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October 8th, 2013 4:24 pm
Federal Overregulation Is Killing U.S. Public Markets
Posted by Print

Recently, CFIF highlighted the threat to markets and the U.S. economy posed by Dodd-Frank and overzealous Obama Administration regulators.  Specifically, the Securities and Exchange Commission (SEC) proposed a new regulation last month requiring public companies to tediously calculate their employees’ income ratios for exploitation by political activists.  Current laws already require public companies to post executive compensation levels, and the proposed rule would only encourage more overseas outsourcing, since foreign employees would likely be excluded.

Importantly, we noted that the SEC’s proposed regulation would also push even more companies to go private rather than public, thus depriving everyday investors the opportunity to participate in markets.  In other words, this little class warfare tactic would paradoxically end up hurting middle-class and poorer Americans while benefiting wealthier Americans who are able to participate in private company investment.  On that topic, in today’s Wall Street Journal Edward S. Knight illustrates the problem we face:

The number of publicly traded companies listed on U.S. exchanges has steadily declined to 5,000 this year from around 8,000 in 1995.  There are a number of reasons, but no one doubts that going and staying public has become increasingly more expensive, time-consuming and distracting for management.  As a result, businesses have sought other ways to organize and finance themselves.

This is not a healthy trend.  Private companies that need to grow can raise capital efficiently in U.S. public markets.  And robust public markets provide wide opportunities for individual and institutional investors to grow wealth.”

Clearly, federal overregulation comes at great cost, whether via Sarbanes-Oxley, Dodd-Frank or SEC executive compensation micromanagement.  Until we put an end to it, those costs will only increase for American markets and citizens alike.

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