Bitcoin is a new payment application available on the internet since January 2009. In a way, by virtue of its open source publication, it is similar to the World Wide Web, the hugely successful internet application of the internet that now enables so many others. Much like the WWW has redefined the way mankind produces and shares knowledge, bitcoin transforms the social code underlying money supply to bring about a new degree of economic freedom. Can it be seen as a new monetary reform vehicle?
Have you heard of Twollars yet? Maybe not, but by now you've probably heard of Facebook credits. Social networks are developing virtual currencies who could be used by hundreds of millions of consumers, with consequences whose scale we are just beginning to measure. Where will the cash flows derived from these transactions transit?
Till 2007, a large part of the global growth was fueled by leveraging and debt creation. With governments and central banks struggling to save the banks, the private debt crisis has evolved into a public debt crisis. The next ten years could be brutal. Will governments and financial institutions be able to manage the great deleveraging?
The regulation that followed in the wake of the financial crisis has only partially addressed the challenges exposed by the collapse. Restrictive measures on equity levels and liquidity requirements have been taken but have been restrained by fears over endangering the very instruments necessary to finance the fragile recovery. The need for a global framework, and a more explicit separation of market and credit risk, would complete the picture as would reinforcement in scope and power for the bodies charged with enforcing the new regime.
Traffic regulations have become more constraining as technology grows ever more sophisticated. In finance the opposite is true and progress has been measured by the suppression of previous regulatory safeguards and the complete absence of a new framework with which to replace them. To extend the analogy of the automobile it is as if whoever has the desire, can drive any vehicle while creating their own rules and according to any route. Is this the path we want to be taking?
As recently as mid-February copper prices hit an all time high of $10,157 a metric ton on the London Metal Exchange. While the market has cooled off in the intervening months the spike set off alarm bells for decision makers in government and business on how to approach overheated commodities and energy markets. Should the current climate be viewed as a passing anomaly or a permanent reality? Just how real is the threat of a shortfall?
High-speed, computer-driven trading is increasingly controlling the investment markets. Most analysts agree that it is adding liquidity and reducing trading costs for everyone. Some critics argue, however, that leaving people out of the loop, except for a few mathematicians who tinker with algorithms after the fact, has created new and still dimly understood systemic risks that pose ever greater dangers to market stability.
Mathematics, and by extension mathematicians, have been blamed for precipitating the financial crisis. Poor understanding of the nature of risk, allowed financiers to take refuge in elegant formulae they did not fully understand. In the short run, the profits were too compelling and instant for anyone to question the sustainability of a model mathematicians always said was imperfect for risk assessment. So who's to blame?
The global financial crisis is having -and will continue to have- a huge impact on private equity. For starters, bank debt to finance investments has all but evaporated and new regulation is coming into force. As such, the industry simply can't continue with business as usual. It must return to basics, with a focus on three key areas: closer partnerships with portfolio companies, stronger operational excellence, and increased transparency and reporting.
How should business leaders manage the conflicting logic of the industrial and the financial worlds when running an industrial company? Bertrand Collomb, who headed the cement giant Lafarge for 18 years, explains the dilemma this poses from his personal experience.
Belief in everlasting growth, acceptance of financial models with little basis in reality, faith in global irenism -a pacific, consensus approach to world conflict- that ignores the reality of nation-states and public goods : these are all ideas that have been radically undermined by the current crisis. It is time to rediscover, and perhaps regain, our identity.
We can build better financial models if we acquire an understanding (and a subtle one at that) of neuroscientific advances in how brains make decisions. Neuroeconomics, or neurofinance as it is also called, examines why we make the financial choices we do by looking at activity in the brain. Recent discoveries about how we calculate risk and reward indicate that our brain may be able to make financial predictions even when we have no knowledge of finance. Understanding why this is will improve the theory of financial decisionmaking.
In an interview with ParisTech Review, Claude Bébéar, the honorary chairman and former president of AXA, explains why he believes that financial crises, like the current meltdown triggered by problems in the mortgage and credit markets, are unavoidable because of basic human nature. He also argues for broad reforms in employee-compensations systems, including the remuneration of top executives. And he discusses his provocative views on a range of issues - shareholder voting rights and dividends, the speculative practice of short selling, leveraged buyouts, tax havens, and the nationalization of banks.
