The U.S. has historically kept the financial sector in check through a combination of sound principles and serendipitous decisions. But as the financial system gained strength in recent years, it also gained political influence. In the last decade, it has become too concentrated and too powerful, which has damaged not only the economy but the financial sector itself.
How did it happen? read more on Bloomberg
Keywords: TBTF, Financial Policy
.... "Standard & Poor's estimates that companies in Europe, the US and the major Asian economies require a combination of refinancing and new money to fund growth over the next four years of between $43 trillion and $46 trillion. The wall of maturing debt is unprecedented, raising the prospect of further, extreme difficulties in credit markets."
Keywords: Corporate Debt, Corporate Refinancing
Asian authorities were understandably smug in the aftermath of the financial crisis of 2008-2009. Growth in the region slowed sharply, as might be expected of export-led economies confronted with the sharpest collapse in global trade since the 1930’s. But, with the notable exception of Japan, which suffered its deepest recession of the modern era, Asia came through an extraordinarily tough period in excellent shape.
That was then. For the second time in less than four years, Asia is being hit with a major external demand shock. read more
Keywords: Asia, Europe, Contagion
Keywords: Government, Government Intervention
The spread between Spanish and German 10-year debt reached new euro-era highs: see chart on FT Alphaville
Keywords: Spain, Germany, 10-year Debt Spread
Few investors are more bullish these days than public pension funds.
While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k) balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul, a practice that Mayor Michael R. Bloomberg recently called “indefensible.” read more
Keywords: Pension Funds, Projected Rate of Return
Grilli, Luca and Murtinu, Samuele, Government, Venture Capital and the Growth of European High-Tech Start-Ups: A Firm-Level Panel Data Analysis (May 25, 2012). Available at SSRN: http://ssrn.com/abstract=2066867
"Using an European Union-sponsored new firm-level longitudinal dataset, we assess the impact of government-managed (GVC) and independent venture capital (IVC) funds on the sales and employee growth of European high-tech ventures. Our results indicate that the main statistically robust and economically relevant positive effect is exerted by IVC on firm sales growth. Conversely, the impact of GVC appears most of the time negligible. We also find a positive and statistically significant impact of IVC-GVC syndicates on firm sales growth only if leaded by IVC investors. Our results remain stable after controlling for endogeneity, survivorship bias, reverse causality and anticipation effects." Source: SSRN
Keywords: Venture Capital, Firm Growth
Several years after the global financial crisis, the fierce debate over regulation continues to be driven by strong beliefs -- largely uninformed ones -- rather than hard facts. read more on Bloomberg
Keywords: Financial Regulation, Financial Crisis
Morgan Housel says it clearly in the Motley Fool:
Stop me if you've heard this one.
Thousands of largely novice investors line up for what's been billed as "the opportunity of a lifetime" to buy a "can't-miss" investment destined for easy gains. Pundits take position and say it's worth buying at "any price." People whisper in anticipation over how much they'll make. Fifty percent? Double their money? More?
In the end, the floor drops out and they're left with hefty losses -- totally predictable losses. Furious investors want answers. What went wrong, they ask? The answer is usually complicated, but has a common denominator: You overpaid. Fell for the hype. Gambled and lost. It happens. read more on The Motley Fool
Keywords: Facebook IPO, Retail Investor's Losses in Facebook IPO
If you gamble you should just know some of the basic rules and common practices.
Keywords: Wealth of Nations, Economic Prosperity
The bashing of Mitt Romney's entrepreneurial role by Obama election team members is in fact not justified, looking at the Administration's performance with public money venture investments:
Despite a growing backlash from his fellow Democrats, President Obama has doubled down on his attacks on Mitt Romney's tenure at Bain Capital. But the strategy could backfire in ways Obama has not anticipated.
After all, if Romney's record in private equity is fair game, then so is Obama's record in public equity — and that record is not pretty.
