A VC: Can You Manage A Global Economy One Nation At A Time?
danrua
· 1 year ago
After reading your summation "I think it's going to take ... global regulation" (assuming you mean regulation designed/enforced by the global community, of which the US is a minority), I'm curious what the "or, else" extension is to that thought.
What do you fear happens if different nations/markets must compete for customers/investment based upon the quality of their chosen regulations & regulators? I agree a global approach and coordination is valuable, but why is global regulation (and, presumably, enforcement by some global entity) necessary for US citizens to prosper?
druce
· 1 year ago
If the SEC and the Fed are good ideas or necessities... it would seem to follow that in a globalized economy so would common global regulations and a lender of last resort.
The alternative could be chronic financial crisis and capital controls even in advanced economies.
if markets let things like this happen, hard to see how you prevent it without everyone agreeing on common regulations on things like leverage ratios. (I wonder where was Basel in all this.)
of course before 1929 everyone said you could never have another panic because now you had the Fed... after they said it couldn't happen again because you had the Fed and the SEC, etc., etc.
druce
· 1 year ago
(you could even say this country was founded on the idea of not wanting foreigners to tell us what to do or how to do it)
Terry Heaton
· 1 year ago
Kind of like asking all the TV stations in a market to work together to assure they have a future.
Krassen Dimitrov
· 1 year ago
Fred, I meant to say this the first time you posted the graph: I am afraid that the correlation only holds over the short-time frame of this financial crisis, and then structural differences will manifest in divergence.
Think about it this way: we have the equivalent of hurricane-strength wind blowing over a meadow. All the plants and flowers are bended to the ground. However, once the wind blows over, some plants rise back and some are irreparably crushed.
From an economic perspective, Australia (where I live) has been as hard hit as the rest of the world. However, we have budget surplus, no federal debt and high interest rates. Our central bank and government have a full arsenal of both monetary and fiscal weapons to use. Thus IMF is projecting a slowdown to 2% GDP growth, as opposed to negative growth in America.
Cheers,
fredwilson
· 1 year ago
Sounds like its time to buy Australia
How would you best do that?
andyswan
· 1 year ago
AUS Dollar vs US dollar. 45% off sale ends soon!
Krassen Dimitrov
· 1 year ago
Ha! How bad are things on Wall Street? So bad that professional venture capitalists seek investment advice from blog commenters.:)))
There are various ways, however, as Andy said, the currency offers a very compelling trade. It's been killed because of the flight to yen and USD, however the fundamentals do not support this rate.
I personally do not trade, however, liquidated all my US assets and moved to AUD in the past month...
slowblogger
· 1 year ago
Can You Manage A Global Economy One Nation At A Time? Maybe not. But that does not mean a centralized global regulation. I used to have the same idea, but changed my mind. If a perfect global regulatory body can be set up, which will have very little regulation, I would like it. But everyone has a different 'perfect' regulation from mine, and so the result will be a compromised and averaged regulation, which will be a lot more than my ideal.
So, realistically I prefer some countries having more freedom than others. A more diversified countries from regulation points of views. Centralization almost always reduces choice.
sanjay mehra
· 1 year ago
Fred, A global regulatory system sounds like a grand idea, but it would turn out to be like the EU, an authority without the necessary checks and balances of responsibility. That in the long run is not such a great idea. Maybe a unified approach without the creation of a global institution would probably work better in the long run. Dont forget, this recession and turmoil is only going to last a maximum of 18-24 months. What after that?
jonathan
· 1 year ago
Not that a global regulatory scheme isn't a good idea, it simply isn't achievable. Remember the old joke about a camel being a horse designed by a committee? That is what global regulation would end up being. I would have two (perhaps) more modest objectives. If you look at the UK financial regulations, the FSA emphasizes function over form. US regulation goes the other way, allowing all sorts of games to be played. Neither system is perfect, but function over form is more transparent. Maybe we could all get going the same direction with the simple motto, “if it walks and talks like a duck, it is a duck”. A consistent function over form approach on a global basis would reduce (the opportunity to create) opacity. Second, international accounting standards should be imposed. If you can’t compare the numbers, they are useless.
fredwilson
· 1 year ago
Great points and great comment. Thanks
andyswan
· 1 year ago
The world, and especially the USA need less regulation, not more. We need out of the United Nations, not to enter a financial version of the same failed concept.
Free market policies, free trade and feverish competition will continue to produce world-wide economic gains...and yes, the occasional nasty downturn that always brings out the drumbeat for more central planning. Apparently there are a few really smart people out there that could run the economy better than free markets can....we just haven't found them yet.
fredwilson
· 1 year ago
I'm not with you on this one andy
The free market brought a lot of what we are facing on
Even a casino has rules
andyswan
· 1 year ago
Yes, and the only one that wins is the rule-maker.
Let's hope Putin, Chavez, Jintao and the rest of the world leaders have our best interest at heart when they are setting up these global rules.
