Sunday, August 26, 2007

A Market Free of Regulation

The Portal Market--the dawn of a new investment vehicle for billionaires. And not a moment too soon.

What a great idea! Now the big-hitters can sell junk investments to each other and leave you and me alone. Or is it the other way? They’ll keep all the smooth sailing to themselves and turn you and me loose to navigate the stormy seas of regulated commerce.

Nasdaqportalmarket The Portal Market--the dawn of a new investment vehicle for billionaires. And not a moment too soon.
What a great idea! Now the big-hitters can sell junk investments to each other and leave you and me alone. Or is it the other way? They’ll keep all the smooth sailing to themselves and turn you and me loose to navigate the stormy seas of regulated commerce.
(David Cho, Washington Post Staff Writer) Nasdaq is set to launch tomorrow (Aug 15th) what its executives are calling one of the most significant developments on Wall Street in decades -- a private stock market for super-wealthy investors.

Minimum requirement for traders: $100 million in assets.

Any private firm can list on Nasdaq's new platform, which is called the Portal Market, and raise money by selling stock to an elite group of shareholders. These companies would remain private and not have to make public their financial statements or submit to federal regulation, such as the Sarbanes-Oxley corporate accountability law.
It’s agreeably democratic that any private firm can list and any guy or gal with 100 mil can invest. I like that. Wall Street has been entirely too egalitarian.
Russianoligarch Apparently those rules are acceptable of drug-lords, dictators from dicey nations, sheikhs newly made rich by Iraqi contracts and Russian oligarchs (I just love the word oligarch, it’s so 19th century). An investment ‘platform.’ The first five meanings of platform are 1) a raised horizontal surface, 2) a document stating the aims and principles of a political party, 3) the combination of a particular computer and a particular operating system, 4) any military structure or vehicle bearing weapons and 5) a woman's shoe with a very high thick sole.
So I’m already a little confused trying to figure out exactly what they mean by this. I'll go with a woman's shoe bearing weapons. A platform can also be a kind of stage from which people are hanged, but that's trap-doorish and unnecessarily pessimistic.
Unluckily, I don’t happen to have a hundred million rattling around in my bank account at the moment, so I guess mine is not to reason why, mine is but to watch and cry.
Once a tiny influence on the markets, private money has gained unprecedented power on Wall Street. This year, the biggest deals have been swung not by public companies, but by private-equity firms that are spending hundreds of billions of dollars to buy household names, such as Hilton Hotels, Sallie Mae and Chrysler, and turn them into private companies.
For the first time last year, corporate America raised more money -- $162 billion -- from private investors than from initial public offerings, which raised $154 billion from the three major U.S. stock markets -- Nasdaq, the New York Stock Exchange and the American Stock Exchange.
This is the first major public repudiation of the tenets of the famed Harvard Business School and its industry-destruction instruction. The basic premise is the overriding importance of something known as the ‘quarterly profit.’
Harvardbusinessschool This famous institution (the school, not the University) was founded in 1908 and enlisted a mere 59 students. In almost no time at all (the 1920s), the class size reached 500 students and was celebrated in its 21st year by people jumping out of windows. In fairness, not all of them were graduates.
But L. Paul Bremer and George W. Bush each hold that distinction and just look at how well that’s worked out for the country.
Back in the day of corporate giants like Andrew Carnegie, Henry Ford and E. H. Harriman, there was no income tax and little need to sell one’s soul to the short-term stock market demand for quarterly profit. These guys owned banks. That, rather than the market, was their hook to the common man’s money—when and if they needed it, which was seldom.
Investorcomputerimage These days you can’t run a decent company (which might actually require some long-term investment and long-term research and development) because the frigging investors are breathing down your neck every moment.
Well, you just can’t keep a good billionaire down.
The hot trend of the moment is buying up publicly traded firms and taking them private--taking them out of the public eye and public oversight--out there where a man's free to wheel and deal, free to smell the smoke of the red man's villages on the wind. Quite the reverse of historic struggles to attract venture capital, work 70-hour weeks and cash in when the firm went public, the smart money today cashes in by going private.
No bothersome congressional investigations. No embarrassing problem with expense accounts and corporate jets, no nasty stockholder meetings with those finger-pointing dissidents expecting miracles and finding mirage.
The boom in private money has become so important to the financial system that major investment banks, including Goldman Sachs, Merrill Lynch, Lehman Brothers and Citigroup are setting up rival private stock markets of their own. But none will be as large as Portal, which will list the shares of about 500 firms on its first day of trading.

That sounds straightforward enough—the big guys playing among themselves for fun and profit. No little guys allowed, so no need to protect little guys, which is what Congress strives to do by constantly muddying up the clear and refined wine of commerce.

Ordinary investors can only participate indirectly if their mutual fund creates an account to trade on the private markets.
Money Oops. Check back a few paragraphs to 'owning banks to get at the little guy’s money.' Banks no longer have money, they just sort of move it around. Do you know anyone with a bank account earning three and a half percent? Neither do I, not since my great aunt Lou. The little guys’ money today is all in IRAs and 401-Ks and mutual funds. Mutual funds.
These markets are creating an alternative and exclusive investment world buffeted from the turmoil that has roiled the major stock indicators in recent weeks. In the public markets, investors dumped stock during a credit crisis caused by the deteriorating mortgage industry. Private-market traders generally are sophisticated financial groups that take a long-term view of their investments.
Buffeted from the turmoil is best if Warren Buffett is doing the buffeting. But I grant you that a little conservative, self-serving wisdom would be good for the markets.
"It's a transformational development in the capital markets," John Jacobs, executive vice president of Nasdaq, said of Portal's arrival.

The rise of private money has created a new class of power-brokers on Wall Street who have enriched themselves even as they have provided billions of investment dollars to companies in all kinds of industries.
Subprime Occasionally, they even provided billions to the mortgage industry, which was busily profiting off borrowers who hadn't a prayer of repaying. But that's ancient history, happened weeks ago and the race goes to the swift.
It remains to be seen if this new class of power-brokers have any brains, or if they were just the beneficiary of extraordinary recent circumstance and a president who threw trillions of present (and future) tax un-collections in their path. Along with remains to be seen is the specter of unknown unknowables.
(Colin Blaydon, director of the Center for Private Equity and Entrepreneurship) "While there has been great value creation in the American economy, it has not gone to the large bulk of American citizens," Blaydon said. "It has gone to the very top slice -- and I mean the very top slice -- with no increase of real incomes of American workers, including the middle-class management class. And that is something that people sense in their guts. They know they are not better off, and yet there are a handful of people who are extraordinarily better off."
America has a history of serious philanthropy arising from enormous wealth. Untied from the short-term profit scenario of Harvard and relieved of the considerable burden of congressional interference, it is possible that a new horizon all a-shimmer with profit and increased worker-income gleams on the horizon.
But that would be a very optimistic premise.
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