WSJ on the Destruction that Govenment Has Done to the IPO market

WSJ has an editorial out today that falls directly in line with my view on the IPO market, which I detailed earlier. Here's WSJ take:

The Obama Treasury is trying to appear more business friendly—miracles happen—and so Secretary Tim Geithner will host a meeting today to explore why so few U.S. businesses are going public. Mr. Geithner has not said this will be a Washington mea culpa, but it ought to be if it's going to do any good.

The problem is real. Recent news of a potential $25 billion initial public offering for the Web-based bargain hunting company Groupon is an exception because the overall trend is down. Last year 72 venture-capital-backed companies went public in the U.S., according to data from Thomson Reuters and the National Venture Capital Association. Over the last decade, the annual number has never reached 100 and has averaged fewer than 50.

Yes, it's unrealistic to expect a repeat of the late-1990s Internet boom, when annual IPOs twice exceeded 270. But how about the early 1990s, before the dot-com mania skewed the numbers? The U.S. averaged 160 a year from 1990-1994, three times the current rate.

New companies are the lifeblood of a capitalist economy. Every venture-backed start-up that grows into a public company could be the next Google, Intel, Starbucks or Amgen. Venture investment adds up to 0.2% of U.S. GDP, but the revenue of companies created with such investment amounted to 21% of the economy in 2008. The diminished ability of start-ups to hit the long ball with an IPO discourages investments at all the earlier stages. Venture capitalists know they need some equity home runs to offset losses in the thousands of firms that never find a market.

At today's conference, the debate won't be whether the system of growing young firms into public corporations is broken but over who killed this market and how to fix it. The elephant in the room is the 2002 Sarbanes-Oxley law, which triggered billions of dollars in new compliance costs for public companies. But the accountants who profit from Sarbox and the Treasury maintain that the law is merely one of many factors discouraging new public companies. This view is shared by most in Washington because Sarbox was a bipartisan overreaction to the accounting scandals at Enron and WorldCom and was signed by George W. Bush.

I would argue that though Sarbanes-Oxely was no help to the IPO market, the elitist sectors of securities industry have the SEC and Congress so wrapped around their fingers that it has been ages since a decent small firm could easily go public, if they did not have assistance from an elitist securities firm or elitist venture capital firm.

It is truly an outrage, that few understand, but current regulations limit an incredible amount of investment money to firms that are not big enough to warrant the attention of the elitists.

Geithner's conference is a joke. It's a combination of bureaucrats and elitists. The situation is so bad for small IPO's that there are no representatives for that sector. It has been totally destroyed, a wasteland, where only scavengers now prey.