Financial Darwinism

Foreword ix
Preface xv
Acknowledgments xix
CHAPTER 1 Understanding and Navigating the Financial Revolution 1
Introduction: The Need for Transformational Thinking 1
From George Bailey to the Golden Age 5
Accounting for Profits the Old-Fashioned Way 7
The "Great Moderation" As an Evolutionary Catalyst 11
Economic Performance in the Dynamic New World 14
Pressures on Static Business Models 18
Dynamic Finance Perspective on Financial Crises 21
Pillars of Strategic Decision Making 25
Value Creation Through Dynamism and Business Model Transformations 26
Beyond the Facade: The Importance of Risk-Based Transparency 35
CHAPTER 2 The Old Regime and Its Demise 39
Economic Performance and Viability of Financial Institutions 39
Static Business Models 41
Dominant Forces: The Future that Has Already Happened 46
Pressures on Static Business Models 55
CHAPTER 3 The Dynamic New World 65
Risk-Based Economic Performance 65
Balance Sheet Arbitrage 68
Principal Investments 69
Systematic Risk Exposures 71
Fees and Expenses 74
Capital Structure Optimization 75
Economic Performance Attribution 75
CHAPTER 4 Business Model Transformations 79
Pillars of Strategic Decisions in a Dynamic World 79
Responsive Recalibrations of Business Models 81
Full-Scale Business Model Transformations 86
Making the Strategic Vision a Reality 93
CHAPTER 5 The Road to Financial Darwinism 99
Real-World Business Model Transformations 99
Stakeholder Communication & Equity Valuation in a Dynamic World 109
Economic Value Creation (and Destruction) by Non-Financial Corporations 112
The Infamous "Carry Trade" and the Old Ways of Thinking 115
A Dynamic Finance Perspective on Modern Financial Crises 118
Beyond the Facade: The Need for Risk-Based Transparency 127
Conclusion 129
Epilogue: Financial Darwinism and the Crisis of 2007-2008 133
Appendix A: The Risk-Based Economic Performance Equation 137
Appenidx B: A Case Study in Dynamic Finance 141
Notes 157
References 163
About the Author 167
Index 169