Current financial crisis in historical perspective

Paul Frentrop

Head of Corporate Governance

APG Asset Management

Many upheavals

The crash of 1720

Twentieth Century

Political models

Post World War 2

• US: The corporation

Convince• Western Europe:

Social Democracy

Consent• USSR:

State planning

Command

US solution: The corporation

• Galbraight ‘American Capitalism’ (1962): Corporation is best vehicle for technical development.

• Example: 1955 General Motors first company with over 1 bln profit.

European solution:government

1989: The end of history

1989: The beginning of leverage

2003:

Largest corporate debt offering US history: $ 18 bln to fund GM pensionplan

2005:

Plan+13 % (S&P 4.9 %):

$ 6 bln overfunded

2009:

Underfunded by $ 12.7 billion

The sky is the limit

Current crisis: double whammy

1) Stock market crisis not much different from earlier crises.

2) Credit market crisis result of (failed) regulation of counterparty risk, a.o:- securitized debt ‘held for trading’- special vehicles ‘off balance’- reliance on ‘ratings’

The future of capitalism

Adam Smith: “ Little else is

required to carry a state to the highest degree of opulence

but peace, easy taxes and a tolerable administration

of justice.” (1776)

The future of capitalism

Milton Friedman: “ Competitive capitalism promotes political freedom because it

separates economic power from political power and

in this way enables

the one to offset the

other.” (1982)

Is there a third way?

• Shareholder model under question?

• Joint stock company quite robust.

• Listed equity not yet proven to be so robust.

• The challenge is: Corporate governance

Commemorating Isaac Le Maire

and the first

recorded expression of investor advocacy

hareholder Rights at 400S