the current financial crisis in historical perspective by

Current financial crisis in historical perspective

Paul Frentrop

Head of Corporate Governance

APG Asset Management

Many upheavals

The crash of 1720

Twentieth Century

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