Wednesday, December 14, 2011

Al Gore Defines Sustainable Capitalism

Al Gore was given space in the WSJ to make the case for sustainable capitalism. He has provided a framework for the changes that would be required to reduce the short term focus that dominates today. He introduced the concept of stranded assets make one of his points. He used the mortgage backed securities (MBS} that we sold to investors as stranded assets that were mispriced because externalities were not incorporated in the pricing. He did this to show that there is latent value in some assets that could be realized as well as negative externalities that lead to the mispricing of assets.

Most supporters of sustainable capitalism will appreciate the shift in incentive systems that are required to encourage longer term thinking in capital markets and in corporate decision making. I wonder, however, whether this message will be appreciated by Wall Street traders. An increasing percent of trades on Wall Street are made and held for less than a second. Technology and proprietary software have enabled traders to turn rapid trading in volume into a method of realizing profit without taking on the risk of holding assets that might fall in value.

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