Tilting at Windmills

May/June 2012 Cashing in by going public

By Charles Peters

The sponsors of the new JOBS Act seem to have assumed that encouraging IPOs will help small businesses in their struggle to survive. But what these initial public offerings of stock usually represent is a “cashing in” by the owners of companies that are already successful. For example, the most recent IPO you’ve probably heard about is Facebook’s.

By the way, Fortune’s Allan Sloan explains that the reason only 5 percent to 7 percent of Facebook’s shares are being offered is to “create an initial shortage of stock so that the share price runs up when public trading” starts. “It’s not enough for Mark Zuckerberg & Co. to have created an amazing, incredibly valuable company,” continues Sloan. “They feel the need to use this tacky market trick to drive up Facebook’s value even more.”

Charles Peters is the founding editor of the Washington Monthly and the author of a new book on Lyndon B. Johnson published by Times Books.