American Capital Markets Falling Behind

Thanks in large part to policy mismanagement by a shockingly illiterate Congress, American financial markets are losing their edge to global competitors.  U.S. tax policy is increasingly complicated, unstable, and short-term (our capital gains and dividend rates change every two years, for example).  America’s tax policy is a disgraceful, corrupt mess that specifically punishes U.S. companies that have operations overseas. Ravenous trial lawyers litigate at every significant move in stock price.  Sarbanes-Oxley has dramatically increased the regulatory costs of listing a public company in the United States while providing little or no benefit to investors.   And 9/11 restrictions are making it tougher to do international business in America. The New York Times is finally sounding the alarm in a piece today:

Beyond its location, London is attracting investors and companies because of a perception that regulatory scrutiny is more burdensome in the United States than in London. At the same time, while London does not use the euro, that common currency has helped bring depth to the capital markets of Europe, benefiting London.

“At the moment, people are still arguing New York versus London,” said Shaun Springer, the head of Napier Scott, a headhunting firm based in London that specializes in trading jobs. In five years, he predicts, “there will be a real, visible gap,” with London taking the lead.

So far, the only financial arena where New York is clearly being surpassed is initial public offerings. This year, through the end of September, companies raised £17.9 billion ($33.2 billion) in initial public offerings on London’s exchanges. In New York, initial public offerings raised $26.5 billion through September. By the end of 2006, more than $40 billion will be raised in Hong Kong, thanks to two oversize bank offerings. Hong Kong’s leadership in public offerings is not expected to extend to 2007, when the battle between London and New York will be fiercer than ever.

The next Congress need to move swiftly to help America stay ahead in this critical field by 1. making the 2003 capital gains and dividend rates permanent 2. making Section 404 of Srabanes-Oxley optional by shareholder vote 3. passing tougher reforms on shareholder lawsuits and 4. ending tax penalties on American businesses that earn profits overseas.