This weekend takes place the annual Woodstock for Capitalists (officially called the Annual Meeting of Berkshire Hathaway Inc). Warren Buffett expects that attendance will exceed 35,000. What will be in the mind of all these investors? I guess that a popular topic will be: Has Warren chosen a successor?
Finding a successor is normal for most companies when their founder chooses to retire. But, Berkshire is not a normal company. Berkshire is a bit like Cerberus, the three-headed dog of Greek mythology. To simplify we may say that it is one-third insurance group (a typical corporation), one-third private equity firm and one-third investment fund. A typical corporation requires a complex bureaucratic organization which takes many years to assemble and will become self-perpetuating. This is not the case with investment funds.
You may see collective investment vehicles (funds) as a pool of money looking for a manager to invest the funds pooled together by many independent investors. Or the other way around, you may see fund managers as promoters trying to persuade investors to trust them with their pool of money. Whatever way people see collective investment schemes, most investors never see the pooling of money as a perpetual commitment. Indeed, many funds even have a mandatory termination date.
So, should the independent co-owners of a diversified portfolio part their way or try to find another fund manager? Fund managers are a bit like artists, each one with his unique style. In that sense they are irreplaceable. For instance, when Pavarotti died his admirers did not try to find another Pavarotti. They simply turned their loyalty to another artist. He could be an opera singer, a rock star or even a painter.
At 86, Warren Buffett is the unquestionable master of value investing. Should his co-investors be in the look-out for a new master of value investing (which may not turn up for many years) or should they simply search for today’s masters of various other investment styles? Warren has always advocated the need to look for talented and honest people to run his operations, while stressing that he must not delegate risk control.
In the end, will the master investor surprise us on which Cerberus head leads Berkshire?
Thursday, 29 April 2010
Sunday, 25 April 2010
Why trade investors collude with managers to vote for star-like compensation
The star-like compensation of CEOs and other senior managers is undermining the trust of people in the fairness of capitalism. The spiraling of shocking compensation packages continues because the market system does not have built-in self-interest incentives that prevent collusive behavior between trade investors and managers. The problem is more acute in listed companies with high levels of float and with significant shareholdings by trade investors that do not compete to supply or finance the company.
A simple numeric example is enough to illustrate the problem. Consider the case of an investor who is contemplating investing in two almost identical companies—Companies A and B—trading at the same multiple of earnings, with the same expected risk and a rate of return on equity of 20%. Company B is a potential major supplier or financier of A, but is not currently trading with Company A. Both companies have the same asset turnover and leverage. After paying the current market rate of 1% of profits as management compensation, they each generate a net profit of 10%.
Prudence dictates that the investor should diversify by investing in both companies. However, given that A and B have the same expected return and risk, regardless of how the investor chooses to split his investment (whether 50/50, 10/90, or any other way), his expected return will be always 20%.
Imagine now that the CEO of Company A only needs 10% to control the board of directors and approve a pay raise that triples his compensation to 3% of profits. Management approaches the trade investor and asks him to invest 10% in company A and vote for the proposed pay rise in exchange for A giving B 10% in new business, provided that B matches the price of the suppliers replaced.
As long as the investor is able to lead a majority of shareholders in Company B, they will keep the Company B managers’ pay at 1%, so that his total return from both companies will now increase by 8.81% to an average return of 21.76%. Since there is no new value creation, the gains obtained by management and the new insider investor are made partly at the expense of the remaining shareholders in Company A, but mostly at the expense of the replaced vendor. The reduction in return incurred by the shareholders in A would be just 0.39 percentage points (i.e. 1.94%). This small loss could be either concealed or compensated if the other 40% of insiders supporting management protest.
It remains to be shown if there are any self-interest market mechanisms to prevent this predatory behavior. There are three candidates to oppose the insider investor’s actions in the above example: the managers of company B, the suppliers displaced, and the other investors in Company A—but none will be able to prevent such behavior. Here’s why:
The managers of B could try to get a similar pay raise by threatening to leave and bid for the job of A’s managers. If they were to get a similar raise, this would offset a large share of the investor’s gain. However, as a controlling shareholder, the investor can easily collude with A’s managers and other insider shareholders to stop such a bid. Thus, the managers of Company B can only threaten to shirk on their increased workload and ask for a modest raise. For instance, if they manage to get a 20% raise, this would only reduce the trade investor’s return to 21.72%.
The suppliers replaced may or may not be among the current group of insider shareholders. In the first case, they would try to fight the managers, but unless they can attract other shareholders to their cause, the only way they can retaliate is to sell their position to hurt the stock price. However, this would mean the supplier’s adding a self-inflicted capital loss on top of his business loss as a supplier, while simultaneously lowering the entry price for the new rival investor.
Next, imagine that the non-insider investors of Company A wished to retaliate against the managers’ pay raise by selling their stock. This would result in a self-inflicted loss for the late sellers. This loss could only be prevented if the insiders stepped in to buy the shares, or if management acted to offset a possible decline in the stock’s price by promising to pay an increased dividend or by introducing a share buy-back program. Forced to choose between certain loss and a promise, they will be more inclined to bet on the manager’s ability to avoid a decline in the stock price.
