Improvement is Still Good

Treasury Secretary Paulson is on a mission to make US capital markets more competitive. He wants to deregulate and tidy up existing red tape, make it easier for US businesses to be compliant and also make it easier for foreign companies to do business here. Such efforts warm our hearts.

But Paulson's campaign to raise political and public awareness of the undue burdens on the typical US public business has had an unintended consequence: it's scaring people. Over the last several weeks we've read numerous articles making the stunning—and erroneous—claim that the US has lost its competitiveness. Further, that we should be panicked that some companies are choosing to list in foreign markets rather than the granddaddy NYSE.

We laud Paulson's initiatives, but the scare tactics are being misconstrued. The US is still—by far—the most attractive and safest place for companies to list their stock and do business. The Treasury Secretary's improvements would be improving an already superior thing. Here are a few notes, summarized from a cogent editorial in today's Financial Times. (Though, we decry the plea for even more regulation at the end.)

Wall Street Need Not Embark on a Race to the Bottom
By Jeffrey Garten, The Wall Street Journal
https://www.ft.com/cms/s/25cf6d90-82e9-11db-a38a-0000779e2340.html

• Any way you look at it, the US dominates public markets—it accounts for more than 50% of the world's market capitalization!
• Much of the competitiveness uproar stems from the fact some Russian companies are financing themselves in London and some Chinese companies are choosing to go public in Hong Kong. But many of these companies don't meet the SEC standards of for disclosure, clear ownership structure, protection of minority shareholders, and government manipulation. Would we really want these companies listed in the US anyway? Would they even pass muster to begin with?
• IPOs are just one component of capital markets. Private equity, hedge fund and venture capital activities generate trillions of dollars worth of transactions, and the US is still dominant in this area, too.
• Lastly, the US is a beneficiary of global market expansion. Trades are done across borders electronically, and just because a stock is listed in another country doesn't mean a US citizen or entity can't trade it. The more that's out there for investment, the more capital markets develop. This is a good thing for all involved.

So, Paulson's reforms are reforming an already superior US marketplace. But superior or not, improvement is still good.