Author: Roy C. Smith
Wealth, if not contained, ends up slipping away. It also must be protected from theft and mismanagement. Your money in the bank is paid a specific interest. The bank takes the money and lends it out at a higher interest, pocketing the difference, which is the profit. The biggest companies are owned by pension funds all over the world. The free flow of capital across borders is healthy for our economies. International investment continues to grow at double-digit rates. Countries with huge debts simply reschedule, they don’t go broke, and they eventually pay back all debts. Conflicts of interest arise when banks underwrite issues, collecting fees and then advising their clients to buy it. Banks are responsible to their shareholders. However, many of their products contribute to the country’s low savings rate, and over time this will kill our standard of living. The lowest cost of capital in the world is in Japan. Their corporate clients are treated as kings, and they are the slaves that serve them. They are always worried about high prices, because they must import nearly everything. When doing any deal, return on equity comes in as the last reason of importance. Japanese firms use their high stock prices to raise large amounts of capital in order to make huge acquisitions. They are very conservative with their money, and have a household savings rate of about 18 percent, as opposed to the U.S with less than 5 percent. It’s also interesting to note that in Japan, the housewives manage the investments. Investment products created by the brokerage firms are sold door to door. Roy C. Smith worked in corporate finance at Goldman Sachs and oversaw the firms business in Japan for 15 years. He now teaches banking and finance at New York University.