Finally, if the replaced suppliers were not yet shareholders, they might try to keep the business by outbidding the investor and invest the same amount while supporting A’s management in a bid to get an even higher pay raise. However, they could not outbid the rival investor. The pay incentive would only work if they could compensate the other insider investors, and their investment in A would have a lower return than that of the new investor since they would not gain from increased sales to their business.
The numeric example given above can be replaced by a model to work out the optimal investment allocation between A and B, including the more common situation where Companies A and B are different, but it is easy to see that the optimal outcome will also depend on the possibilities to switch suppliers and the greed of Company A’s management. It is nevertheless unquestionable that there is a large incentive for collusion between management and trade investors against other investors in A and its current suppliers.
Are the costs of this market failure large enough to damage the working of market capitalism? If so, then the question now is to assess if it is possible to correct this inefficiency through regulation.
The simplest way to regulate is to impose limits on the ownership of major suppliers, to limit their rights, or a combination of both. The first could be easily defined, but it can be easily evaded. In particular, in the case of shareholdings by suppliers of financial services, such limits could be easily circumvented by investing through investment funds managed by those financial institutions.
Limiting the voting rights of trade investors who are major suppliers of Company A is probably the best solution. It does not disrupt arms’-length trading relations, and it is more easily enforced. The only debatable issues would be about the qualification of trade investors and the voting restrictions. These should cover voting for the election of management and their remuneration, but they could also extend to voting in the Governance and Auditing Committees.
Regulation always has its own costs, which should not be disregarded lightly in a full assessment of this proposition. In particular, the possibility of discouraging trade investing may have its costs in terms of business intelligence and synergies. However, overall, limiting the voting rights of trade investors would be a market-perfecting policy that would contribute to achieving the ideal of true market capitalism.
A simple numeric example is enough to illustrate the problem. Consider the case of an investor who is contemplating investing in two almost identical companies—Companies A and B—trading at the same multiple of earnings, with the same expected risk and a rate of return on equity of 20%. Company B is a potential major supplier or financier of A, but is not currently trading with Company A. Both companies have the same asset turnover and leverage. After paying the current market rate of 1% of profits as management compensation, they each generate a net profit of 10%.
Prudence dictates that the investor should diversify by investing in both companies. However, given that A and B have the same expected return and risk, regardless of how the investor chooses to split his investment (whether 50/50, 10/90, or any other way), his expected return will be always 20%.
Imagine now that the CEO of Company A only needs 10% to control the board of directors and approve a pay raise that triples his compensation to 3% of profits. Management approaches the trade investor and asks him to invest 10% in company A and vote for the proposed pay rise in exchange for A giving B 10% in new business, provided that B matches the price of the suppliers replaced.
As long as the investor is able to lead a majority of shareholders in Company B, they will keep the Company B managers’ pay at 1%, so that his total return from both companies will now increase by 8.81% to an average return of 21.76%. Since there is no new value creation, the gains obtained by management and the new insider investor are made partly at the expense of the remaining shareholders in Company A, but mostly at the expense of the replaced vendor. The reduction in return incurred by the shareholders in A would be just 0.39 percentage points (i.e. 1.94%). This small loss could be either concealed or compensated if the other 40% of insiders supporting management protest.
It remains to be shown if there are any self-interest market mechanisms to prevent this predatory behavior. There are three candidates to oppose the insider investor’s actions in the above example: the managers of company B, the suppliers displaced, and the other investors in Company A—but none will be able to prevent such behavior. Here’s why:
The managers of B could try to get a similar pay raise by threatening to leave and bid for the job of A’s managers. If they were to get a similar raise, this would offset a large share of the investor’s gain. However, as a controlling shareholder, the investor can easily collude with A’s managers and other insider shareholders to stop such a bid. Thus, the managers of Company B can only threaten to shirk on their increased workload and ask for a modest raise. For instance, if they manage to get a 20% raise, this would only reduce the trade investor’s return to 21.72%.
The suppliers replaced may or may not be among the current group of insider shareholders. In the first case, they would try to fight the managers, but unless they can attract other shareholders to their cause, the only way they can retaliate is to sell their position to hurt the stock price. However, this would mean the supplier’s adding a self-inflicted capital loss on top of his business loss as a supplier, while simultaneously lowering the entry price for the new rival investor.
Next, imagine that the non-insider investors of Company A wished to retaliate against the managers’ pay raise by selling their stock. This would result in a self-inflicted loss for the late sellers. This loss could only be prevented if the insiders stepped in to buy the shares, or if management acted to offset a possible decline in the stock’s price by promising to pay an increased dividend or by introducing a share buy-back program. Forced to choose between certain loss and a promise, they will be more inclined to bet on the manager’s ability to avoid a decline in the stock price.
