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Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
Wac Ncc041510 Global Finance,Uncharted Waters
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Wac Ncc041510 Global Finance,Uncharted Waters

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  • Paul Kodrosky
  • Transcript

    • 1. Global Finance in Uncharted Waters
      World Affairs Council – North County Chapter
      April 15, 2010
      1
    • 2. Capital Allocation
      Transmission between Savers & Borrowers
      Match Investment with Opportunity
      Manage Financial Risk (example: insurance)(loans)
      Systemic Liquidity: Trading & Speculation
      Payments Processing
      2
      Purpose of the Financial System
    • 3. The Debt Supercycle
      Borrowing as a Way of Life
      borne of
      Financial Incentives and American Exuberance
      3
    • 4. 4
      Total Credit Market Debt as a % of US GDP
    • 5. 5
    • 6. 6
    • 7. 7
    • 8. 8
    • 9. 9
    • 10. 10
    • 11. 11
    • 12. 12
      Falling Interest Rates Encouraged Borrowing
    • 13. 13
    • 14. 14
    • 15. The Shadow Banking System
      Non-Bank Finance
      15
    • 16. 16
      Securitization
    • 17. 17
      Traditional Lending
    • 18. 18
    • 19. 19
    • 20. Increase Credit Flows (Earnings) without Increasing Leverage
      Manage Risk by Selling Risk
      Insurance Companies
      Foreign Banks
      Special Investment Vehicles (commercial paper)(borrow short, invest long)
      Warehouse hi-yield assets
      Repo deals
      20
      Why Securitize?
    • 21. Failed Regulation
      Regulatory Arbitrage
      Collapse of Lending Standards
      Fraud (borrowers and lenders)
      Agency conflicts
      Crisis of the Quants
      Move to California…
      21
      Problems
    • 22. Credit Default Swaps
      Useful financial tool
      or
      The Latest Trick in the Casino
      22
    • 23. Invented by JP Morgan 1994
      Is a bilateral contract between the buyer and seller of protection
      Swap (buy/sell) risk exposure
      The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults (1-10yrs; 5yrs)
      A holder of a bond may “buy protection” to hedge its risk of default
      AIG
      23
      Defining Credit Default Swaps
    • 24. 24
    • 25. “Naked credit default swaps” (no debt holding) allow traders to speculate (long or short)
      Constitutes most of the market in CDS
      Counterparty Risk (AIG dilemma)
      ABS, SIVs
      25
      Speculating with CDS
    • 26. 26
      Derivatives
    • 27. 27
    • 28. Regulatory Reform
      Move OTC derivatives trade onto Exchanges
      28
      Regulation
    • 29. Sovereign Debt
      Endgame
      of the
      Debt Supercycle
      29
    • 30. 30
    • 31. 31
      US Federal Debt: 1940-2010
    • 32. 32
    • 33. 33
    • 34. 34
    • 35. 35
    • 36. 36
      Japan - National Debt
    • 37. 37
    • 38. State & Local Govt
      Pensions
      Infrastructure
      news032910GrowingStateDebtWoesUS
      recently recalculated the value of the 50 states’ pension obligations the way the bond markets value debt. They put the number at $5.17 trillion.
      After the $1.94 trillion set aside in state pension funds was subtracted, there was a gap of $3.23 trillion — more than three times the amount the states owe their bondholders.
      38
    • 39. 39
    • 40. 40
    • 41. Debt to GDP
      HOUSEHOLD
      Netherlands – 107%
      Spain – 84%
      Italy – 34%
      CORPORATE
      41
    • 42. 42
    • 43. 43
    • 44. Iceland
      Greece
      PIIGS
      United Kingdom
      Japan
      United States
      44
    • 45. Where Do We Go From Here?
      Cyclical
      and
      Structural Outlook
      45
    • 46. Global Economic Recovery
      Partial Decoupling – China as Driver (India)
      Strong Monetary Stimulus; Low Interest Rates
      Strong Fiscal Stimulus; Large Budget Deficits
      Inflation will appear first at the margin
      Deflationary Tendencies in Developed World
      Jobless Recovery
      Strong Productivity Growth
      46
      Cyclical Outlook
    • 47. Property Sector, Domestic Debt – China
      Industrial Overcapacity - China
      Inflation
      Interest Rates
      Japan
      Europe, PIIGS, UK, (The Euro)
      Household Debt US
      Sovereign Debt US (Unfunded Liabilities)
      Trade Deficit US
      Unemployment
      Geopolitical Risk
      47
      Structural Outlook - Global Risks
    • 48. Low-yield Environment
      Negative Real Interest Rates
      Volatility Indexes Low
      Incentive to Take Risk
      Options Trading
      Chasing Yield
      Chasing Returns
      “Risk-On”
      Equity Melt-up
      Cash Earns Trash
      48
      Financial Market Environment
    • 49. North vs. South
      Monetary straightjacket
      Unable to use currency revaluations to adjust cost structures
      Productivity ($50.86 vs. $35.80)
      Finland, Gr, Netherlands in top 10 competitive
      Inadequate political union
      German court Karlsruhe
      Netherlands
      49
      The Euro Crisis
    • 50. 50
    • 51. 51

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