the current financial crisis in historical perspective by
TRANSCRIPT
Current financial crisis in historical perspective
Paul Frentrop
Head of Corporate Governance
APG Asset Management
Many upheavals
The crash of 1720
Political models
Post World War 2
• US: The corporation
Convince• Western Europe:
Social Democracy
Consent• USSR:
State planning
Command
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.
European solution:government
1989: The end of history
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
The sky is the limit
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’
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)
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)
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
Commemorating Isaac Le Maire
and the first
recorded expression of investor advocacy
hareholder Rights at 400S