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Robert Bloomfield aka Beyers Sellers (A Professor at Cornell) recently wrote a blog "What in the world is a Fictional Securities Exchange? " and asked me to comment on it. Here is my comment: While I think that the SL Exchanges should be a means to help raise capital, I do not see that as the primary goals of the current exchanges. As Robert pointed out, the fact that the listed companies own close to 90% of the businesses offers little value to the investors. What I see these exchanges doing is a providing a means to create artificial value for the owners. For example, Company A wants to go 'public' and issues 1mil shares in IPO at 1 Linden per share, while having 10mil shares outstanding. Odds are, the IPO will be successful because of most investors' lack of due diligence in examining the IPO. They simply want to put down a small risk to see if it will pay off, and possibly just have some fun trying their hands in the stock market. If the IPO is successful, this company can now claim they have a market value of 10mil Lindens. But what is there to support this value? Now, assuming that the business does have a sound model and someone is interested in buying them out. Does Company A really expect that the person to pay the current market price where the value was artificially created overnight? Let's not forget to add in the fact that there is very little liquidity in these markets, so the owner of Company A can simply go out to the market and buy more shares himself to further inflate the value. So where does it stop? While the idea of an exchange can be noble, one must first examine how the exchange operates and ask, what is the intent of the exchange? Who are they looking after, the companies or the investors? Are their policies set to help incubate developing businesses that have favorable value propositions, or are they merely colluding with businesses to make money for the owners? I would like to end this comment with one suggestion to the exchanges: Your customers are the investors, not the companies.
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