Since taking office, Obama has invested billions of taxpayer dollars in private businesses, including as part of his stimulus spending bill. Many of those investments have turned out to be unmitigated disasters — leaving in their wake bankruptcies, layoffs, criminal investigations and taxpayers on the hook for billions. Consider a few examples: read more on Investors.com
Keywords: Private Equity, Public Venture Investments
Keywords: Education, Skills
"There is significant concern among policymakers about the health of the Initial Public Offering (IPO) market. From 1980–2000, an average of 298 domestic operating companies went public in the United States each year, but from 2001–2011, the number of new listings fell to an average of only ninety per year.1 Despite the acknowledged importance of stock markets in raising capital for newly listed firms, there has been surprisingly little research examining the impact of these newly listed entrepreneurial firms on the U.S. economy in terms of revenues or employment. This report examines the employment and revenue growth performance of all domestic operating companies undertaking an IPO on American markets from June 1996, when the SEC’s EDGAR site started making IPO prospectuses available online, through 2010. During this period, according to our definitions, 2,766 domestic operating companies went public. These 2,766 companies employed 5.062 million people prior to going public and 7.334 million in 2010, an increase of 2.272 million employees, or 45 percent. This increase in post-IPO employment works out to 822 jobs added per firm. Note that, in contrast to the conventional wisdom, most of the jobs were created prior to the IPO. In dollars of 2011 purchasing power, in the aggregate these 2,766 companies had $1.32 trillion in annual sales in the year before going public, and $2.58 trillion in sales in fiscal 2010, a 96 percent increase. Inflation-adjusted revenue grew faster than employment due to high productivity growth. The average company going public raised $162 million in inflation-adjusted proceeds, not including an additional $27 million raised by selling shareholders. Since the average company going public created 822 jobs after the IPO, on average every job required an investment of approximately $200,000. In addition to reporting the employment and revenue growth for all companies going public, we categorize firms into emerging growth companies (“EGCs”), which we define as domestic operating companies less than thirty years old that are not spinoffs, rollups, buyouts, or demutualizations; and other companies (from here on, “others”).2 The aggregate employment for the subset of 1,700 EGCs increased from 651,000 employees prior to the IPO to 1.666 million employees in 2010, a 156 percent increase. For these EGCs, aggregate pre-IPO annual sales increased from an inflation-adjusted $134 billion to $481 billion in 2010, a 259 percent increase. Among the EGCs, growth was not uniform. There were standout performers, particularly in technology, such as Amazon, eBay, and Google, and in retail, such as Texas Roadhouse, that are responsible for outsized returns. The 1,066 other non-EGC IPOs, which are frequently larger companies, are responsible for employing more than 5.6 million people and generating $2.1 trillion in annual revenue in 2010, although most of their employees were hired prior to going public. We also examine the fate of all of the EGCs going public. Ten years after the IPO, only 29 percent of the EGCs from 1996–2000 remained as independent public companies. Of those that do not survive, being acquired is much more common than going bankrupt. The survival rates, however, differ markedly by industrial sector. In geographic terms, there is an extraordinary concentration of firms making IPOs in certain states. California is the home to 46 percent of all EGC IPOs, while Massachusetts has the highest per-capita number of EGC IPOs. While New York and Texas also have significant numbers of EGC IPOs, on a per-inhabitant basis they are not as impressive. Within states, there are regions—in particular, the San Francisco Bay Area and Greater Boston—that exhibit extremely high concentrations of EGC IPOs. While aggregate statistics reporting revenue or employment increases provide valuable insights, there are particular firms in our population, such as Amazon, eBay, and Google, that are examples of Schumpeterian innovation, whereby a firm or group of firms can lead reorganizations of entire economic sectors. Their influence cannot be reduced to their internal performance." Source: Kauffman Report linked to above
Keywords: Initial Public Offering, IPO, IPO Performance, Job Growth after IPO
How right he was!
Keywords: Monetary Policy, Printing Money, Taxation
..."Today, graduates want to work at the next Facebook, and the company’s current share price won’t change that one bit. Today, talented young people want to be in Silicon Valley or Silicon Alley or the next Hewlett-Packard garage. That is part of the Facebook allure, along with the dream of making the world a better place. And if they can get rich as well, why not? One day, just maybe, the same will be said of the financial world. Last week, the two worlds met, and it wasn’t a happy meeting. Facebook has a lot to learn and much to prove, but not nearly as much as Wall Street." Source: The Daily Beast
Keywords: Facebook, Wall Street
read Ezra Klein's interpretation here:
Keywords: Mitt Romney, Barack Obama, Bain Capital
..."However, I was also concerned that the Obama ads, while narrowly accurate, might be seen to portray Bain Capital (and implicitly, private equity) in an ugly light because a few of the companies the firm invested in went bankrupt while Bain Capital still made money
On Monday, Mr. Obama struck the right balance, emphasizing that he wasn’t attacking private equity but was questioning Mitt Romney’s Bain Capital credentials to be the job creator in chief.
That’s fair, particularly because Mr. Romney himself has been foolishly reweaving history to claim, as recently as last week, that he helped create 100,000 jobs during his time at Bain." read the article in The New York Times
Keywords: Private Equity, Private Equity Job Creation
Is China poised to become the world’s next superpower? This question is increasingly asked as China’s economic growth surges ahead at more than 8% a year, while the developed world remains mired in recession or near-recession. China is already the world’s second largest economy, and will be the largest in 2017. And its military spending is racing ahead of its GDP growth. read more
Keywords: China, Chinese Economy
"This paper asks whether increases in government spending stimulate private activity. The first part of the paper studies private spending. Using a variety of identification methods and samples, I find that in most cases private spending falls significantly in response to an increase in government spending. These results imply that the average GDP multiplier lies below unity. In order to determine whether concurrent increases in tax rates dampen the spending multiplier, I use two different methods to adjust for tax effects. Neither method suggests significant effects of current tax rate changes on the spending multiplier. In the second part of the paper, I explore the effects of government spending on labor markets. I find that increases in government spending lower unemployment. Most specifications and samples imply, however, that virtually all of the effect is through an increase in government employment, not private employment. I thus conclude that on balance government spending does not appear to stimulate private activity."
Keywords: Government Spending, Private Activity
I also like this: "If you have to spend all your time as a speculator you do not have time for anything else"
Kewords: Monetary Policy, Speculation
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