(Community Matters) at Economist.com a forum commenting on Alan Greenspan’s recent article about the economic meltdown and lack of confidence in the markets. Several leading economists weigh in.
Prof. Luigi Zingales, University of Chicago: if the market has a fault, it is not that it is irrationally spooked today, but that it was irrationally complacent in the past . . . .
Also, apologies to those holding bonds & preferred stock in banks, but I really like the idea of forcing the conversion of these into equity rather than additional taxpayer funded capital injections.
I don’t know that we’re focused enough on decreasing the overall risk of portfolios – whether banks, corporate or individuals’. Nor, do I know how we could. Guranteed floors feels like price controls. TARP was to have effected this by purchasing the distressed financial assets but took a different approach. I think it’s too early to say whether or not this has been the right or wrong decision.
Entrepreneurs & portfolio managers understand the shift in risk profiles that have resulted in assets previously seen as less risky, now being considered risky – and thus banks, VCs and angels being less willing to allocate more monies to startups and pre-profitability enterprises.
I’ve been thinking a lot about the portfolio of the CDFI I chaired for three years and on which board of directors I continue to serve. We probably have 80 loans (gosh, this could be an old number) outstanding to mostly minority and women entrepreneurs creating jobs and wealth in low income communities. These companies are by definition under capitalized (if they weren’t they could have obtained traditional funding and we wouldn’t have extended credit). What is our responsibility to these borrowers in today’s market? Obviously, to help them make the best decisions for their stakeholders while protecting PeopleFund’s capital. If their balance sheets and operations can’t withstand a prolonged economic downturn or aren’t positioned to participate in the upcoming economic stimulus package, then to either 1) help right this situation or 2) create a plan that minimizes their, our and other stakeholders’ losses.
Community Matters 