Global Investor: Why Worry, Wall Street?

Byline: Jeffrey E. Garten (Garten is the Juan Trippe Professor of International Trade and Finance at the Yale School of Management, and a former managing director of Lehman Brothers and the Blackstone Group.)

For several months, Treasury Secretary Hank Paulson and a number of top guns on Wall Street have been screaming that U.S. capital markets are losing their competitiveness to London and Hong Kong. Two months ago their claims received support from a study by some of America's most highly respected financiers and academics. In mid-January, McKinsey & Co., focusing on New York City in particular, delivered a report to Mayor Michael Bloomberg also bolstering Wall Street's fears. Now the U.S. Treasury plans to host a conference on the subject this spring. You have to give credit to the American financial community for orchestrating this crusade with such persistence. But the fact is, the bankers have a very flimsy case. They are too smart not to know that, so you have to wonder what's really going on.

Their central argument rests on the decline in the number of initial public offerings in the United States and the simultaneous growth of such listings abroad. This is undeniable, although 2006 ended with a significant upturn of IPOs, so the trend is not certain. Two major reasons cited for the decline is overregulation, including certain onerous provisions of Sarbanes-Oxley, and too much litigation. We should all support less red tape and the end to frivolous lawsuits, to be sure. But to equate fewer IPOs with the eclipse of U.S. capital markets is a dubious proposition for at least three reasons.

First, a huge increase in IPOs abroad derives from Russian and Chinese corporations' going public. But many such companies have unreliable financial accounts and ownership structures, including opaque links to their governments, that would never pass muster with the Securities and Exchange Commission. Just days ago NYSE chief John Thain said that London's laxer listing standards would damage its reputation. Surely, when it comes to investor protection, the United States doesn't want to engage in a race to the bottom.

Second, capital markets are composed of much more than IPOs. The United States is ahead of anyone else in debt instruments, private equity, hedge funds and venture capital. Third, the growth of markets in London, Hong Kong and elsewhere is not a negative reflection on the U.S.; it is instead a result of growth abroad and the successful export of American market capitalism. That is ...