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Tuesday, August 21, 2007

TODAYS NYSE EURONEXT (NYX) NEWS: The Stock Exchange betrays the companies, by Jean-Bernard Schmidt translated from Le Monde, Paris

Does the Stock Exchange serve our economy? Several facts result in doubting it. The companies dimensioned on Euronext Paris raised in 2006 a total of 37,5 billion euros. The companies of the only CAC 40 (a subset of Euronext) returned to their shareholders 39 billion euros, that is to say a deficit of 1,5 billion euros. Similar situation in 2005 and 2004: it is necessary to go up at 2003 to see the capital raised (31,6 billion euros) to exceed the dividends and repurchases of actions (22 billion euros). The companies are not financed any more, on the contrary, they are impoverished. Second fact: a study of the cabinet Ernst & Young on the evolution of Nasdaq shows a disaffection of the investors for technology: the average valorization of the company of technology at the time of its entry out of Stock Exchange over the period 2001-2006 is 39 % of what it was over the period 1992-1997 (period quite former to the tops of 1999-2000). Nasdaq, American Bourse specialized which financed all the American giants of technology, of INTEL with Microsoft, Cisco with Oracle, does not function any more: the introductions out of Stock Exchange do not reward any more the risk taken. However, the economy is prosperous, the capital are abundant. Third fact: the average duration of detention of actions by the American mutual funds fell in ten months in 2005, a historical record. The common point between these three facts? Quite simply that the long-term investment does not pay any more. With a few percentages of the capital, the hedge funds (speculative funds) handle the courses, impose their law: fusions, acquisitions, dismantlings, fast distributions of the credits by surplus dividends and repurchases of actions. A great part of the funds of LBO are in same logic: repurchases of companies per exit of Stock Exchange or in the field deprived by massive debt, reorganizations fast, distributions of the credits, reductions of the costs for a fast improvement of the results, resales at other funds of LBO. Level of risk of these operations? Almost no one, since it is a question of seizing only already profit companies, the only risk being that which one creates for itself oneself, namely the amount of the debt of which one will charge the company. Important profits, fast liquidity, reduced risk: under these conditions, why invest in the long run? Clearly, we are in a deviation of the system: one cannot indefinitely earn money quickly and without risk. The system will correct itself, as it did in the past. The question is to know when, and at which price for our economy. Because the paid price is already heavy. We will have the company of the innovation and the technology claimed by all only if the long-term investment is rehabilitated. We will not manufacture the technological champions carrying the uses of tomorrow that if there is a Stock Exchange able to replace of the investors who took the risk of creation. We will not see our powerful SME, our so expensive "gazelles" with our controlling, to conquer the markets of export that if they find the relay of the Stock Exchange. The same our best undertaken family will continue to be the object of covetousnesses of the funds of LBO if the transmissions of capital cannot be done harmoniously out of Stock Exchange. Because the Stock Exchange is the only one to offer the ingredients of a true economic growth founded on the long-term interest: new capital contributions, liquidity for the old shareholders, the possibility of recruiting the best managers, and, over all, independence. What to make so that the Stock Exchange finds its driving role of the economy? To alert our institutional (insurance companies, melt of pension, melt mutual) on the need for reserving in their placements a share largely higher than the long-term investment. Today it is them which finance the hedge funds and the funds of LBO, it is them also which are not expressed at the general assemblies and leave the free field with the aggressiveness of the hedge funds. They transform into short term the long-term resources with which they are equipped. What to make of other? To act on the taxation. One can usefully think of promoting the long-term investment, in particular at the time of the introductions out of Stock Exchange, by an inciting taxation on the level of the private individuals and collective vehicles. It is the goal, for example, of the law concerning the reassignment of wealth tax towards SME or of the project of JEC (young company with dimensions). But true tax measurement to take is to tax the hedge funds and the funds with LBO. With which title can one justify today an exemption of imposition on the appreciations and which the interests of the debt of acquisition are fiscally deductible, all that leading to an extra premium of profitability which distorts competition? By establishing a normal imposition, one makes an act of equity at the same time as one restores the conditions of a healthy arbitration between the short term and the long term, one rehabilitates the long term. Because let us not mislead there we: we weaken our the best undertaken at the time even where they should be reinforced, vis-a-vis with a competition who in Japan, in Korea, in China, in India, develops long-term strategies of a frightening effectiveness and an ambition.

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