07 Nov Financial Market Tectonics

Last night, I was hosted by Andrew Chi Fai Chan, Director of the EMBA program at Chinese University of Hong Kong (CUHK) and civic leader, at the downtown campus, where I had the privilege of speaking to a mix of current students and alumni about the structural deficits of the financial system.

A marketing expert, Dr. Chan is famous for creating fluid situations where Hong Kong’s leaders can speak to students about themselves and their work. He has produced a lot of rare, high-quality multi-media leadership content this way, which has been distributed through the university.

The title of my talk was “Financial Market Tectonics: Stability Precedes Liquidity.” This is just another way of saying, don’t turn debt into equity!

The argument goes like this: debt quality is a function of stability of returns, not rates of return. If you try to have your cake and eat it, too, by combining contractual enforceability with high rates of return, you will destabilize the system. But, if you let debt be debt and take it to the limit, you will end up with securitization. And, stable securitization markets have their own special risk measurement imperatives and challenges, about which we are just becoming aware.

The public version of the accompanying power point presentation is here.

This talk was the happy result of being reunited with Joseph Cheung Wang Ngai, my former student at Chung Chi College (CUHK) in the 1970s, who is a legal-accounting-investments polymath. Everything was expertly taken care of by Daryl Law Shuk Yee, EMBA Project Coordinator, so that I was free to just waltz in and speak!