Events

Myron S. Scholes

Global macroeconomics. Implications for investment

On 27 March 2012, the Rafael del Pino Foundation hosted the Keynote Lecture "Global Macroeconomics. Implications for investment", given by Professor Myron S. Scholes, Nobel Prize in Economics in 1997.

Myron S. Scholes argued that there should have been "a self-regulatory move by the financial industry to "realise that they were not aware of all the implications and ramifications that could come from putting exotic or complicated financial instruments on the market" and that the industry should ultimately have decided not to issue them: "There are certain investment products that cannot be described by a model or a formula or cannot be fully understood by clients, because there are so many elements of uncertainty that can affect the value of those products. For example, if an investment bank like Goldman Sachs makes a 200 million profit on a structured product, someone has to lose that 200 million; there is no possibility of making that profit without generating a loss. Clearly, this system does not create the right incentives for investment banking. I hope that the new regulation affecting this type of product will set limits or at least inform clients that there are many possibilities involved in the value calculation of the instrument in question and that, although the profitability of the instrument can be very high, there are at the same time many possibilities that losses can occur.

Myron S. Scholes also analysed the differences in competition in Europe: "The benefit of the European Union is in having a common market and a common culture, in having eliminated the possibility of new wars on the continent. But, in return, the problem created by the differences in competitiveness between EU member countries by sharing a single currency means that adjustments have to be made through wages and asset prices rather than through currency depreciation. This is the only adjustment mechanism in this scenario and European countries need to understand this, but they also need to consider how to manage the problems that this creates.

The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of their authors.

The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.