The Economics of Raising Capital

[libertad]

Bear Stearns, Lehman, Merrill, Shearson, EFHutton, and others held on to antiquated business models for too long, and have/are paying the price.....

The function of an investment bank is to instigate capital in its most efficient form possible in the form of debt and equity....label it...and then allow the public to transact it.....

The brokerage used to make money on simply transferring a name on a label.....Today this should cost almost nothing.....

When common stock is created, the legal side should be boiler plate cheap.....minimizing legal costs.....
The accounting should be kept very uniform and simple....which in turns keeps oversight a rather simple matter....

The same for debt.....

Ratings should be based on simple accounting......

All listings, basic fundamental information should be maintained on the web for the public.....

All stocks and debt should trade on a worldwide electronic stock exchange....for very little or almost no cost.....

Research should be in the form of unbiased information such as on Wiki....
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When an indivdual has a bank account......one should have a choice of products within the bank....and/or be able to access a centralized worldwide stock exchange.....

The software of changing name labels should be common boilerplate....

Thus individual banks would simply grant all clients access to whatever they want....be it CDs, bonds, or stocks.....

There would be nobody trying to sell any particular label......they would just be listed on the worldwide stock exchange......
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The oldtime brokerage model is basically dead...and has been for some time.....

Indexing serves most clients better than most vehicles....far better than retail/brokerage situations as a whole....
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Thus the writing is already on the wall......

The future is now all about big banks with clients that have electronic access to bonds and stocks......

Volume is the name of the game.....

Also of paramount importance is the elimination of the SEC/Legal largesse in its current form....in that it has interest in maintaining high paying jobs on the crossover corporate side, thereby wanting vagueness and complexity....much like a divorce lawyer wants a couple to fight because it just means more fees.....a better more efficient system needs to abort the current SEC/Corporate job crossover approach.......just too costly to efficient capital.....

Also, the idea of third tier assets has to be eliminated......This vague asset group is exactly what has provided the fat commissions and fees....and funny money bonuses....which fell like a house of cards.....all because of their vagueness......

All assets on a big brokerage sheet must be publicly visual and tradable.....The derivative game must be minimized....as it is just another house of cards.....

The bond/stock asset base needs to become publicly visual and trade-able....with anybody that has money able to transact the labels for very little to no cost.....

 

[matgallis]

You could have summed your entire post up with more transparency.

If banks came out tomorrow and opened their books up to the public, the entire financial market would collapse.

 

[libertad]

You could have summed your entire post up with more transparency

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Exactly right....

But there is a little more to it.....

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There are few businesses that have changed more ...because of the internet....

What it further means is to take advantage of it.....

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For example....

Let's say an individual normally buys CDs....but pulls up the internet and sees that there are other bonds that are more competitive....and with a couple of mouse clicks...owns them...
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Let's take it another step....

An individual is wary of CDs in one particular currency.....so he just chooses another currency......

Let's take it another step...

Any individual in the world pulls up any of the world's central bank offerings...or any bank's offerings....and with a couple of mouse clicks , buys whatever they desire......

Let's take it another step....
A company like BATS....just a bunch of computer banks open a singular live stream....that connects all exchanges....and with a couple of clicks....buys any stock in any country...in any currency......

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So there is plenty of work to do....which is basically to create debt and stock instruments in any country in any currency....and give anyone that has a true universal account that can be opened at any bank, a true window to the all the world's financial instruments....
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For far too long...brokerage firms have slanted to the gray and the vague to make a dollar....and look where it got them....
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Plenty of work to do...that is truly transparent and helpful.....

Crooks may win at the beginning and even the middle...but will always lose at the end.....

 

[black diamond]

Quote from libertad:


Also, the idea of third tier assets has to be eliminated......This vague asset group is exactly what has provided the fat commissions and fees....and funny money bonuses....which fell like a house of cards.....all because of their vagueness......

All assets on a big brokerage sheet must be publicly visual and tradable.....The derivative game must be minimized....as it is just another house of cards.....

I don't get this part - are you saying non-standard assets shouldn't exist, shouldn't be traded, or shouldn't be held by certain types of financial institutions? Or are you saying tier 3 disclosures are not needed?

The part of this that seems problematic is that a lot of our economy is tier 3 assets - I think any loan a bank makes that does not fall into one of the narrow categories that trade in liquid markets is tier 3. It does not mean crappy, it just means non-standard and difficult to value. Of course some of these are crappy and it is hard to tell which ones, but it would also be hard to prevent these from being created without starving some productive parts of the economy of capital.

So who should fund tier 3 assets? Do you think originators should have to hold them?

 

[libertad]

These are all good points .....and the major objective is liquidity and transparency.....

Usually valuation of the least liquid categories are reflected via bank stocks and debt.....and are a matter of history......

Perhaps the assets are simply categorized more clearly....and more of it would be held and managed by the local issuer...an asset based lender....

What cannot happen is another Lehman....etc....

Local debt management....not passing the buck......and outside interested parties participate in the stock, debt of the originator.....

It seems that this really should be simplified...ie local debt origination and management......the onus remains on the originator....and are rewarded by outside confidence.....

Basic rule changes are in order for asset based lending....

Ability to manage is the key...and discounted asset based lending is paramount....

The day of easy and stupid money is over.......

Ie VC money.....Do you really think that retail has honest shots or just pass ons with a vig.....

Where one wants to go is not to perfect....but to further legitimize the raising of capital.......

A large bank with true universal accounts....with further simplified asset risk and categorization....

And via the internet a far better educated trader/investor.......etc...etc....

The future is extraordinarily bright because of a better overall understanding by traders/investors in general....

Amen...the internet.....