Multinational Monitor |
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NOV/DEC 2006 FEATURES: J'Accuse: The 10 Worst Corporations of 2007 Meet the War Profiteers Multinationals to China: No New Wall Street Rallies for Bush - And Seeks Payback INTERVIEW: King Coal's Dark Reign DEPARTMENTS: Editorial The Front The Lawrence Summers Memorial Award Book Note |
EditorialNo Shame on the Street It takes no small amount of hubris for Wall Street hucksters to urge financial services deregulation. But if there’s one thing that the Wall Street power brokers do not lack, it’s audacity. Wall Street has fashioned a series of “blue ribbon” commissions to concoct a crisis. The fantasy story that the Commission on Capital Markets Regulation (the “Paulson Commission”), the U.S. Chamber of Commerce’s Commission on the Regulation of the U.S. Capital Markets and other apologists are trying to tell is this: U.S. competitiveness in financial services is now in grave doubt. Regulation, litigation and prosecution are driving companies to float stock offerings on foreign markets. If something isn’t done soon, U.S. economic performance is in jeopardy. In the real world, things look quite different. The single most emphasized claim from Wall Street’s Chicken Littles is that corporations are increasingly launching stock offerings (Initial Public Offerings, or IPOs) in foreign markets. This turns out to be a profoundly misleading contention. What’s mostly going on is that foreign companies are launching IPOs on their own stock markets, or those in the region. This has nothing whatsoever to do with the regulatory or litigation climate in the United States. A devastating White Paper from Ernst & Young looking at every IPO in the first half of 2006 found that 90 percent were conducted in the launching company’s home country. Of the remaining 10 percent, only a few were “in play” — most went to regional markets, or were for firms with small capitalization that went to the London Alternative Investment Market. Of the IPOs in play — a grand total of 17 for the first six months of 2006 — about two-thirds were listed on U.S. exchanges. Even more importantly, the IPO statistic is a chimera. What matters to the U.S. economy is whether businesses are investing in the United States, not where they undertake IPOs. That’s a narrow Wall Street consideration. Another deception from the Wall Street doom-and-gloomers is that unrelenting securities-related lawsuits are imposing massive burdens on corporations. There is exactly zero evidence to support this claim. The Paulson commission actually acknowledges that securities lawsuits have declined in recent years — a major admission for a group proposing to further gut the tort system! That’s not really a surprise, since a decade-long business campaign has undermined shareholders’ ability to sue corporations that defraud them, or the accounting or law firms that aid and abet fraud. Having acknowledged that lawsuits are decreasing in number, the Paulson commission is pathetically left to complain that the average settlement size has risen. Might this trend correlate with the size of the fraud or misconduct perpetrated by defendants against their victims? The commission did not look at this issue. Might the trend reflect the fact that the legal changes successfully advocated by Wall Street making it harder to sue lead plaintiffs to push ahead only in really big cases? Again, the commission did not examine this hypothesis. What is known is that the aggregate settlement costs from securities litigation are tiny — $3.5 billion by the Paulson commission’s estimate for all of 2005 — as compared to corporate income, corporate profits, or the damage to investors from misstatements. The same kinds of deceits surround the other purported burdens on Wall Street — overzealous criminal prosecutors, overburdensome regulations, duplicative civil enforcement from state and federal agencies. Back in the real world, Wall Street is not suffering. In fact, it is doing fabulously well. Goldman Sachs CEO Lloyd Blankfein grabbed a $53.4 million bonus at the end of 2006, the largest single annual executive bonus in Wall Street history. Blankfein’s bonanza is a sign of the times. Wall Street bonuses totaled $23.9 billion in 2006, according to the New York State comptroller, up 17 percent over 2005. Sam Pizzigati, editor of the on-line newsletter Too Much, notes that “top Wall Street traders, assuming a 60-hour work week, averaged from $17,000 to $33,000 an hour. The typical American household, by contrast, only took home $46,326 in 2005 for the entire year.” Wall Street’s real problem is under-regulation, under-enforcement and too little criminal and civil liability. The Enron/WorldCom scandals were not isolated, they were representative of the era. And there is now a new set of financial scandals of even greater breadth. Researchers estimate that hundreds of corporate executives engaged in back-dating of stock options. Even more significant is the sudden realization that in recent years Wall Street helped fuel a rage of poor quality housing loans. As “subprime” loans start to default, hundreds of thousands of people are being thrown out of their homes. The scale of the problem is so severe that it is endangering the overall U.S. and even global economy. If it ever was the case, it is no longer possible to leave Wall Street to its own devices. Millions of people of modest means have their retirement savings caught in the Wall Street web. And the financial sector now exerts such a powerful grip on the economy that its failures, scandals and chronic short-sightedness can have devastating and decisive effects on the real economy. |
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