I think that systemic risk in global financial markets has increased quite dramatically.
- What is the long term impact of one to two trillion dollar deficits in the U.S. annually for the next few years?
- Who will purchase all these treasury bonds”?
- Will the Federal Reserve ultimately resort to printing money?
- Will some of these big banks have to be nationalized.
- Do we have now, in effect, a bubble in U.S. treasuries?
- Will all the credit creation lead to major inflation three or four years out?
- Will we have a major crisis in the U.S. dollar over the next year or two?
This is all uncharted water and, no one on the face of the planet knows how it will play out.
March 9, 2009
Finance deep freeze
We are now in a deep freeze of credit. It is trickling down that it is no longer business as before. There are new rules and it's back to the basics.So, what does “back to basics” mean for the financial business. To me, it means.
-running a more conservative business across the board
-reining in your growth expectations to more realistic levels.
-reducing leverage
-much less financial innovation and much less financial engineering
-more focus on client business
-more organic growth and fewer grandstanding acquisitions and
-for the world’s biggest financial institutions it means downsizing your business and scraping your plans to rule the world.
-running a more conservative business across the board
-reining in your growth expectations to more realistic levels.
-reducing leverage
-much less financial innovation and much less financial engineering
-more focus on client business
-more organic growth and fewer grandstanding acquisitions and
-for the world’s biggest financial institutions it means downsizing your business and scraping your plans to rule the world.
Of course, running a more conservative business, with less leverage, will mean somewhat lower profitability than we have been accustomed to in the past. That’s the price of running a more conservative business but at least, over time, you will be in business.
The Human Capital of Private Equity
- The stock market is down 50 percent.
- Banks are in trouble and have curtailed lending.
- Commentators predict widespread industrial bankruptcies.
- Unemployment is rising fast.
- Interest rates are volatile.
It all sounds familiar. But those headlines aren’t from today. They’re from 1974. Doomsayers foresaw disaster 35 years ago, predicting hundreds of corporate bankruptcies. New York City and State, and utilities like Con Edison, seemed on the brink of collapse. Business publications wrote that major money-center banks would fail and ran articles like, “I’ll Never Own a Stock Again!” Struggling companies got little help from financial institutions, which had problems of their own. Businesses with the highest returns on investment, the most innovation and the fastest growth were starved for capital. The debt of good companies sold for pennies on the dollar.
In 1974, as now, those who once thought they had the answers came to realize their assumptions were flawed. But opportunity emerged from that crisis as people with creative solutions and the skill to implement them stepped forward and developed new ways to access capital. Over the next two years, the markets recovered strongly. That skill in finding new opportunities when things look bleak is part of what economists call human capital.
In financing companies that could grow and create jobs, I always considered management skills as important an asset as numbers on the balance sheet. And it’s never more important than in times of crisis.
While people worldwide have recently suffered some $60 trillion in losses on financial instruments and real estate, that figure is actually dwarfed by the value of the world’s human capital, worth substantially more than $1,000 trillion. With a value like that on our collective potential, a cancer cure would be worth more than $50 trillion in the U.S. and well over $100 trillion globally.
This suggests that investments in medical research may have more value than building new bridges or highways. And it underscores what we already know about education: in the long run, it’s the single best investment in stimulating the world’s economy.
Also - the human capital that private equity brings to a company is the reason their results are superior to the public market investments.
- Banks are in trouble and have curtailed lending.
- Commentators predict widespread industrial bankruptcies.
- Unemployment is rising fast.
- Interest rates are volatile.
It all sounds familiar. But those headlines aren’t from today. They’re from 1974. Doomsayers foresaw disaster 35 years ago, predicting hundreds of corporate bankruptcies. New York City and State, and utilities like Con Edison, seemed on the brink of collapse. Business publications wrote that major money-center banks would fail and ran articles like, “I’ll Never Own a Stock Again!” Struggling companies got little help from financial institutions, which had problems of their own. Businesses with the highest returns on investment, the most innovation and the fastest growth were starved for capital. The debt of good companies sold for pennies on the dollar.
In 1974, as now, those who once thought they had the answers came to realize their assumptions were flawed. But opportunity emerged from that crisis as people with creative solutions and the skill to implement them stepped forward and developed new ways to access capital. Over the next two years, the markets recovered strongly. That skill in finding new opportunities when things look bleak is part of what economists call human capital.
In financing companies that could grow and create jobs, I always considered management skills as important an asset as numbers on the balance sheet. And it’s never more important than in times of crisis.
While people worldwide have recently suffered some $60 trillion in losses on financial instruments and real estate, that figure is actually dwarfed by the value of the world’s human capital, worth substantially more than $1,000 trillion. With a value like that on our collective potential, a cancer cure would be worth more than $50 trillion in the U.S. and well over $100 trillion globally.
This suggests that investments in medical research may have more value than building new bridges or highways. And it underscores what we already know about education: in the long run, it’s the single best investment in stimulating the world’s economy.
Also - the human capital that private equity brings to a company is the reason their results are superior to the public market investments.
Famous words
You do need to keep your head when those around us are going off their rockers. CNBC had a very telling slideshow of famous last words: Go to show.
My favorite classic line:
"In today's regulatory environment, it's virtually impossible to violate rules...it's impossible for a violation to go undetected, and certainly not for a considerable period of time."
Bernard Madoff, Oct. 27, 2007.
Maybe this could be used in MBA classes?
My favorite classic line:
"In today's regulatory environment, it's virtually impossible to violate rules...it's impossible for a violation to go undetected, and certainly not for a considerable period of time."
Bernard Madoff, Oct. 27, 2007.
Maybe this could be used in MBA classes?
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