(2008-10-16) Haque Equity Vs Debt

Umair Haque raises some interesting throughts on investment markets in light of the Credit Crisis 2008. The dirty secret of the global financial system - and the credit crunch that broke it - is that equity is an increasingly costly and inefficient mechanism for organizing corporate governance... To rebalance the value equation of debt and equity (Capital Market), our challenge is to build a financial system where equity can also add value to corporations, instead of being simply a burdensome tax managers reluctantly pay to access capital. To do that, we have to reduce and reverse the costs that make equity relatively unattractive in the first place. That means better mechanisms for managers to communicate information to markets... That also means reducing the costs of negotiating and bargaining between managers and shareholders... Innovators who can, for example, renew obsolete industrial era DNA by reconceiving today's toxic relationship between managers and investors will be able to evade and reverse the costs partially fuelling the macro crisis, and discover new sources of advantage built on more liquid, transparent relationships between investors and managers.