As currently structured, Wall Street investment banks have no incentive to bring viable companies to market. Wall Street makes the same huge fees for putting lipstick on a pig and dumping it on the public as they do for launching solid companies with real job growth potential. Over the past decade, trillions of dollars of investors’ life savings have been misallocated to bogus business models. Those companies are now worthless or are trading for pennies on the Pink Sheets, the graveyard for investment banks’ misfired ideas.
The Pink Sheets provide quotes on these stocks to broker dealers. It’s not responsible for the legitimacy of the companies and, in fact, warns investors on its web site that these “are small companies with limited operating histories or are economically distressed…Investors should avoid the OTC [over the counter] market unless they can afford a complete loss of their investment.” In many cases, this is far more disclosure than licensed brokers at the “venerable” firms told their clients when the companies first went public at fat share prices.
A study done by Tyler Shumway and Vincent A. Warther for the University of Michigan Business School and University of Chicago Graduate School of Business found that between 1972 through 1995, 4,188 companies were delisted by Nasdaq, the stock exchange that facilitated the boom and bust in dotcoms and tech start ups in the late 90s. After delisting, many ended up on the Pink Sheets. In March 2000, the Nasdaq index stood at 5,048. Today, a decade later, it’s still down 58 percent from its peak.
It’s time for Congress to open its eyes to the reality that this massive decline in Nasdaq is telling us Wall Street is not bringing enough good companies to market. And the mergers Wall Street has put together, typically traded on the New York Stock Exchange, have created Frankenbanks and debt-laden conglomerates too bloated to figure out their own balance sheet let alone create new jobs. Two poster children come to mind: AOL-TimeWarner and Citibank-Travelers-Smith Barney-Salomon, a/k/a Citigroup.
Thank you Pam Martens….