One of the important financial economists writing today is Mohamed El-Erian, who grew up as the son of an Egyptian diplomat and was the deputy director of the IMF for three years in the 1990s. He is quite well known to folks like me, who look to his analyses to guide our work reporting day to day events. But he is not well known at all to the "general public," where that term is taken to mean the sort of people who know that Paul Krugman or Robert Shiller are important economists. I'm old enough to remember when Friedman and Galbraith were the economists whose name came to the tongue of many non-economists. They both passed away in the first decade of the new millennium, and the public attention has done what it does ... it has passed on. I may say more about El-Erian's non-celebrity work soon. For now, I will only lay down that he has recently said that on June 24, "The most notable price action in US markets" was the fall by 9 basis points of US gover...
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Last week I said a few words about private equity and private debt. My interest was in the investment funds that go by those two names. My chief point was that there is a trend that consists of mergers between PE and PD at one extreme, mere "alliances" among dyads of a PD and a PE fund on the other extreme. Creative contracting can create a lot of way-stations between those two extremes, but I won't go into that today. What I'd like to do is to offer an answer to an obvious question: what does this matter? To those of you who aren't in the asset-management world, nor yet in the world of reporting thereon: should you care? Well,you might want to care IF you worry about efficiencies in either of the corresponding public markets. If those markets (stock exchanges, and the bond trading of government issuances or of the issuances of companies that have equity on stock exchanges) were as efficient as they could be there wouldn't be a pressing need for vigorous pri...
I remember taking a Corporate Finance course in law school. I retained a few things therefrom, for example, a sense of the sharp legal distinction between the rights of debtors on the one hand and the rights of owners of equity on the other. There was some material too about friendly versus unfriendly takeovers, and the ways in which the latter might be resisted by the target company's board. But what I remember most vividly about the course was a discussion of the Miller-Modigliani theorem. This is the hypothesis proposed by the two named economists, Merton H. Miller and Franco Modigliani, that a rational corporate management will be indifferent as to whether it raises money by issuing debt or by issuing new stock. The debt/equity distinction, as important as it was in law, was trivial in economics. Or so the economists said. [ Investopedia contains a fine article explaining the basics.] I was very struck by this M/M theorem, and not just be...