Finally, if the replaced suppliers were not yet shareholders, they might try to keep the business by outbidding the investor and invest the same amount while supporting A’s management in a bid to get an even higher pay raise. However, they could not outbid the rival investor. The pay incentive would only work if they could compensate the other insider investors, and their investment in A would have a lower return than that of the new investor since they would not gain from increased sales to their business.
The numeric example given above can be replaced by a model to work out the optimal investment allocation between A and B, including the more common situation where Companies A and B are different, but it is easy to see that the optimal outcome will also depend on the possibilities to switch suppliers and the greed of Company A’s management. It is nevertheless unquestionable that there is a large incentive for collusion between management and trade investors against other investors in A and its current suppliers.
Are the costs of this market failure large enough to damage the working of market capitalism? If so, then the question now is to assess if it is possible to correct this inefficiency through regulation.
The simplest way to regulate is to impose limits on the ownership of major suppliers, to limit their rights, or a combination of both. The first could be easily defined, but it can be easily evaded. In particular, in the case of shareholdings by suppliers of financial services, such limits could be easily circumvented by investing through investment funds managed by those financial institutions.
Limiting the voting rights of trade investors who are major suppliers of Company A is probably the best solution. It does not disrupt arms’-length trading relations, and it is more easily enforced. The only debatable issues would be about the qualification of trade investors and the voting restrictions. These should cover voting for the election of management and their remuneration, but they could also extend to voting in the Governance and Auditing Committees.
Regulation always has its own costs, which should not be disregarded lightly in a full assessment of this proposition. In particular, the possibility of discouraging trade investing may have its costs in terms of business intelligence and synergies. However, overall, limiting the voting rights of trade investors would be a market-perfecting policy that would contribute to achieving the ideal of true market capitalism.
Sunday, 18 April 2010
The misuse of the words liberalism and capitalism
Capitalism and liberalism are among the most misused words in the English language. Some writers often conclude that it is better to replace them with other synonymous. For instance, the late Nobel Laureate John Hicks suggested that we use market economy instead of capitalism. In the case of liberalism, the misuse is even more serious. While in Europe, most people associate liberalism with policies to curb the intrusion of the state in personal lives and the economy, in the US liberalism means exactly the opposite - advocacy for government spending. So let us pick up a dictionary and check both definitions.
Let us start with capitalism. The Webster defines Capitalism as: an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially as contrasted to cooperatively or state-owned means of wealth. While the Oxford Dictionary on Capitalism defines it as a noun - an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state. Both definitions leave unanswered the questions concerning the degree of control and the relevance of competitive markets as important qualifiers.
On liberalism, the Webster Dictionary says: suitable for a freeman; not restricted: now only in liberal arts, liberal education, etc. giving freely; generous large or plentiful; ample; abundant a liberal reward not restricted to the literal meaning; not strict a liberal interpretation of the Bible tolerant of views differing from one's own; broad-minded; specif., not orthodox of democratic or republican forms of government, as distinguished from monarchies, aristocracies, etc. favoring reform or progress, as in religion, education, etc.; specif., favoring political reforms tending toward democracy and personal freedom for the individual; progressive designating or of a political party upholding liberal principles, esp. such a party in England or Canada Obsolete excessively free or indecorous in behavior; licentious. And in the Oxford Dictionary: liberal adjective 1 willing to respect and accept behaviour or opinions different from one’s own. 2 (of a society, law, etc.) favourable to individual rights and freedoms. 3 (in a political context) favouring individual liberty, free trade, and moderate reform. 4 (Liberal) (in the UK) relating to the Liberal Democrat party. 5 (especially of an interpretation of a law) not strictly literal. 6 given, used, or giving in generous amounts. 7 (of education) concerned with broadening general knowledge and experience.
Identifying liberalism with left or right wing policies or parties is also misleading. For instance, Marxists and Trotskyites of diverse types try to vilify liberalism by using the pre-fix neo, but they are not clear about to what type of liberalism they are referring. They may be referring to classical liberalism, or just hoping that the neo-prefix will make it look as evil or backward. American classical-liberals are often conservative. Their classical-liberal (or, if you prefer, libertarian) political values are no more than the application to society at large, and to government, of some of the most fundamental and indispensable rules that every decent person learns early in life and adheres to until death. Civil society is possible because almost everyone abides by these obvious rules against theft, cheating, and initiating violence. For classical-liberals, libertarians abhor the notion of reconstructing the world according to academic notions of how society ought to operate. The reason is that such reconstruction inevitably means that some people—those with state power—are exempted from following the basic rules of decency that we teach to our children and that all the rest of us must follow.
Trying to find new words for capitalism and liberalism will not serve clarification. For example, liberalism is better defined within a broad spectrum, ranging from anarchism, libertarian and classical-liberalism (laissez-faire) to forms of liberal socialism (of the new labor type). The later, ultimately advocates forms of crony capitalism through so-called public-private partnerships and similar policies to blur the state and private sectors for the benefit of organized lobbies and partisan friends.
