The IDC

THE ROTHSCHILD CAESAREA CENTER
THE CAESAREA CENTER BUSINESS CONFERENCE:
A LOOK TO THE FUTURE OF THE GLOBAL CAPITAL MARKET
AND RISK MANAGEMENT
The sixth annual summit of the Rothschild Caesarea Center for Capital
Markets and Risk Management at the IDC Herzliya facilitated a fascinating
convention of researchers from the apex of the world academia, and indepth
discussions on the subject of the future of the global capital market
and risk management.
Prof Jacob Boudoukh of the Rothschild Caesarea Center, David Scharfstein,
a Harvard Professor of Financing and Banking, Craig Dawson, the Head
of the Product Management Group at Pimco Europe, Avi Tyomkin, a
consultant to Hedge Funds in the Global Macro field, Pierre Pourqouri, a
Meir Baron, Prof. Jacob Boudoukh, Prof. Rafi
Melnick, the Provost at IDC
Partner and Manager at the Boston Consulting Group, and Robert Houdin,
the MD of Consulting and Credit Risk Management at Goldman Sachs,
participated in the business conference.
IT IS DIFFICULT TO KNOW AT PRECISELY WHAT STAGE
WE ARE, VIS A VIS THE CURRENT RECESSION. WE ARE NO
LONGER IN A STAGE OF PANIC, AS WE WERE IN SEPTEMBER
AND OCTOBER 2008, BUT THE DANGER IS THAT WE ARE
STILL IN THE THROES OF THE CRISIS, AS THE BANKS ARE
NOT HOLDING SUFFICIENT CAPITAL IN ORDER TO RENEW
LENDING ACTIVITIES AT THE LEVEL REQUIRED BY THE
ECONOMY. - David Scharfstein, Harvard Professor of Financing and Banking
David Scharfstein, a Harvard Professor of Financing and Banking, stated in
his address that it is difficult to know at precisely what stage we are, vis a vis
the current recession. According to him, we are no longer in a stage of panic,
as we were in September and October 2008, but the danger is that we are
still in the throes of the crisis, as the banks are not holding sufficient capital
in order to renew lending activities at the level required by the economy.
This situation is liable to last for several years. The true danger is that we will
suffer from a lost decade, as did the Japanese economy, because the financial
system is still deficient and is in dire need of raising a great deal of capital.
The character of the banking system on the day after the crisis passes,
Scharfstein said, depends to a large degree upon the stringency with which
the US Federal Government will deal with the banks: “The character of the
banking establishment in the future depends to a large extent upon the steps
that the [US Federal] Government will take vis a vis regulation. Currently, it
appears that they are progressing in the right direction, but if only cosmetic
changes are made to the regulations, the banks will go back to pre-crisis
40 < IDC Winter 2010
Prof. Jacob Boudoukh and Prof.
David Scharfstein
business as usual. In contrast, should the [US Federal] Government make
a real effort to gauge and manage risks and increase the capital adequacy
requirements of the banks, in order to protect them from those same risks,
we will have a far more stable financial system. Should the [US Federal]
Government cave in to the political pressure that the financial institutes will
surely apply to it, we will end up back at precisely the same point where we
started.”
The banks, says Scharfstein, are not exactly harnessing themselves to this
change in the financial system. Over the past few weeks, a plethora of reports
have surfaced indicating that the banks are interpreting the relative leniency
that the US Federal Government is showing towards them as a sign that,
when the crisis is over, they will be able to conduct business as they did prior
to the outbreak of the crisis. Scharfstein too identifies signs indicating that
the banks have not internalized the lessons: “I think that there is a great deal
of hubris on Wall Street, and it is difficult to make it go away. Apparently the
banks were not humiliated, as they really should have been.”
“I THINK THAT THERE IS A GREAT DEAL OF HUBRIS ON
WALL STREET, AND IT IS DIFFICULT TO MAKE IT GO AWAY.
APPARENTLY THE BANKS WERE NOT HUMILIATED, AS THEY
REALLY SHOULD HAVE BEEN.”
- David Scharfstein, Harvard Professor of Financing and Banking
Prof. Rafi Melnick, the Provost at IDC Herzliya, was not optimistic in his
address, saying that according to all the indicators in his possession, all
that is in evidence is the continued downfall. According to him, the most
important detail from the point of view of Israel is international trade,
because the main problem of the Israeli economy is the lack of ability to
export to markets that are experiencing a crisis. For every percentage point
of global trade, we have a percentage export and what the global trade
development is predicting for is a decrease in export figures that is most
perturbing.
“THE MOST IMPORTANT DETAIL FROM THE POINT OF VIEW
OF ISRAEL IS INTERNATIONAL TRADE, BECAUSE THE MAIN
PROBLEM OF THE ISRAELI ECONOMY IS THE LACK OF
ABILITY TO EXPORT TO MARKETS THAT ARE EXPERIENCING
A CRISIS” - Prof. Rafi Melnick, the Provost at IDC Herzliya
Avi Tyomkin
According to Avi Tyomkin, a consultant to
Hedge Funds in the Global Macro field, at the
Global / Tigris Financial Group, the loss in the
dramatic decline of liquidity prevalent in all
markets worldwide, which causes very acute
fluctuations, ejects many players from the
system. Within a few years, the stock market
will be a very marginal factor in any economic
financial business thinking. There will be this
game of shares played in downtown New York
or in Ahad Ha’am St. in Tel Aviv, but from the
point of view of raising money, its influence and
weight will be very marginal.
THE CAESAREA CENTER ACADEMIC CONFERENCE
The Academic Conference of the Rothschild Caesarea Center and the Arison
School of Business was held for the sixth year running and discussed a
range of papers in various fields of research of financial economics. A few
example included the long term investment performance of commodities
and its relation to the equity market, information contained in the term
structure of interest rates for the conduct of monetary policy, the empirical
record of market-based and accounting-based models for forecasting