Tuesday, December 19, 2006

Don't mess with the markets

Thailand is learning the hard way that, if you impose capital controls that prevent foreign capital from exiting your market, not only will foreign capital not come to your shores, but those who can leave will stampede out the door before the new law becomes effective. See the FT's Amy Kazmin, Thailand revokes capital controls on equities. Also the FT's op-ed, An abrupt baht turn that harms everyone.

Ouch. Having to revoke a law the same day as it comes into effect. That's gotta hurt.

Which reminds me...Maybe this would be a good time to mention Floyd Norris' recent NYT article, SEC to firms: Keep money, forget rules. (Unfortunately, you need a subscription to read it. Which, frankly, is ridiculous. None of the New York Times' writers is worth paying for.) Anyway, Norris comments on the SEC's new proposed deregistration rule that would permit foreign issuers to withdraw completely from the U.S. market (and cease having to make most SEC filings) provided less than 5 percent of their shares trade in the United States. Norris says:
It looked like a simple deal: Companies that wanted to raise money in the American capital market had to agree to comply with the market's rules. The promise remained binding as long as a substantial number of Americans owned the stock. But now, under pressure from foreign companies that do not want to be bound by such a bargain, the Securities and Exchange Commission is proposing rules that will let all but a handful of foreign companies abrogate the deal, even if there are tens of thousands of American owners. As long as the primary trading market for a stock is overseas, American shareholders can be ignored. The companies will be able to keep the money that was raised from the securities, but they will no longer have to comply with the rules. Thousands of companies will be eligible to deregister from the United States. If American investors don't like living without such protections, one commissioner, Annette L. Nazareth, said, they can ''vote with their feet'' and sell their shares. Now, there's investor protection.
Frankly, I would have phrased it a little differently than Nazareth (she does need a speech writer, doesn't she?), but she does have a point, despite Norris' snidetry. This is a one-time only shot to screw over investors: if an issuer takes it, it's name will be mud, and not just in the United States. And it won't just be U.S. investors voting with their feet. Foreign issuers taking advantage of this proposed rule will try to paint it as a reaction to the excesses of the Sarbanes-Oxley Act, but investors aren't idiots (no matter what Norris might think). It will be a signal that the foreign issuer has got something to hide.

But the bigger point, Floyd, is the same as in Thailand. Give the slightest impression you might be a crook, and nobody will invest in your company. Make your market a prison, and nobody will walk through your door. In that sense, the market is as unforgiving of governments as it is of issuers.


Floyd Norris said...

Your disagreement with what I write is fine, but I do want to quarrel with the idea that it is ridiculous to have to pay to read my paper. "None of the New York Times' writers is worth paying for," you say.

If newspapers do not find a way to charge readers, there will be no newspapers in the future. Advertising by itself could never support quality journalism in print, and there is little reason to think it will do so on the Web.

We may or may not be worth reading, but I would suggest that those who are worth reading deserve to be compensated for it.

M.D. Fatwa said...

Your first point is, of course, correct. I was just being grumpy and mean. (But, then, why should I treat you any differently than everyone else?)

On your second point, I'm not so sure. I'm not privy to the NYT's finances, of course, but it doesn't seem that newspapers have found much success in charging their readers. Readers, after all, aren't a newspaper's audience, but the newspaper's product. In today's world, even quality analysis is a commodity, and a highly perishable one at that. Some information suppliers get most of their income from subscription sources (Lexis/Nexis, Bloomberg, etc.), but these guys focus on a niche, where the timeliness of the information is critical. Others (the National Journal, for instance) provide information and analysis in a level of detail that most don't want or need, but which a small number find extremely valuable (and are willing to pay for the privilege). I don't think the NYT falls into either of these categories.

As hard as it may be for me to admit it, you may actually be an exception to this -- your main competitors are at the WSJ and Financial Times, both of which charge a subscription fee for full access. But Maureen Dowd or Paul Krugman? Their competitors are at the Washington Post, and the WP is free.