On the contrary, adding a qualifier to clarify the meaning of capitalism and liberalism as applied in a particular country or by specific authors helps to identify the various shades and forms that they have. In relation to capitalism, we may use qualifications such as market, big business, state, Scandinavian, South European, crony, theocratic, and partisan. Similarly, for liberalism, we may use qualifications such as constitutional, classical, new-Austrian, socialist, American, or individualistic.
We believe that only two forms of liberalism and capitalism are key pillars for the good of humankind – constitutional liberalism and market capitalism. These do not need to have a left or right wing connotation and, in fact, both types of parties may support them. However, it is important that they are well defined to avoid being espoused opportunistically by both and be dismissed immediately when the times change.
By market capitalism, we mean an economic system where most economic interchanges are carried out in competitive atomistic markets. Under normal circumstances, this means keeping to a minimum the share of government, the grey sectors and big corporations in the economy. In addition, independent entities (and not self-preserving bodies) should regulate and prevent them from erecting entry barriers.
We define constitutional liberalism, as a political system based on rules granting a maximum of individual freedom and a minimum of social coercion. This must include the rule of law, separation of powers and the protection of individual liberties from the prying of government, religion, race, or any other special interest groups.
Let us start with capitalism. The Webster defines Capitalism as: an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially as contrasted to cooperatively or state-owned means of wealth. While the Oxford Dictionary on Capitalism defines it as a noun - an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state. Both definitions leave unanswered the questions concerning the degree of control and the relevance of competitive markets as important qualifiers.
On liberalism, the Webster Dictionary says: suitable for a freeman; not restricted: now only in liberal arts, liberal education, etc. giving freely; generous large or plentiful; ample; abundant a liberal reward not restricted to the literal meaning; not strict a liberal interpretation of the Bible tolerant of views differing from one's own; broad-minded; specif., not orthodox of democratic or republican forms of government, as distinguished from monarchies, aristocracies, etc. favoring reform or progress, as in religion, education, etc.; specif., favoring political reforms tending toward democracy and personal freedom for the individual; progressive designating or of a political party upholding liberal principles, esp. such a party in England or Canada Obsolete excessively free or indecorous in behavior; licentious. And in the Oxford Dictionary: liberal adjective 1 willing to respect and accept behaviour or opinions different from one’s own. 2 (of a society, law, etc.) favourable to individual rights and freedoms. 3 (in a political context) favouring individual liberty, free trade, and moderate reform. 4 (Liberal) (in the UK) relating to the Liberal Democrat party. 5 (especially of an interpretation of a law) not strictly literal. 6 given, used, or giving in generous amounts. 7 (of education) concerned with broadening general knowledge and experience.
Identifying liberalism with left or right wing policies or parties is also misleading. For instance, Marxists and Trotskyites of diverse types try to vilify liberalism by using the pre-fix neo, but they are not clear about to what type of liberalism they are referring. They may be referring to classical liberalism, or just hoping that the neo-prefix will make it look as evil or backward. American classical-liberals are often conservative. Their classical-liberal (or, if you prefer, libertarian) political values are no more than the application to society at large, and to government, of some of the most fundamental and indispensable rules that every decent person learns early in life and adheres to until death. Civil society is possible because almost everyone abides by these obvious rules against theft, cheating, and initiating violence. For classical-liberals, libertarians abhor the notion of reconstructing the world according to academic notions of how society ought to operate. The reason is that such reconstruction inevitably means that some people—those with state power—are exempted from following the basic rules of decency that we teach to our children and that all the rest of us must follow.
Trying to find new words for capitalism and liberalism will not serve clarification. For example, liberalism is better defined within a broad spectrum, ranging from anarchism, libertarian and classical-liberalism (laissez-faire) to forms of liberal socialism (of the new labor type). The later, ultimately advocates forms of crony capitalism through so-called public-private partnerships and similar policies to blur the state and private sectors for the benefit of organized lobbies and partisan friends.
On the contrary, adding a qualifier to clarify the meaning of capitalism and liberalism as applied in a particular country or by specific authors helps to identify the various shades and forms that they have. In relation to capitalism, we may use qualifications such as market, big business, state, Scandinavian, South European, crony, theocratic, and partisan. Similarly, for liberalism, we may use qualifications such as constitutional, classical, new-Austrian, socialist, American, or individualistic.
We believe that only two forms of liberalism and capitalism are key pillars for the good of humankind – constitutional liberalism and market capitalism. These do not need to have a left or right wing connotation and, in fact, both types of parties may support them. However, it is important that they are well defined to avoid being espoused opportunistically by both and be dismissed immediately when the times change.
By market capitalism, we mean an economic system where most economic interchanges are carried out in competitive atomistic markets. Under normal circumstances, this means keeping to a minimum the share of government, the grey sectors and big corporations in the economy. In addition, independent entities (and not self-preserving bodies) should regulate and prevent them from erecting entry barriers.
We define constitutional liberalism, as a political system based on rules granting a maximum of individual freedom and a minimum of social coercion. This must include the rule of law, separation of powers and the protection of individual liberties from the prying of government, religion, race, or any other special interest groups.
