Down on the Street

No longer can America take for granted its global superiority as a market for capital. Will regulatory reform let it keep up with the pack?

David Chavern has been looking at a photograph of hirsute twenty-somethings and fretting. The snap, from the late 1970s, shows a mop-topped Bill Gates and colleagues at what would become the world’s biggest software company. Mr Chavern, a capital-markets expert at the US Chamber of Commerce, is concerned that America may no longer be very good at nurturing nascent Microsofts. “You can’t help wondering about the hairy people you’ll never hear of,” he muses.

He is not alone. There has been much hand-wringing over the state of America’s capital markets and their ability to help businesses grow. The main worry is that despite being big, they are no longer competitive compared with the leading financial centres of Europe and Asia. Recently, Michael Bloomberg, New York’s mayor, and Charles Schumer, a senator, showed their concern in an article dramatically titled: “To save New York, learn from London.” But some think it is already too late for Wall Street. “The days of financial hegemony are over,” says one senior American official gloomily.

As arrogance gives way to angst, America is exploring what to do. The Chamber of Commerce has held a series of “town hall meetings” and will publish a report next spring. New York has hired consultants from McKinsey to develop a new strategy. But the initiative attracting most attention is the Committee on Capital Markets Regulation (CCMR). This group of bankers, bosses, academics and investors, headed by Hal Scott, a Harvard Law School professor, release its first set of recommendations this week. These address various regulations seen to be holding back American business.

Although the government insists it is not involved, the treasury secretary, Hank Paulson—a former head of Goldman Sachs—has offered encouragement. He recently said that the 2002 Sarbanes-Oxley act, which toughened up corporate regulation following Enron’s collapse, is “being implemented in a way that may be…introducing new risks to our economy”, and forcing companies to spend more on accountants than research.

This might seem an odd time for such anxiety. After all, America’s firms and banks, many of them world-class, are making record profits; Wall Street bonuses could be almost a third higher than last year’s payout, itself a record; the Dow Jones Industrial Average recently hit a new high; the merger of two Chicago exchanges has cemented that city’s dominance in derivatives-trading, while the New York Stock Exchange and Nasdaq are trying to buy their European rivals.

At the Right Price

Are the fears misplaced? As capital becomes more mobile, investors worry less about where their trades take place, so long as the price is right. America’s big investment banks can win business wherever in the world deals are made. And budding Microsofts can always list abroad if their local market cannot provide the financial support they need.


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