the current financial crisis in historical perspective by
TRANSCRIPT
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Current financial crisis in historical perspective
Paul Frentrop
Head of Corporate Governance
APG Asset Management
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Many upheavals
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The crash of 1720
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Political models
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Post World War 2
• US: The corporation
Convince• Western Europe:
Social Democracy
Consent• USSR:
State planning
Command
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US solution: The corporation
• Galbraight ‘American Capitalism’ (1962): Corporation is best vehicle for technical development.
• Example: 1955 General Motors first company with over 1 bln profit.
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European solution:government
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1989: The end of history
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1989: The beginning of leverage
2003:
Largest corporate debt offering US history: $ 18 bln to fund GM pensionplan
2005:
Plan+13 % (S&P 4.9 %):
$ 6 bln overfunded
2009:
Underfunded by $ 12.7 billion
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The sky is the limit
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Current crisis: double whammy
1) Stock market crisis not much different from earlier crises.
2) Credit market crisis result of (failed) regulation of counterparty risk, a.o:- securitized debt ‘held for trading’- special vehicles ‘off balance’- reliance on ‘ratings’
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The future of capitalism
Adam Smith: “ Little else is
required to carry a state to the highest degree of opulence
but peace, easy taxes and a tolerable administration
of justice.” (1776)
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The future of capitalism
Milton Friedman: “ Competitive capitalism promotes political freedom because it
separates economic power from political power and
in this way enables
the one to offset the
other.” (1982)
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Is there a third way?
• Shareholder model under question?
• Joint stock company quite robust.
• Listed equity not yet proven to be so robust.
• The challenge is: Corporate governance
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Commemorating Isaac Le Maire
and the first
recorded expression of investor advocacy
hareholder Rights at 400S