Sunday, 11 April 2010
Mais duas machadadas no futuro de Portugal
Na semana passada a comunicação social noticiou mais duas grandes machadadas nas perspectivas de um futuro melhor para Portugal. Dois acontecimentos negligenciados, senão mesmo apoiados, por muitos Portugueses.
Na segunda-feira noticiou-se: a Segurança Social penhora sete mil contas bancárias e no conjunto do ano, o Governo espera avançar com penhoras de vários tipos sobre 60 mil devedores. Realizado por via electrónica, tem eficácia prática imediata. "A regularização posterior de cada situação dependerá da resposta do devedor", explica o Ministério liderado por Helena André. Caso o contribuinte faltoso não avance qualquer resposta, "os saldos cativos serão transferidos para o IGFSS [Instituto de Gestão Financeira da Segurança Social] em prazo não superior a 60 dias". Esta prática típica dos salteadores - “disparar primeiro e perguntar depois” – retoma uma prática semelhante usada recentemente pela administração Fiscal em Portugal.
Na sexta-feira os jornais diziam: o Estado quer Luís Palha como CEO da Cimpor. Numa reunião ontem à tarde entre Fernando Faria de Oliveira, presidente da CGD, e o ministro das Finanças ficou definido que a Caixa vai indicar Luís Palha para presidente-executivo (CEO) da cimenteira, apurou o Diário Económico. Assim, deixar-se-ia cair o nome de Francisco Lacerda, já acordado entre todos os accionistas para o lugar de CEO. A notícia surpreendeu os accionistas privados que revelaram não caber à Caixa a escolha do CEO de uma empresa privada. O mérito relativo dos gestores em causa não é relevante para o problema. A questão essencial está em saber como é que a CGD, um banco público com uma participação questionável inferior a 10%, pode controlar as decisões de uma empresa privada cotada em bolsa.
A concretizarem-se, estas decisões constituem uma violação flagrante dos princípios do liberalismo constitucional e do capitalismo de mercado indispensáveis ao progresso do país. Porquê?
Não contestamos que a Segurança Social siga uma política de cobranças agressiva. Porém, a cobrança coerciva de dívidas, mesmo que reconhecidas pelo devedor, só pode ser decidida pelos tribunais. Não é preciso ser constitucionalista para se perceber isso. Imagine que qualquer credor era livre para ir a casa dos seus devedores e levar o que entende-se para saldar as suas dívidas. Por exemplo, um construtor a quem uma câmara municipal não paga há meses ou anos, dirigia-se à CGD e pedia-lhe para congelar as contas da Câmara até esta liquidar a sua dívida. Sendo todos iguais perante a lei, este construtor teria toda a legitimidade para fazer isso. Se todos fizessem isso cair-se-ia rapidamente na lei da selva.
Por isso, um dos fundamentos do liberalismo constitucional é precisamente o respeito do princípio de um estado de direito que garante que todos, incluindo o Estado, são iguais perante a lei. É por isso que num estado de direito os governos não poderão fazer leis que lhes garantem privilégios que são negados aos restantes credores.
No caso da Cimpor também não se contesta que a CGD, enquanto accionista, possa aliar-se a outros accionistas para fazer eleger um CEO do seu agrado. Aquilo que está em causa é o facto de a CGD ter adquirido a sua posição accionista de forma no mínimo questionável, senão mesmo ilegal, sob o ponto de vista da boa regulamentação dos mercados. Como se sabe os bancos não podem usar os títulos que lhes são confiados como garantia de empréstimos para exercer os respectivos direitos de voto. Estes continuam a pertencer aos seus legítimos titulares.
Dois dos fundamentos básicos do capitalismo de mercado são precisamente a protecção da propriedade privada e da distinção entre os direitos de um accionista e de um credor. Sem essa protecção não se pode avaliar os riscos respectivos e o investimento será seriamente afectado. O facto de a CGD ter aparentemente usado o expediente de um equity swap ou de um acordo de recompra para esconder a natureza do crédito que concedeu ao grupo Investifino, não a iliba da suspeição de falta de transparência ou manipulação das normas bancárias sobre provisionamento. Se esses subterfúgios podem ser tolerados num banco privado, num banco público terão de ser repudiados.
Porém, estas duas operações não são apenas questionáveis ao nível dos princípios e da legalidade. Elas também têm custos directos e indirectos muito significativos para o país.
Desde logo, num momento crítico para o crédito internacional do país, o desrespeito pelas regras de um estado de direito e a interferência do Governo nas empresas fazem aumentar o risco do nosso país. Consequentemente aumentarão também os spreads que temos de pagar quando recorremos ao crédito.
Recorrendo a expedientes para ultrapassar a ineficácia dos tribunais estamos a contribuir para que estes jamais se reformem. Criamos enormes injustiças entre os Portugueses e tornamos as nossas empresas cada vez menos competitivas.
