster or the City.

    1. cf. The video for Beat Box by the Art of Noise.

      http://www.dailymotion.com/vid…..tbox_music

  6. This article mentions Hong Kong, India and China, these places have had their centres of power shifting away from governments. While in America, the opposite is happening. Washington is becoming ever more important, and Wall Street ever less so.

  7. I’m kinda torn both ways on this. On one hand, SOX was a terrible law that should be repealed. It doesn’t really make people safer and just creates a ton of useless paperwork for businesses.

    On the other hand, I think there’s a lot of corporations that routinely defraud their customers and shareholders and for some reason think that there should be no effort of any kind to discourage this.

    Frankly, I’d like to see a lot less regulation (which punishes both good and bad actors equally) and lot more prosecution after the fact, but it seems the only two choices right now is between a party whose response to corporate crime is to ignore it and one whose response is to do something stupid.

    1. a party whose response to corporate crime is to ignore it and one whose response is to do something stupid.

      Which one is which? SOX was passed by a GOP Congress and signed by Bush.

  8. The problem private companies have is that it’s virtually impossible to raise money without having rich friends because Regulation D prohibits advertising and imposes a “prior contact” requirement for shareholders. In effect you can’t raise money from strangers, so private equity is significantly disadvantaged compared to public equity. The other problem is that if you’re raising small amounts of money (25 million or less) you’ll be blowing a good 20% of your capital on legal and brokerage fees for a public offering, so that avenue is also denied you.

    1. The other problem is that if you’re raising small amounts of money (25 million or less) you’ll be blowing a good 20% of your capital on legal and brokerage fees for a public offering, so that avenue is also denied you.

      Feature, not bug, etc.

      Hey, Economy, go fuck yourself!

    2. Plus, if you have something you want to patent, it’ll cost you tens of thousands of dollars to hire a patent lawyer good enough to prevent some shithead from taking your idea and making cheap copies in Taiwan.

      So if you don’t want to give away half your shares to venture capitalists you’re fucked there too.

      1. Wait, we’re for IP now?

  9. Anyone paying attention saw this coming a decade ago. Doing business in the U.S. has become something out of a Kafka novel.

  10. Fuck taking control of Wall street, regulate that cartoonist.

  11. I don’t think the lack of overhyped IPOs for barely-extant technology companies is something we need to work ourselves into a fret over.

    1. You are right. Seems wrong to compare things to the IPOs that resulted in the dot com bomb.

    2. Should we fret over 3,800 fewer IPO’s?

      Who would want to launch a public company in the U.S.? The highest corporate taxes in the world, the most invasive regulations, and the worst red tape.

      1. More to the point, who would want to launch a *public* company? It’s almost a contradiction in terms.

      2. The barter economy is here now. Just like it has been in Europe for years.. Work under the table as much as you can, fuck the feds

    3. I don’t think the lack of overhyped IPOs for barely-extant technology companies is something we need to work ourselves into a fret over.

      This. There’s something to be said for the new old economy.

  12. So what is the solution to the problem of mergers?

    1. Is it really a problem?

  13. SOX is about punishing cartoon evil-doers.

    1. I thought it was about keeping PWC consultants permantly employed.

    2. And yet Chip Bok still roams the streets free.

  14. “Well, that wasn’t totally predictable!”

    Not only predictable, it was intentional.

    Robert Higgs over at the Independent Institute has a question he asks anytime a government policy is said to “fail”. The question is, “Who benefits from the the so-called failure?” Invariably the beneficiaries of failure are the ruling elite and influential interest groups. The bureaucracy benefits from S-O because it ensures that new companies have the legal, accounting, and other administrative resources to comply with it regulations and to dot every “i” and cross every “t”s in its continuous reporting requirements. Large businesses may complain about S-O, but new entrants in their business face enormous barriers to entry. The big IB’s don’t care because they’re global in scope. They can make money in London just as well as Manhattan. Plus, the lack of US business undercuts the boutique IB’s.

    The “problems” described in this article aren’t a bug in O-S, they’re a fucking feature.

  15. Firefox 4.o is pissing me off…

    Who was the genius who decided to move home, and reload around?

    1. I’m glad I know shit about computers. If God Gates wanted me to change operating systems, he’d have a button that says push this, Rather

      1. As usual, I have no idea what the hell you are talking about.

        1. I prefer my men to shut up
          we’re perfect for each other

      2. Firefox has a version for Windows, not that Gates has anything to do with Windows anymore.

    2. Since installing the new Firefox I have had problems with extra spaces being inserted in emails as I write them. Not on topic but annoying all the same.

  16. Is anybody else getting the feeling that the republic isn’t going to be restored any time soon? Should we just stock up on supplies and not give a fuck anymore?

    1. I’ve been thinking about going on an antibiotics run to Mexico, but I’m afraid of getting kidnapped.

      1. Kidnapped? Tulpa, I thought Reason said the sex-slave trade was exaggerated?

        1. Those Mexican drug lords have a thing for anal with scoliosis sufferers, I’ve heard.

  17. Maybe, just maybe
    capitalism will do just fine without this 19th century anachronism.

  18. There is nothing wrong with remaining private.

    If Lloyd Blankfein doesn’t like it, tough shit.

  19. The thieves of Wall Street all belong in JAIL!

    http://www.real-privacy.int.tc

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