Why Are Lawmakers Afraid of the Blackstone IPO?

Kudos to Blackstone (BX) for coming to market. Now we know why the pricing was moved up from Tuesday to Thursday - because grand-standing politicians were engaging in class-baiting politics by pressuring the SEC to hold up the issue.

In a letter to SEC Chairman Christopher Cox, Waxman said Blackstone's IPO may present potential investors and the public with new and undisclosed risks, while stripping them of necessary protections.

"For this reason, we urge you to refrain from accelerating the IPO until Congress has had a chance to hold hearings on this matter," wrote Waxman. The letter was also signed by Rep. Dennis Kucinich, an Ohio Democrat and chairman of the panel's domestic policy subcommittee.

In the letter, Waxman said the value of investors' interests in Blackstone would be tied to the performance of its underlying hedge and private equity funds. Such funds have not been considered suitable investments for the general public because of their high risks and speculative nature, he said.

"While exposing unsophisticated investors to new risks, the Blackstone IPO would also apparently deprive them of control over the management of the funds and of many of the protections provided by fiduciary duties typically owed to them by management," Waxman and Kucinich wrote.

What utter nonsense.

This has nothing to do with risk and protecting investors ("protecting" them from a firm, by the way, that has compounded annual net returns in its private equity fund 22% over two decades and 30% in its real estate fund since the beginning the 1990s).

This is about sticking it to rich guys who pay low taxes!

Now, I'm not saying profits generated by Blackstone shouldn't be taxed at 35% instead of the current 15%. Frankly, I don't know why one type of corporate organization should pay a different tax rate than another, though DealBreaker makes the argument. However, attempting to halt the Backstone IPO is pure political theater for the liberal politicians in the Democratic party who are playing to their base, especially for serial Presidential candidate Kucinich.

I'm appalled at the sleazy opportunism of the politicians who are attempting to interfere with an independent government regulatory agency to blatantly advance a political agenda, using the guise of investor's stupidity and gullibility as cover.

They presume that investors are morons who don't know what they're doing, which was witnessed by the open last Friday, and it will surely be in the high-$30s/low-$40s. Instead, we should trust the political representatives of the American left, who are often openly hostile towards American corporations and suspicious of markets, to protect us from what we don't understand!

And they wonder why they're at 23% in the polls.

Disclosure: The firm in which I am employed has a relationship with Blackstone. I, personally, will not participate in the IPO.

Comments

[rhokin:]

And why not eliminate capital gains treatment for stock options?

2007 Jun 22 12:33 PM

[paul:]

Once again the idiots in DC have been drinking their own cool-aid. There is no limit to their arrogance if they think there is political gain to be had. This whole concept of rich envy is nothing more than a ploy to divert attention from real problems. To deny the track record of the tax reductions on the economy over the last 6 years is utter stupidity. They just don't get it, the name of the game is to create jobs, tax revenue will follow.

2007 Jun 25 02:40 PM