De igual modo, a violação das contas bancárias leva à fuga de capitais para o estrangeiro e ao aumento da economia paralela. Recorde-se que este ano o Governo, de forma questionável, vai conceder um perdão fiscal para tentar repatriar os capitais fugidos para o estrangeiro. Sem protecção das contas bancárias dentro do país e com a previsível repetição periódica destes perdões, só não colocará as suas poupanças no estrangeiro quem não souber ou não puder. Como consequência temos de pedir mais e cada vez mais caro ao estrangeiro. Teremos também de nos contentar em atrair os piores investidores estrangeiros que exigirão cada vez mais subsídios.
Finalmente, num período em que a bolsa de Lisboa teve umas das recuperações mais fracas depois do crash de 2008, o caso da Cimpor alarga ainda mais o leque de queixas que os investidores fazem sobre o mercado Português. Como se já não bastassem a tradicional acusação do nosso mercado ser muito permeável à manipulação por insiders, as nossas empresas terem estruturas accionistas pouco transparentes, com gestores que são mais políticos do que profissionais e modelos de governo societário pouco eficazes, nós vamos acrescentar-lhe as práticas de intromissão governamental na escolha dos seus gestores. Como consequência, o nosso mercado será cada vez menos líquido e mais especulativo, alternando entre períodos de estagnação e momentos breves de grande volatilidade que afastam os investidores de longo prazo.
Perante estes golpes no nosso sistema financeiro, é pertinente perguntar: o que andam a fazer as nossas entidades de regulação? Quanto à violação dos princípios de um estado de direito o Tribunal Constitucional parece desconhecer esses princípios, ou então, de tão ocupado com o casamento entre pessoas do mesmo sexo, não tem tempo para mais nada. A entidade reguladora dos mercados – CMVM - que já tinha sido bastante ausente na recente tentativa de OPA sobre a Cimpor (segundo alguns terá mesmo colocado alguns grãos de areia no processo), ainda não se pronunciou sobre a legalidade da posição detida pela CGD. Quanto ao Banco de Portugal, entidade responsável pela supervisão bancária em Portugal, continua sobranceiramente a ignorar os riscos resultantes da participação excessiva dos bancos nas empresas não financeiras e a reconhecer formas de capital que de capital têm muito pouco, mas desconhece-se que tenha feito alguma coisa para prevenir as consequências de operações como aquelas a que a CGD recorreu.
Perante esta passividade das entidades responsáveis por prevenir este tipo de problemas, não é de estranhar que a opinião pública em geral tenha um défice de conhecimentos sobre a gravidade destas questões. Resta-nos a comunicação social para ter um papel mais activo na eliminação desse défice, discutindo estas violações de forma mais esclarecida, sem dogmas, tibiezas ou medo de ferir as susceptibilidades do poder político ou económico. Porém, nos últimos tempos, alguns responsáveis políticos pela má governação em Portugal têm vindo a tentar instalar o medo com o argumento falacioso de que a discussão pública de tais práticas contribui para denegrir a imagem do país e afastar os investidores estrangeiros. Ora, desde quando o encobrir dos erros contribui para a sua correcção? Antes pelo contrário, o dever cívico de todos quantos se preocupam com o futuro do país é apurar os porquês do que está mal no nosso regime político-económico e avançar com alternativas, não se limitando a carpir repetidamente sobre os nossos males.
Na segunda-feira noticiou-se: a Segurança Social penhora sete mil contas bancárias e no conjunto do ano, o Governo espera avançar com penhoras de vários tipos sobre 60 mil devedores. Realizado por via electrónica, tem eficácia prática imediata. "A regularização posterior de cada situação dependerá da resposta do devedor", explica o Ministério liderado por Helena André. Caso o contribuinte faltoso não avance qualquer resposta, "os saldos cativos serão transferidos para o IGFSS [Instituto de Gestão Financeira da Segurança Social] em prazo não superior a 60 dias". Esta prática típica dos salteadores - “disparar primeiro e perguntar depois” – retoma uma prática semelhante usada recentemente pela administração Fiscal em Portugal.
Na sexta-feira os jornais diziam: o Estado quer Luís Palha como CEO da Cimpor. Numa reunião ontem à tarde entre Fernando Faria de Oliveira, presidente da CGD, e o ministro das Finanças ficou definido que a Caixa vai indicar Luís Palha para presidente-executivo (CEO) da cimenteira, apurou o Diário Económico. Assim, deixar-se-ia cair o nome de Francisco Lacerda, já acordado entre todos os accionistas para o lugar de CEO. A notícia surpreendeu os accionistas privados que revelaram não caber à Caixa a escolha do CEO de uma empresa privada. O mérito relativo dos gestores em causa não é relevante para o problema. A questão essencial está em saber como é que a CGD, um banco público com uma participação questionável inferior a 10%, pode controlar as decisões de uma empresa privada cotada em bolsa.
A concretizarem-se, estas decisões constituem uma violação flagrante dos princípios do liberalismo constitucional e do capitalismo de mercado indispensáveis ao progresso do país. Porquê?
