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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

January 22, 2010 at 10:15 AM

Symetra a vote of confidence for local economy, but watch capital flows this year

Top of the News: Good-news seekers, take comfort. Symetra Financial’s IPO is off to a good start. The Seattle region must build new and growing companies in order to keep the market’s creative destruction from just being destruction. This is one of the moves that has allowed Seattle to continue reinventing itself while so many American metros have sagged as branch-office towns.

Now, the nasty stuff. It’s only the second local IPO since 2007, and we’ve gone through a rough patch of seeing local companies be acquired at a much higher rate than we’re creating and expanding them.

For the vital tech sector, it’s unfortunate that Washington state pulled in the weakest amount of venture capital in six years. To be sure, it was a bad year for VC overall. But pay attention to start-up funding and all stages of VC in the year ahead here: It will be an important indicator as to how the capital markets are changing in the big reset, and whether we still got game.

The Back Story: The stock market has tanked because of President Obama’s proposal to add some regulation to the TBTF banks. Artful spin. I’m not buying. The two foremost causes of this week’s swoon are fear of the asset and property bubble in China — the nation that was expected to lead the world economy out of the great recession — and the growing realization that Fed tightening this year will unwind the carry trade that has so lifted American stocks.

An argument can be made that Obama seeming to shift from pragmatism to “populism,” along with the anti-elites message of the Scott Brown win in Massachusetts signals new uncertainty. Markets hate uncertainty.

As to the bank regs. Separating real commercial banking from risky investment banking would have been a good start a year ago. So, too, would have been some commitment to limiting the banks’ size. As the saying goes, too big to fail means too big to exist. But the public is now confused and the financial industry has poured hundreds of millions of dollars into lobbying on Capitol Hill — so Obama faces headwinds, to say the least. And this was before the Supreme Court ruling that will make every lawmaker fear a tide of corporate money in 2010 and 2012.

A couple of other points: Real reform needs to be comprehensive, a dragnet that includes derivatives, hedge funds and other hidey holes of the capital markets. The goal should be transparency, fairness to all investors, competition, less industry concentration, lowering systemic reckless speculation and decreasing the moral hazard that comes when bank execs think they can gamble backed by the taxpayer. Second, regulation is only as good as the regulators. If the Clinton and Bush-era regulators had been encouraged to do their jobs, we arguably wouldn’t have had the crimes from Enron to subprime.

One more thing: Trading and moving money around do not make up a sustainable major economy. Somehow we’ve got to once again get capital markets that create jobs, productive companies, innovations and competition.

Today’s Econ Haiku:

Conan’s severance

Isn’t quite what you received

Why aren’t you laughing?

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