考克斯圆桌会议moderncapitalismandfinancialcrisi

1ModernCapitalismastheSolutiontotheFinancialCrisis:TheCauxRoundTableApproachStephenB.YoungGlobalExecutiveDirectorTheCauxRoundTableBelgrade,December200823FinancialmeltdownsareasystematicDysfunctionofcapitalism•Tulipmania–1620•MississippicompanyFrance1719/1720•SouthSeaCompanyLondon1711/1720•WallStreet1929•Junkbonds1980s•Dot.coms/telecom1990s•Sub-primemortgages/CDOs4•Men,ithasbeenwellsaid,thinkinherds;itwillbeseenthattheygomadinherds,whiletheyonlyrecovertheirsensesslowly,andonebyone!CharlesMackay•“IrrationalExuberance”AlanGreenspan5•CharlesMacKay,ExtraordinaryPopularDelusionsandtheMadnessofCrowds,withaforewordbyAndrewTobias(1841;NewYork:HarmonyBooks,1980).•MikeDash,Tulipomania:TheStoryoftheWorld'sMostCovetedFlowerandtheExtraordinaryPassionsItAroused(1999)•PeterM.Garber,FamousFirstBubbles:TheFundamentalsofEarlyManias(Cambridge,MA:MITPress,2000).•CharlesKindleberger,Manias,Panics,andCrashes:AHistoryofFinancialCrises(Wiley,2005,5thedition)6WhatCausesaFinancialCrisis?•Mis-pricingofrisk•Increasesinrealriskarenotcapturedinnominalmarketprices•Assetpricesbecomeirrational•Valuationbecomesunrealistic7PresentvaluereflectstheriskofactuallyreceivingfutureincomeCapitalvalueisafunctionofincome!Misjudgmentsaboutfutureincomedistortpresentcapitalvalues8Infinancialbubbles,mis-pricingissustainedbyinfusionsofdebtHigherandhigherassetvaluesaresupportedbyborrowedfundsExcessliquidity–basedonfuturepromisestopay–transformsinvestmentintospeculation;atradingmentalitytakesoverthemarkets;prudencelosesouttogreed;illusiontrumpsreality–foratime9•OfalltheoffspringofTime,Erroristhemostancient,andissooldandfamiliaranacquaintance,thatTruth,whendiscovered,comesuponmostofuslikeanintruder,andmeetstheintruder'swelcome.10DynamicsoftheCurrentCrisis•Sub-primemortgageloansmade,moreandmoreagainstfutureresalevalueofthehome,notagainstrealincome•Mortgageloanspackagedandsoldtoglobalcapitalmarkets•CollateralDebtObligations(CDOs)issuedtofinancepurchasesofpackagesofsub-primemortgagesandtoinvestinhedgefunds•CreditDefaultSwapsinventedtogiveaddedvaluetoCDOs•Debtupondebtupondebt•Lowinterestrateenvironment•Incentivestructuredrivenbyfeesnotinvestmentinlongtermreturns11CurrentCrisisisGlobal•AIG•Fortis•Iceland•EUguaranteesbankdeposits•UKtakesovertwobanks•EquitymarketsinAsiatank•PriceofOildropsby50%•Realeconomiesloseemploymentandconsumerdemand12•Whenfinancialmarketsimplode,capitalismlosesliquidity,exchangesofgoodsandservicesfall,outputisreduced,employmentiscut•Debtmustbetakenoutofthefinancialsystem•Assetvalueshavetoberesetatlowerlevels•Assetownersloosewealth13•WorldEconomicOrderhasinadequatemechanismstopreventfinancialcrises•WTO•IMF•WorldBank•G8•OECD•BankforInternationalSettlements14•CentralBanksmuststepupandinjectliquidityintotheglobalsystemoffinancialintermediation•Governmentbudgetsmustinjectnewcapitalinfinancialinstitutions•Bankruptciesmusteliminateamountsofliquidity–bothequityanddebt–BearSterns-$80to$2-LehmanBrothers-liquidated15Whatisthefairvalueofaninvestmentinbusiness?•QualityIncomeStream•Highnetpresentdiscountedvalue•GoodcapitalizationmultiplierGoodCorporateValue(WarrenBuffetwouldbuyit)16Todaywheredoesmostcorporatevaluecomefrom?IntangibleAssets!1750BestPerformersof2005BusinessWeekBurlingtonNorthernSantaFe:Marketvalue:$29.2billionBalancesheetassets:103%ofmarketvalue($30.3billion)Goodwill:NoneCaterpillar:Marketvalue:$49billionBalancesheetassets:95.9%Goodwill:4.1%UnitedHealthGroup:Marketvalue:$79billionBalancesheetassets:52%Goodwill:48%Apple:Marketvalue:$58billionBalancesheetassets:19.8%Goodwill:80.2%1850BestPerformersof2005BusinessWeekMicrosoft:Marketvalue:$279billionBalancesheetassets:33.7%Goodwill:66.3%BestBuy:Marketvalue:$26.3billionBalancesheetassets:39%Goodwill:61%Starbucks:Marketvalue:$27.8billionBalancesheetassets:12%Goodwill:88%GoldmanSachs:Marketvalue:$61.7billionBalancesheetassets:1.1%Goodwill:98.9%19WhatistheMostCommonFormofIntangibleWealth?GovernmentIssuedFiatMoneyItsvalueistobeusedaslegaltenderWhatisaDollarworthtoday?Adollarbillhasnotangibleworth;whatisthevalueofinkonpaper?Itsvalueliesinthemindofwhoeverwilltakeit.20WhatisAnotherVeryDesirableCommonFormofIntangibleWealth?StocksandBondsWhoDeterminestheirValues?21FinancialMeltdownof2008BearStearns:onFriday,$80persharebookvalue;onSundaysoldfor$2pershareLehmanBrothers:Billionsinbalancesheetassets;liquidatedasnoonewantedtobuythemonagoingconcernbasis22Whatisacompanyworth?Howtowemeasureitsvalue?•Mostsimplecalculation:DiscountednetpresentvalueoffutureincomeXcapitalizationmultiplier23FirstFundamentalConclusionYoucannotestablishvaluewithoutputtingriskintothecalculation–Whatistheriskofnotachievingpredictedfuturerevenue?Howcertainareestimatesoffutureincome?–Whataretheriskfactorsthatdeterminethecapitalizationmultiplier?AhigherriskdemandsalowermultiplierHigherriskmoreuncertaintylowerpresentvalue24Note:Eachsourceofriskdrivesbusinessvalueupordown25SecondFundamentalConclusionManagementofRiskEnhancesEnterpriseValue-Riskmanagementleadstomorecertainincome-Riskreductionleadstohighervaluation26Howdoyoumanagerisk?-Eachriskhid