Não contestamos que a Segurança Social siga uma política de cobranças agressiva. Porém, a cobrança coerciva de dívidas, mesmo que reconhecidas pelo devedor, só pode ser decidida pelos tribunais. Não é preciso ser constitucionalista para se perceber isso. Imagine que qualquer credor era livre para ir a casa dos seus devedores e levar o que entende-se para saldar as suas dívidas. Por exemplo, um construtor a quem uma câmara municipal não paga há meses ou anos, dirigia-se à CGD e pedia-lhe para congelar as contas da Câmara até esta liquidar a sua dívida. Sendo todos iguais perante a lei, este construtor teria toda a legitimidade para fazer isso. Se todos fizessem isso cair-se-ia rapidamente na lei da selva.
Por isso, um dos fundamentos do liberalismo constitucional é precisamente o respeito do princípio de um estado de direito que garante que todos, incluindo o Estado, são iguais perante a lei. É por isso que num estado de direito os governos não poderão fazer leis que lhes garantem privilégios que são negados aos restantes credores.
No caso da Cimpor também não se contesta que a CGD, enquanto accionista, possa aliar-se a outros accionistas para fazer eleger um CEO do seu agrado. Aquilo que está em causa é o facto de a CGD ter adquirido a sua posição accionista de forma no mínimo questionável, senão mesmo ilegal, sob o ponto de vista da boa regulamentação dos mercados. Como se sabe os bancos não podem usar os títulos que lhes são confiados como garantia de empréstimos para exercer os respectivos direitos de voto. Estes continuam a pertencer aos seus legítimos titulares.
Dois dos fundamentos básicos do capitalismo de mercado são precisamente a protecção da propriedade privada e da distinção entre os direitos de um accionista e de um credor. Sem essa protecção não se pode avaliar os riscos respectivos e o investimento será seriamente afectado. O facto de a CGD ter aparentemente usado o expediente de um equity swap ou de um acordo de recompra para esconder a natureza do crédito que concedeu ao grupo Investifino, não a iliba da suspeição de falta de transparência ou manipulação das normas bancárias sobre provisionamento. Se esses subterfúgios podem ser tolerados num banco privado, num banco público terão de ser repudiados.
Porém, estas duas operações não são apenas questionáveis ao nível dos princípios e da legalidade. Elas também têm custos directos e indirectos muito significativos para o país.
Desde logo, num momento crítico para o crédito internacional do país, o desrespeito pelas regras de um estado de direito e a interferência do Governo nas empresas fazem aumentar o risco do nosso país. Consequentemente aumentarão também os spreads que temos de pagar quando recorremos ao crédito.
Recorrendo a expedientes para ultrapassar a ineficácia dos tribunais estamos a contribuir para que estes jamais se reformem. Criamos enormes injustiças entre os Portugueses e tornamos as nossas empresas cada vez menos competitivas.
De igual modo, a violação das contas bancárias leva à fuga de capitais para o estrangeiro e ao aumento da economia paralela. Recorde-se que este ano o Governo, de forma questionável, vai conceder um perdão fiscal para tentar repatriar os capitais fugidos para o estrangeiro. Sem protecção das contas bancárias dentro do país e com a previsível repetição periódica destes perdões, só não colocará as suas poupanças no estrangeiro quem não souber ou não puder. Como consequência temos de pedir mais e cada vez mais caro ao estrangeiro. Teremos também de nos contentar em atrair os piores investidores estrangeiros que exigirão cada vez mais subsídios.
Finalmente, num período em que a bolsa de Lisboa teve umas das recuperações mais fracas depois do crash de 2008, o caso da Cimpor alarga ainda mais o leque de queixas que os investidores fazem sobre o mercado Português. Como se já não bastassem a tradicional acusação do nosso mercado ser muito permeável à manipulação por insiders, as nossas empresas terem estruturas accionistas pouco transparentes, com gestores que são mais políticos do que profissionais e modelos de governo societário pouco eficazes, nós vamos acrescentar-lhe as práticas de intromissão governamental na escolha dos seus gestores. Como consequência, o nosso mercado será cada vez menos líquido e mais especulativo, alternando entre períodos de estagnação e momentos breves de grande volatilidade que afastam os investidores de longo prazo.
Perante estes golpes no nosso sistema financeiro, é pertinente perguntar: o que andam a fazer as nossas entidades de regulação? Quanto à violação dos princípios de um estado de direito o Tribunal Constitucional parece desconhecer esses princípios, ou então, de tão ocupado com o casamento entre pessoas do mesmo sexo, não tem tempo para mais nada. A entidade reguladora dos mercados – CMVM - que já tinha sido bastante ausente na recente tentativa de OPA sobre a Cimpor (segundo alguns terá mesmo colocado alguns grãos de areia no processo), ainda não se pronunciou sobre a legalidade da posição detida pela CGD. Quanto ao Banco de Portugal, entidade responsável pela supervisão bancária em Portugal, continua sobranceiramente a ignorar os riscos resultantes da participação excessiva dos bancos nas empresas não financeiras e a reconhecer formas de capital que de capital têm muito pouco, mas desconhece-se que tenha feito alguma coisa para prevenir as consequências de operações como aquelas a que a CGD recorreu.