"First order of business....this global financial enforcer is going to need some revenues to be able to properly enforce our rules. I suggest a 'tax' on member nations. Now....what would be FAIR?"
Andy Freeman
· 1 year ago
> The free market brought a lot of what we are facing on
Fannie and Freddie were "free market"? Punishing banks that didn't do subprime loans is "free market"?
The problem with financial regulation is that it concentrates risk. While there may be some reduction in the rate of failure, there's a larger increase in the cost of failure. Since the "expected value" is the product, and that increases, that's a bad thing. Moreover, even if the expected value went down somewhat, there's a threshold effect where larger costs are simply unacceptable. (Going through 0 is bad.)
We're much better off with pretty much continuous small failures. Think a gaggle of unreliable machines vs a small number of "highly reliable" ones.
slowblogger
· 1 year ago
I believe you mean the current (past?) free market is not perfect and should be made better, which I agree.
The free market made it possible for you (and the entrepreneurs that you have invested in) to have your business success. That is the essence, not the big bureaucratic companies.
Krassen Dimitrov
· 1 year ago
Wait... "regulating" the economy and "running" it are two different things... You need rules that encourage productive behaviour and discourage parasitism, that's for sure. Within these rules, let the market be free and the most productive win, and keep the governing body out of it. An example of "running" the economy is when the governing body starts picking winners, and that is scary, indeed...
Steven Kane
· 1 year ago
you make total sense
and like a true member of the far center (aka extreme moderates), just when you are veering hard left, you veer hard right
protectionism has been and is a left-ish view, and a core principle of the democratic party (other than President Clintons bipartian selling of NAFTA)
sure enough during the primary, all the democrats inclkduing president-elect obama tlked big about undoing free trde and multi-nationmal regulatory agreements and replacing them with protectionism (heck, obama and clinton even threatened canada!)
any case, with all this in mind, where do you come out on saving or not saving detroit?
if the usa saves detroit, won't all other nations protect their own homegrown industries no matter how deletrious the effect is on the world economy (e.g. agricultuiral subsifdies, fixed currency rates and all)?
but if we don't save detroit, aren't we making such a huge sacrifice for the larger common good that we risk irreparably harming ourselves?
given the tenor of the times, while philosphically i favor the former, as a practical matter, today, i favor the ltter. save detroit.
your thoughts?
slowblogger
· 1 year ago
My order of preference, if this was the case in Korea: 1. Let the market take care. Either some buyers will acquire the auto companies and make it better. Or the market may decide to divide the company and sell the assets (people seem to call this liquidate). 2. Leave the failing businesses fail, but help directly the people who become financially in trouble. You don't have to pretend that the sick businesses are healthy, to help the people (if that is your true goal). 3. Bail out.
fredwilson
· 1 year ago
I don't want to save detroit
I want to save our car manufacturing capabilities though
I think we should bust up detroit, make it smaller, leaner, sell off the parts to PE or other car companies
Basically a managed bankrutpcy/sale/reorg process
Noah David Simon
· 1 year ago
http://delicious.com/simonstudio/G.M. if GM goes under that we lose some great American "Research and Development" to another country. I hope they can pass legislation that allows the dead structure to fall without taking down a bigger structure with it. When the world trade center fell... it didn't take down a lot of buildings with it. I hope the good stuff can be salvaged in America. What frightens me is the media (aka those NYTIMES dudes that elected Obama) seem to be in league with Toyoto and Volkeswagon. They want GM badly... and we should take care to insure that the jem of Lithium Ion batteries doesn't get outside our borders or we will be at ground zero
matthewklein
· 1 year ago
Hey, great idea! We have lots of examples of government and bureaucracies doing excellent jobs when they are unaccountable to the people they regulate. So why not create an even bigger supra-national regulator which is beholden to "everyone" in the entire world (meaning no one in particular) and which has the authority to regulate Americans, while we Americans simultaneously decline the protection of our country's norms, laws, courts, and rights.
The power of governments are massive and terrifying enough -- why would we want to create one over which we have no veto, and one from which we have no escape?
Steven Kane
· 1 year ago
interesting NYTimes piece today on Google in Europe that illustrates some of the challenges of multi-national regulation -- basically that different countries have different concerns and ideals that are baked pretty deeply into their cultures, e.g. privacy
my main argument with the left is that regulation can not contain business in a global economy. I would be all for it on an international level as long as (a) it were truly international and not something like Kyoto that left out developing countries. (b) did not effect territorial disputes that should not be policed by larger bodies causing the tyranny that the people who set up our Republican American values warned us about. you remember the founding fathers? they were terrified of a centralized global infrastructure. I would be for standardizing health care on a global level however. That makes sense and would not effect negotiating capitalism.
Noah David Simon
· 11 months ago
Kyoto Treaty not Oslo Treaty... yikes! I had to edit the above paragraph. It didn't make sense before. I was wondering why I didn't get any feedback
All Comments
What do you fear happens if different nations/markets must compete for customers/investment based upon the quality of their chosen regulations & regulators? I agree a global approach and coordination is valuable, but why is global regulation (and, presumably, enforcement by some global entity) necessary for US citizens to prosper?
