Aug 7, 2016 0
Gilder explains how changes in our financial markets, often with the intention of protecting small investors from risk have had an effect of increasing inequality.
In the ordinary history of Silicon Valley, no private company but Apple obtained anything close to a billion-dollar market cap. Intel, Microsoft, Oracle, Cisco, and other Silicon Valley stars only reached that level through IPOs that led into long years of appreciation of their stocks as public companies. Most companies, including the most lucrative high-tech names— firms like Linear Technology and Applied Materials, Oracle and Sun Microsystems, Cisco, Amazon, and Qualcomm— were happy to go public at a market cap of a few score million. Even Microsoft did not reach near a market cap of a billion dollars until its IPO. Apple, which turned out to be the best stock of the last hundred years, went public at a valuation of $ 1.3 billion and eventually was valued by Wall Street at more than five hundred times that amount. Adjusted for inflation, Microsoft gained a comparable multiple in the public markets.
The bulk of the appreciation from these Silicon Valley IPOs thus went to Main Street, which held its shares through Wall Street in the form of pensions and stock holdings. Venture capitalists did well, but the broad middle class captured a large share of the returns.
By comparison, Facebook had an $ 80 billion IPO, from which the U.S. Securities and Exchange Commission “protected” the middle class by barring all but “qualified investors” from pre-IPO markets. The thousandfold gains from Facebook were reserved for the officially certified rich, the fortunate few venture capitalists and investors “qualified” as sufficiently well-off to make such a “risky” investment.
Gilder, George (2016-03-28). The Scandal of Money: Why Wall Street Recovers but the Economy Never Does (Kindle Locations 1740-1752). Regnery Publishing. Kindle Edition.