Perante esta passividade das entidades responsáveis por prevenir este tipo de problemas, não é de estranhar que a opinião pública em geral tenha um défice de conhecimentos sobre a gravidade destas questões. Resta-nos a comunicação social para ter um papel mais activo na eliminação desse défice, discutindo estas violações de forma mais esclarecida, sem dogmas, tibiezas ou medo de ferir as susceptibilidades do poder político ou económico. Porém, nos últimos tempos, alguns responsáveis políticos pela má governação em Portugal têm vindo a tentar instalar o medo com o argumento falacioso de que a discussão pública de tais práticas contribui para denegrir a imagem do país e afastar os investidores estrangeiros. Ora, desde quando o encobrir dos erros contribui para a sua correcção? Antes pelo contrário, o dever cívico de todos quantos se preocupam com o futuro do país é apurar os porquês do que está mal no nosso regime político-económico e avançar com alternativas, não se limitando a carpir repetidamente sobre os nossos males.
Monday, 5 April 2010
Mankiw's proposal for contingent convertible debt
In the ongoing debate on financial regulation, most reform proponents seem to be under the illusion that it is possible to prevent future financial crisis. Therefore, Mankiw’s article on Trying to Tame the Unknowable is a welcome alert.
Proposals to prevent future taxpayer bailouts for financial institutions revolve around three key ideas:
1) Limiting the type of activities that banks can do (e.g. the Volcker rule on proprietary trading);
2) Capping the size of banks considered too big to fail; and
3) Requiring banks to have more capital to cope with the higher levels of leverage used today (e.g. Greenspan’s proposal to go beyond the current Basle II).
Mankiw’s favorite proposal is to require banks, and perhaps a broad class of financial institutions, to sell contingent debt that can be converted to equity when a regulator deems that these institutions have insufficient capital. This debt would be a form of preplanned recapitalization in the event of a financial crisis, and the infusion of capital would be with private, rather than taxpayer, funds. Think of it as crisis insurance.
This is an interesting idea on how to increase bank capitalization while privatizing the risk of reckless lending. However, its fundamental weakness is that rating agencies and regulators can hardly be trusted to decree such debt conversion before losses are too big to be absorbed by this share of capital alone.
The one thing that the history of speculation teaches us is that nobody is willing to remove the bowl of punch while the party is still going on. For instance, this last year alone, with inflation below 3%, the stock market has risen more than 40%. Would anyone be willing to classify this as a bubble and to force banks to stop lending to finance stock purchases? I doubt.
The only way the regulation could work would be to set up pre-defined conversion rules based on asset inflation targets. But, which assets classes? Shall we use rules based on price indexes for stocks, real estate, fixed-income, or commodities? And what should be considered a speculative price run over, say three months? 20%, 40% or 60%? These questions as well as the size of this quasi-capital buffer would raise many interesting debates.
However, the rules would only work if we could agree on a simple set of pre-defined conversion rules. If we are sufficiently naïve or optimistic to believe that such agreement is possible, let us advocate the Mankiw’s rule as a good policy.
Proposals to prevent future taxpayer bailouts for financial institutions revolve around three key ideas:
1) Limiting the type of activities that banks can do (e.g. the Volcker rule on proprietary trading);
2) Capping the size of banks considered too big to fail; and
3) Requiring banks to have more capital to cope with the higher levels of leverage used today (e.g. Greenspan’s proposal to go beyond the current Basle II).
Mankiw’s favorite proposal is to require banks, and perhaps a broad class of financial institutions, to sell contingent debt that can be converted to equity when a regulator deems that these institutions have insufficient capital. This debt would be a form of preplanned recapitalization in the event of a financial crisis, and the infusion of capital would be with private, rather than taxpayer, funds. Think of it as crisis insurance.
This is an interesting idea on how to increase bank capitalization while privatizing the risk of reckless lending. However, its fundamental weakness is that rating agencies and regulators can hardly be trusted to decree such debt conversion before losses are too big to be absorbed by this share of capital alone.
The one thing that the history of speculation teaches us is that nobody is willing to remove the bowl of punch while the party is still going on. For instance, this last year alone, with inflation below 3%, the stock market has risen more than 40%. Would anyone be willing to classify this as a bubble and to force banks to stop lending to finance stock purchases? I doubt.
The only way the regulation could work would be to set up pre-defined conversion rules based on asset inflation targets. But, which assets classes? Shall we use rules based on price indexes for stocks, real estate, fixed-income, or commodities? And what should be considered a speculative price run over, say three months? 20%, 40% or 60%? These questions as well as the size of this quasi-capital buffer would raise many interesting debates.
However, the rules would only work if we could agree on a simple set of pre-defined conversion rules. If we are sufficiently naïve or optimistic to believe that such agreement is possible, let us advocate the Mankiw’s rule as a good policy.
Subscribe to:
Posts (Atom)
Posts
