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Former Goldman Sachs Vice-Chairman Robert Kaplan Tells Big Think 'Big Firms Are Very Well Positioned'
Big Think spoke with Robert Kaplan, former vice-chairman of Goldman Sachs and current professor at Harvard Business School, about regulating hedge funds, the issue of bonuses, and why he's happy with the Geithner Plan.
BT: How is the landscape shifting relative to boutique investment banks, are we seeing the foundations of new behemoths?
RK: Big firms, like Goldman Sachs and Morgan Stanley, are very well positioned for business to come back when it does. They and others have a natural advantage in that they have expertise in multiple areas and can offer broad advice. There is room for small boutiques, of course, and right now those firms are attracting a lot of talent.
BT: Won’t the new compensation structures at big banks benefit the boutiques?
RK: The compensation disadvantage at big banks will likely be short-term (i.e. the Tarp money will eventually be repaid and the disadvantage will be substantially alleviated).
BT: So the old compensation structures should be re-implemented eventually?
RK: No. On the one hand, incentives are good-----but those incentives should vest over many years so that there is less motivation to make risky short-term bets. Smaller salary plus a bonus is fine, but bonuses should be awarded (and vested) based on good long-term decisions. That means less cash, more stock, and more vesting.
BT: What’s the future look like for the big broker dealers?
RK: I’ll discuss Goldman and Morgan Stanley together. They’re well positioned. Their balance sheets are very up-to-date in terms of marks. We know the trading businesses are very solid right now. Investment banking will come back as there is a pent up need for robust merger activity as well as corporate capital raising. Also, the investment management business will thrive with the aging population, growth in savings rates as well as return to global growth in financial assets.
Of course, a revival in investment banking will significantly help JP Morgan and the other big bank/broker dealers.
BT: How can big banks/investment banks best position themselves?
RK: It will be critical to have a strong global footprint. In particular, having a strong presence in the emerging markets will be especially important. In addition, firms that can lend, like JP Morgan, will have an advantage because of their ability to provide commercial banking services to their corporate clients. As always, the ability to attract, retain and develop strong people will be critical.
Lastly, strong leadership will be critical. The ability to develop strategy, articulate a vision, set priorities, build a cohesive culture, manage risk and serve clients are key skills that will still separate good firms from great ones.
BT: In addition to discussion of domestic stimulus efforts, what else do you expect from the G-20?
RK: Protectionism is a big issue and that will be a huge tension. The G-20 needs to pledge that they will manage this tension and fight pressures that could lead to protectionism.
Regarding financial regulation, they realize that this effort needs to be globally coordinated. Leaders from around the world have been working on this behind the scenes for the past several months. Controlling systemic risk (e.g. how much leverage banks and broker dealers should have as well as overall regulation of derivatives etc.) has to be coordinated globally.
BT: Is it a good idea to regulate hedge funds?
RK: The SEC must be able to say which funds are overleveraged and pose systemic risk. And they need to understand each firm as well as exposures, system-wide.
BT: Are Geithner and Summers unduly focused on Wall Street?
RK: No---I don’t see that at all. They are working on a number of fronts to restore our economy. They understand that we need a strong financial system as a basis for a strong economy. In addition, they also are working aggressively to help households and reenergize the middle class in the United States. In addition, they are pushing for investments in infrastructure, health care and alternative energy that will likely give us a better basis for sustainable growth.
Ever since we've had the technology, we've looked to the stars in search of alien life. It's assumed that we're looking because we want to find other life in the universe, but what if we're looking to make sure there isn't any?
Here's an equation, and a rather distressing one at that: N = R* × fP × ne × f1 × fi × fc × L. It's the Drake equation, and it describes the number of alien civilizations in our galaxy with whom we might be able to communicate. Its terms correspond to values such as the fraction of stars with planets, the fraction of planets on which life could emerge, the fraction of planets that can support intelligent life, and so on. Using conservative estimates, the minimum result of this equation is 20. There ought to be 20 intelligent alien civilizations in the Milky Way that we can contact and who can contact us. But there aren't any.
Frequent shopping for single items adds to our carbon footprint.
- A new study shows e-commerce sites like Amazon leave larger greenhouse gas footprints than retail stores.
- Ordering online from retail stores has an even smaller footprint than going to the store yourself.
- Greening efforts by major e-commerce sites won't curb wasteful consumer habits. Consolidating online orders can make a difference.
A pile of recycled cardboard sits on the ground at Recology's Recycle Central on January 4, 2018 in San Francisco, California.
Photo by Justin Sullivan/Getty Images<p>A large part of the reason is speed. In a competitive market, pure players use the equation, <em>speed + convenience</em>, to drive adoption. This is especially relevant to the "last mile" GHG footprint: the distance between the distribution center and the consumer.</p><p>Interestingly, the smallest GHG footprint occurs when you order directly from a physical store—even smaller than going there yourself. Pure players, such as Amazon, are the greatest offenders. Variables like geographic location matter; the team looked at shopping in the UK, the US, China, and the Netherlands. </p><p>Sadegh Shahmohammadi, a PhD student at the Netherlands' Radboud University and corresponding author of the paper, <a href="https://www.cnn.com/2020/02/26/tech/greenhouse-gas-emissions-retail/index.html" target="_blank">says</a> the above "pattern holds true in countries where people mostly drive. It really depends on the country and consumer behavior there."</p><p>The researchers write that this year-and-a-half long study pushes back on previous research that claims online shopping to be better in terms of GHG footprints.</p><p style="margin-left: 20px;">"They have, however, compared the GHG emissions per shopping event and did not consider the link between the retail channels and the basket size, which leads to a different conclusion than that of the current study."</p><p>Online retail is where convenience trumps environment: people tend to order one item at a time when shopping on pure player sites, whereas they stock up on multiple items when visiting a store. Consumers will sometimes order a number of separate items over the course of a week rather than making one trip to purchase everything they need. </p><p>While greening efforts by online retailers are important, until a shift in consumer attitude changes, the current carbon footprint will be a hard obstacle to overcome. Amazon is trying to have it both ways—carbon-free and convenience addicted—and the math isn't adding up. If you need to order things, do it online, but try to consolidate your purchases as much as possible.</p><p>--</p><p><em>Stay in touch with Derek on <a href="http://www.twitter.com/derekberes" target="_blank">Twitter</a>, <a href="https://www.facebook.com/DerekBeresdotcom" target="_blank">Facebook</a> and <a href="https://derekberes.substack.com/" target="_blank">Substack</a>. His next book is</em> "<em>Hero's Dose: The Case For Psychedelics in Ritual and Therapy."</em></p>
Chronic irregular sleep in children was associated with psychotic experiences in adolescence, according to a recent study out of the University of Birmingham's School of Psychology.