The alternative could be chronic financial crisis and capital controls even in advanced economies.
Pretty good read on Iceland, whose banks borrowed many times the country's GDP...
http://www.google.com/search?q=ft+letter+from+i...
if markets let things like this happen, hard to see how you prevent it without everyone agreeing on common regulations on things like leverage ratios. (I wonder where was Basel in all this.)
of course before 1929 everyone said you could never have another panic because now you had the Fed... after they said it couldn't happen again because you had the Fed and the SEC, etc., etc.
I meant to say this the first time you posted the graph: I am afraid that the correlation only holds over the short-time frame of this financial crisis, and then structural differences will manifest in divergence.
Think about it this way: we have the equivalent of hurricane-strength wind blowing over a meadow. All the plants and flowers are bended to the ground. However, once the wind blows over, some plants rise back and some are irreparably crushed.
From an economic perspective, Australia (where I live) has been as hard hit as the rest of the world. However, we have budget surplus, no federal debt and high interest rates. Our central bank and government have a full arsenal of both monetary and fiscal weapons to use. Thus IMF is projecting a slowdown to 2% GDP growth, as opposed to negative growth in America.
Cheers,
How would you best do that?
How bad are things on Wall Street?
So bad that professional venture capitalists seek investment advice from blog commenters.:)))
There are various ways, however, as Andy said, the currency offers a very compelling trade. It's been killed because of the flight to yen and USD, however the fundamentals do not support this rate.
I personally do not trade, however, liquidated all my US assets and moved to AUD in the past month...
So, realistically I prefer some countries having more freedom than others. A more diversified countries from regulation points of views. Centralization almost always reduces choice.
A global regulatory system sounds like a grand idea, but it would turn out to be like the EU, an authority without the necessary checks and balances of responsibility. That in the long run is not such a great idea.
Maybe a unified approach without the creation of a global institution would probably work better in the long run. Dont forget, this recession and turmoil is only going to last a maximum of 18-24 months. What after that?
Free market policies, free trade and feverish competition will continue to produce world-wide economic gains...and yes, the occasional nasty downturn that always brings out the drumbeat for more central planning. Apparently there are a few really smart people out there that could run the economy better than free markets can....we just haven't found them yet.
The free market brought a lot of what we are facing on
Even a casino has rules
Let's hope Putin, Chavez, Jintao and the rest of the world leaders have our best interest at heart when they are setting up these global rules.
"First order of business....this global financial enforcer is going to need some revenues to be able to properly enforce our rules. I suggest a 'tax' on member nations. Now....what would be FAIR?"
Fannie and Freddie were "free market"? Punishing banks that didn't do subprime loans is "free market"?
The problem with financial regulation is that it concentrates risk. While there may be some reduction in the rate of failure, there's a larger increase in the cost of failure. Since the "expected value" is the product, and that increases, that's a bad thing. Moreover, even if the expected value went down somewhat, there's a threshold effect where larger costs are simply unacceptable. (Going through 0 is bad.)
We're much better off with pretty much continuous small failures. Think a gaggle of unreliable machines vs a small number of "highly reliable" ones.
The free market made it possible for you (and the entrepreneurs that you have invested in) to have your business success. That is the essence, not the big bureaucratic companies.
and like a true member of the far center (aka extreme moderates), just when you are veering hard left, you veer hard right
protectionism has been and is a left-ish view, and a core principle of the democratic party (other than President Clintons bipartian selling of NAFTA)
sure enough during the primary, all the democrats inclkduing president-elect obama tlked big about undoing free trde and multi-nationmal regulatory agreements and replacing them with protectionism (heck, obama and clinton even threatened canada!)
any case, with all this in mind, where do you come out on saving or not saving detroit?
if the usa saves detroit, won't all other nations protect their own homegrown industries no matter how deletrious the effect is on the world economy (e.g. agricultuiral subsifdies, fixed currency rates and all)?
but if we don't save detroit, aren't we making such a huge sacrifice for the larger common good that we risk irreparably harming ourselves?
given the tenor of the times, while philosphically i favor the former, as a practical matter, today, i favor the ltter. save detroit.
your thoughts?
1. Let the market take care. Either some buyers will acquire the auto companies and make it better. Or the market may decide to divide the company and sell the assets (people seem to call this liquidate).
2. Leave the failing businesses fail, but help directly the people who become financially in trouble. You don't have to pretend that the sick businesses are healthy, to help the people (if that is your true goal).
3. Bail out.
I want to save our car manufacturing capabilities though
I think we should bust up detroit, make it smaller, leaner, sell off the
parts to PE or other car companies
Basically a managed bankrutpcy/sale/reorg process
The power of governments are massive and terrifying enough -- why would we want to create one over which we have no veto, and one from which we have no escape?
http://bit.ly/googleeurope