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Wall Street Afraid of the Wrong Ghost

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Jim Copland (director of the Center for Legal Policy at the Manhattan Institute) wrote a piece for the Washington Post’s Think Tank Town section. Copland deplores the flight of capital from Wall Street to other financial markets. He laments,

"Since the days of America's first Treasury secretary, Alexander Hamilton, New York's financial markets have driven and sustained the nation's economy. And for the last century, companies worldwide that sought to raise capital overwhelmingly came to the United States."

Well, Jim, it’s been a long time since Hamilton was shot dead by Vice President Aaron Burr. The economy of which you speak was pretty small and pretty insular in those days. Much has changed,

"Sadly, and distressingly, that era may be coming to an end, as companies looking for money on the public markets are increasingly going to Europe or Asia. In 2005, initial public offerings of stock in Europe surpassed those in America -- in both number and dollar volume. Even as the American IPO market improved in 2006, that trend accelerated: According to PricewaterhouseCoopers, there were 651 IPOs in Europe last year, versus 224 in the U.S., and the European offerings raised almost $40 billion more dollars. China's markets, with fewer IPOs, raised 30 percent more capital than those in the United States."

Wall Street still doesn’t seem to get it. The world beyond New York has been moving in directions beyond the street’s recent notice. Have patience with them, it’s tough to keep your focus in a bubble.

Item: Would you invest with an uncle who had gone from being the family’s main pillar of support to becoming a debt-ridden bum on the street? While our investment bankers were busy taking each other to lunch, Washington pursued a fiscal and tax policy that has turned us into largest debtor in place of largest lender nation. Uncle Sam is looking a bit the worse for wear.

Item: The dollar (in all places in the world that are not the continental United States) has lost half its value in the past six years. A buck is still a buck in Manhattan, but don’t count on spending it abroad. Almost any currency is preferable and so it’s no surprise that Europe and China are getting the buzz.

I would like not to lay this on George Bush’s porch. He has enough coming down around his ears at the moment, but this situation is inescapably his and Wall Street is his co-conspirator. Everybody in the upper reaches of American wealth was making so much dough, they all forgot to watch the store. The bad rap the Democrats tried to pin on George for stripping away the tax base and fighting the most expensive war America has ever fought—without funding it—has come home to roost.

They are bound to be nervous chickens.

Item: We are broke. The world has chosen not to notice, because it is terrified of the consequences of a truly broke America, but things like IPOs opening elsewhere and the dollar going to hell are inescapable evidence. No one wants Chrysler, General Motors or Ford, certainly not at twice the price they would have paid a few years back.

Item: We are distracted. The damned war in Iraq sucks the oxygen out of all conversation about tax structure, capital investment, job creation and long-term research and development. Washington—never a straightforward place, even in the best of times—has become downright inoperable. Pharmaceutical companies have been allowed to run rampant, while airlines go broke and shove their employee liability down the disappearing taxpayers’ throat. Meanwhile, who’s investing in those Euro-Asian IPOs? American investment trusts. Capital (the last of our freedoms) is a bird on the wing.

"What explains the reversal of fortune for American capital markets? No fewer than three comprehensive studies in the past sixth months have sought answers, drafted respectively by a task force loosely formed by Treasury Secretary Hank Paulson; a blue-ribbon panel sponsored by the U.S. Chamber of Commerce; and the consulting firm McKinsey and Company (where I once worked), hired by New York's mayor and senior U.S. Senator, Mike Bloomberg and Chuck Schumer.

"Two common threads emerged from these in-depth reviews. First, America's securities regulations have become overly burdensome, especially for smaller companies. The Sarbanes-Oxley reforms of 2002 -- well-intentioned to correct the frauds that led to the collapse of Enron and WorldCom -- have proved far more expensive to implement than anticipated. And with increased threats of criminal sanctions for corporate managers, directors, and auditors, the leaders of publicly traded companies in America have had to devote far more time to accounting and compliance issues than to growing their businesses."

Hard as it may be to believe, Wall Street thinks if we could only free our corporate environment to get back to the accounting scandals and executive malfeasance of the recent past, all would be well. Jim Copland is shilling for those who are mostly in prison these days.

"Thoughtful regulation is important to facilitate share pricing and to prevent corporate managers from defrauding their investors, but our anger over past corporate misconduct should not blind us to the real risks to common shareholders if American companies leave our markets."

That is such a prejudiced piece of in-house-manship that Copland hardly deserves a further audience, at least not in the guise of independent policymaking. Manhattan Institute claims to flog a free-market based advocacy in all aspects of society. What could possibly be more ‘free market’ than the flight of capital to more attractive investment destinations?

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Jim Freeman's op-ed pieces and commentaries have appeared in The New York Times, Chicago Tribune, International Herald-Tribune, CNN, The New York Review, The Jon Stewart Daily Show and a number of magazines. His thirteen published books are (more...)
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