While economists debate whether we're headed for another Great Depression, we're already in one of another sort: a great depression in the number of stocks available on U.S. stock exchanges.
In fact, this may be one reason for the economic woes that swamp us now.
The number of stocks trading on U.S. exchanges has declined a troubling 39% over the past 15 years, while the numbers continue to rocket higher virtually everywhere else in the world.
Experts blame the revolution in the U.S. stock market since the mid-1990s. That has changed the game for the pros and brought in throngs of small investors. But it's also made the U.S. market a tougher place for young, creative companies that need capital to grow.
The moribund marketplace
This market revolution brought a host of transformational changes: online brokerage accounts, cheap trades, fast trades and a proliferation of electronic exchanges. This allowed many more everyday investors to dive into stocks.It also opened the way for computerized high-frequency trading of millions of shares for tiny gains on each one, because trading costs are now so low. Much of the action has shifted to trading indexes instead of stocks. (Read "Is investing (in companies) dead?")
All this made the stock market a far more hostile place for small companies, because the changes steamrolled an old Wall Street regime that once nurtured and supported newbies. Instead, the vast scale of rapid-fire, index-based trading favors big companies.
The result is that decidedly fewer small companies are joining the market each year through initial public offerings, or IPOs. Though the numbers are up over last year -- read "3-D IPO and other hot new stocks" -- they're not close to what we saw in the booming 1990s.
This means fewer companies can raise capital to invest and grow, and we're losing the jobs and growth they might have created.
The new market
There may be a fix: a new stock market that would cater to small companies and bring back the old ecosystem that used to support them.This is the master plan of David Weild and Edward Kim, two small-capitalization-stock experts who work for auditing firm Grant Thornton. Weild and Kim advise small companies on how to go public. A cynic might argue they're just trying to drum up business and, to some extent, they are.
But they're also both career experts in the small-cap market. So their idea for a new but old-school stock exchange for small-cap companies may not be as wacky as it sounds. (Read their plan here; it's a .pdf file.)
As an investment banker, Weild helped bring more than 500 companies public earlier in his career at Prudential Securities. Kim once actively supported the market in small-cap stocks as a research analyst at Robertson Stephens, one of the small-cap specialist brokerage shops put out of business by the stock market revolution, and as a trader at Lehman Brothers.