As global markets recover from last year’s equities crash, the cash available for investment has grown to “record levels,” says financier Michael Milken.
Writing in the Financial Times, the ’80s-era king of junk bonds notes that companies with low capital costs will purchase those with higher costs and generate new investment opportunities.
“Today’s environment mirrors 1973-1977, when markets first demonstrated the ability to heal themselves. The mid-1970s recession created unprecedented problems for financial institutions. Most banks could no longer consistently meet their customers’ financing needs,” writes Milken.
“But capital markets offered an alternative through debt obligations and other securities.”
That kind of thing is happening once again, though not many observers have caught on thus far.
“Financial markets once again this year have shown a remarkable capacity to recover from mistakes by investors, managements and governments,” writes Milken.
“Companies across the ratings spectrum have taken advantage of narrowing spreads and low interest rates to refinance more than $2 trillion of assets in less than nine months. In this cycle, companies that fail to adjust capital structures by selling stock or pushing out debt maturities will miss a big opportunity.”
New forms of capital structure financed the economic expansion of the 1980s, 1990s, and the earlier part of this decade, with reduced involvement by banks, whose role in financing corporate growth has declined since that time, Milken observes.
New innovations, using the available cash, can transform America into a jobs engine once again.
“Properly applied and regulated, the market innovations of the 1970s disperse risk and create jobs,” writes Milken.
Others agree and note that capitalism survives by adapting quickly.
“A funny thing happened on the way to the collapse of market capitalism in the face of the worst economic crisis since the Great Depression. It didn't,” writes economist Irwin M. Stelzer, a senior fellow at the Hudson Institute, in The Weekly Standard.
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