Growthink Blog

Harder for Debt, and Easier for Equity

Print
Categories:

Amidst the extraordinary, mournful crisis in the financial markets these last few weeks, a few truths have become painfully evident:

  • Leverage is a far more dangerous mechanism than any probable scenario models had predicted.
  • The very ephemeral concept of public and market trust is the core asset of financial and insurance institutions. Even the slightest weakening of this trust can almost instantly cause a cascading effect – driving down asset and equity values, which in turn further erode trust and confidence.   This negative feedback loop can quickly cause panic mindsets even among the most sober and experienced Wall Street hands.
  • Financial markets and instruments – fundamentally transformed by the information technology revolution of the last 25 years – have and continue to morph at a far faster rate that both self-regulatory and government oversight bodies are equipped to handle.


From Growthink’s entrepreneurial economy perspective, a few more truths are less readily evident, but fundamentally more profound.  Quite simply, Wall Street finance has lost connection these past few years with its core purpose and intent – namely to provide intelligent advice and capital to operating companies. While significant efficiencies (and correspondingly wealth-building) can be achieved from trading platform and instrument innovation, the value of this “innovation” is vastly over-rewarded in the marketplace.   

The very fact that the most highly compensated roles in our economy over the past few years have been hedge fund managers, derivatives traders, and sub-prime mortgage hypsters points to the heart of the problem.  While these folks serve a role, for sure, the combination of their almost comically (if it were not so anger-inducing) inflated compensation structures, combined with the systemic risk to which they exposed both their fellow workers and the economy as whole, is a failure of priorities for which we are all paying the price.  

Where do we go from here?  My hope is that finance and general marketplace incentive structures revert to more wholesome, “vanilla” dynamics.  Traders are rewarded less, and company-builders rewarded more.   Capital is more difficult to come by for hedge funds, and easier to come by for entrepreneurs.   Harder for derivatives traders, and easier for scientists and engineers.   Harder for debt, and easier for equity.   

The fundamental good that can and should come out of this market cataclysm is a cleansing and a re-ordering of priorities.   Provide a milieu and an incentive structure for operating companies to access capital and grow.  And contrastingly – devalue activities that simply move capital as opposed to creating it.  


Share this article:


Davin Ferrigon says

There has been since the 1980's crash a displacement of values where the persons who can get it faster,usually profits, are rewarded greater as compared to the person who built the system or the foundation that make it possible. Noble and long-suffering work has lost just compensation, except for personal satisfaction. Its not the scientist that develops the product, its the Billy Mays that sells the product who are valued. Only in a few companies such as Apple and Google are the long-sufferers truly compensated. Everybody has a role a role, but displacement of the value of that role erodes balance. That loss of balance has produced the current economic problems
Posted at 3:48 pm

Most Popular
New Videos

"Business Plan
SHORT-CUT"

If you want to raise capital, then you need a professional business plan. This video shows you how to finish your business plan in 1 day.

CLICK HERE
to watch the video.

"The TRUTH About
Venture Capital"

Most entrepreneurs fail to raise venture capital because they make a really BIG mistake when approaching investors. And on the other hand, the entrepreneurs who get funding all have one thing in common. What makes the difference?

CLICK HERE
to watch the video.

"Brand NEW
Money Source?"

The Internet has created great opportunities for entrepreneurs. Most recently, a new online funding phenomenon allows you to quickly raise money to start your business.

CLICK HERE
to watch the video.

"Old-School Leadership
is DEAD"

"Barking orders" and other forms of intimidating followers to get things done just doesn't work any more. So how do you lead your company to success in the 21st century?

CLICK HERE
to watch the video.

Blog Authors

Jay Turo

Dave Lavinsky