Thursday, May 17, 2007

 

Once again, the predictably obvious surprises Congress

In 2002, in a classic Congressional overreaction to a scandal, Sarbanes-Oxley became law. This has led to the all-too-predictable result of adding significant costs for businesses to go and/or stay publicly-traded. In particular, audit costs and record keeping have dramatically increased significantly as a direct result of Sarbox.

In light of these increased costs, the benefits of going public are rationally diminished and private equity thereby becomes more attractive. Pretty basic stuff…unless you believe economic laws are no match for the collective wisdom of a House committee:

“As attention intensifies on the growing role of private equity in the U.S. economy, a House committee yesterday raised the question of whether the government should intervene to protect the interests of affected workers and communities.” Parties Split Over Public Inequities of Private Equity - washingtonpost.com

The increased role of Private Equity also has the attendant impact of reducing the opportunity for the less-wealthy among us to invest in growing, successful businesses that correctly decide that there are cheaper and better ways to raise money than going (or staying) public.

So, to summarize, in an effort to “protect” the small-time investor, Congress (with the President’s help) passes a bill that so increases the cost of public-market capital that those seeking capital increasingly look elsewhere. Thus the small-time investor is protected from even making certain otherwise-attractive investments.

Well, as they'll continue to tell us, they do know what’s best for us.

I wonder how all this playing with the “reality-based community”?

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