Highly Leveraged Institutions, Regulators, and the New Lenders of Last Resort

Globalisation and liquidity are pillars of modern capitalism, but there are unwritten laws as well. The first law of capitalism relates to globalisation. It says money will migrate to the business environment it considers to inspire more confidence and/or where the highest return is to be had.The pressure is relentless on money managers to care for the assets entrusted to them, and to better their past performance.One of the problems is that so much money pursuing relatively few alternative investment strategies reduces the potential returns to everyone.There is no evidence that pursuing strategies such as arbitraging the statistical difference between one convertible bond and another eliminates market inefficiencies, or provides for sustained long-term returns. But there is plenty of reason to believe that a steady pressure on the most successful companies to continue their performance, such as fast growth despite the increase in their size following years of rapid development, leads to new inefficiencies.