Financing the Future: Market-Based Innovations for Growth

Financing the Future: Market-Based Innovations for Growth A New Book by Franklin Allen and Glenn Yago Financing the Future: Market-Based Innovations for Growth is available from Wharton School Publishing, Amazon and Barnes and Noble. Beginning with the global financial shocks of 2008, critics have been all too eager to break out torches and pitchforks in a fit of financial luddism, threatening to ban financial innovations such as securitization and derivatives. A new book from the Milken Institute and Wharton School Publishing, Financing the Future: Market-Based Innovations for Growth, seeks to move beyond the noise and reclaim the concept of financial innovation. It lays out the historical significance of financial innovation and its role in finding solutions for business, housing markets, environmental finance, the developing world and medical research. Financing the Future crystallizes the lessons of the recent crisis, offering essential insights for stabilizing the economy and avoiding pitfalls. Readers will learn about: Distinguishing genuine innovation from dangerous copycats Crafting sustainable financial innovations that add value and manage risk Selecting the right instruments and structures Specific innovations for business, housing and medical research The power of finance to protect natural resources and alleviate global poverty Listen to Knowledge@Wharton's podcast with co-author Franklin Allen. Glenn Yago on Financing the Future What others have said aboutFinancing the Future: Market-Based Innovations for Growth: "From housing to microfinance to drug development, Allen and Yago explore the important role financial innovation plays around the world. The authors prove in plain English the vital role creative finance played in building America and why stifling innovation poses a risk to our financial future." - Brian Sullivan, Fox Business Network "Allen and Yago demonstrate clearly the importance of the interaction of theory and experience in explaining the evolution of financial innovations." - Myron S. Scholes, Nobel Laureate in Economics, 1997, and Frank E. Buck Professor of Finance, Emeritus, Graduate School of Business, Stanford University Franklin Allen Glenn Yago MI Forum with Franklin Allen and Glenn Yago August 3, 2010 4:30 p.m. - 6:00 p.m. Milken Institute

Milken Institute 1250 Fourth Street Santa Monica, CA 90401

Film Flight: Lost Production and Its Economic Impact on California

Film Flight: Lost Production and Its Economic Impact on California California has lost a total of 10,600 entertainment industry jobs and 25,500 ripple effect jobs. The entertainment industry, one of California's leading economic engines, has been leaking jobs to other, more aggressive locations. And unless California takes steps to reverse the trend, this once-vital industry could go the way of the aerospace business. California has lost 36,000 total jobs, $2.4 billion in wages and $4.2 billion in total economic output. Those benefits would still be here boosting the economy if the state had been able to maintain the share of industry employment it enjoyed in 1997. Instead, these jobs have been going to places like New York, Vancouver, and even New Mexico, Louisiana and Georgia. The Milken Institute's California Center today released an in-depth analysis of the issue with potential solutions. Insights from Film Flight: The number of movies either wholly or partially filmed in California has fallen sharply, from 272 in 2000 to 160 in 2008. California's share of North American employment in the industry has declined from 40 percent in 1997 to 37.4 percent in 2008. For every job created in California's film sector, another 2.5 jobs are created in other sectors. California implemented a tax credit for film production in 2009. There are early signs it is having a positive effect, though it is more restrictive than other states' programs and specifically excludes big-budget films that have the potential to generate greater local spending. The report makes a series of recommendations on how to turn the tide, including: Design a two-tier film incentive program, with one set of benefits to engage big-budget studio films that are not covered under the current incentive program, and another to attract smaller independent productions Implement a new digital media tax credit to attract and retain developers of digital animation, visual effects and video games Make tax incentive programs permanent, signaling long-term commitment More insights and solutions are in the full report. This report is part of the ongoing work of the Milken Institute California Center, which is dedicated to measuring, evaluating and analyzing the state's economic, demographic and social conditions and trends.

Milken Institute 1250 Fourth Street Santa Monica, CA 90401

Financing the Future: Market-Based Innovations for Growth

Franklin Allen Glenn Yago Financing the Future: Market-Based Innovations for Growth Franklin Allen and Glenn Yago Tuesday, August 3, 2010 | 4:30 p.m. - 6:00 p.m. Milken Institute 1250 Fourth Street Santa Monica Map

Financial innovations can transform ideas into new technologies, industries and jobs. They can expedite medical cures, spark growth in the developing world, clean up the environment and help food assistance groups spend their money more efficiently. But if complex financial structures are used recklessly - as they were before the recent crisis - the consequences can be severe. Franklin Allen and Glenn Yago, authors of Financing the Future: Market-Based Innovations for Growth, will discuss financial innovations as well as their views on the economic recovery and regulatory reform at a Forum scheduled for August 3 at the Institute. In Financing the Future, Allen and Yago trace the evolution of financial innovations and how they have advanced a variety of fields. The authors argue that the financial crisis offers a cautionary tale, but shouldn't be used as an opportunity to quash innovation altogether. They identify crucial differences between genuinely useful innovations and instruments designed merely to hide risk and generate quick profits. Allen is the Nippon Life Professor of Finance and a professor of economics at the Wharton School of the University of Pennsylvania, where he has been on the faculty since 1980. The co-director of the Wharton Financial Institutions Center, he is also executive editor of the Review of Financial Studies. Yago is the executive director of financial research at the Milken Institute. He is the co-author of several books, including The Rise and Fall of the U.S. Mortgage and Credit Markets. Financing the Future will be for sale at the Forum, and the authors will sign copies.

The Power of Vivid Data

June 28, 2010
Edited by: PON_Staff, filed in: Business Negotiations, Daily, Financial Negotiations, Negotiation, Personal Negotiations

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Adapted from “What’s Really Relevant? The Role of Vivid Data in Negotiation,” by Max H. Bazerman (professor, Harvard Business School), first published in the Negotiation newsletter.

Students at top business schools are in an enviable position to negotiate for issues central to their careers and personal happiness. After all, they’re bright, well-trained, and highly sought after by the finest companies in the world. The process of negotiating their first postgraduate job should be fairly simple, shouldn’t it? Perhaps, yet many recent MBA grads change companies very soon after taking their first position.

To understand why newly minted MBAs often take the wrong job, consider the influence of their peers. At one business school, MBA students would meet between classes in a particular lounge. As recruiting season arrived, the most popular topic of conversation there became job interviews and offers. Statements like these were common:

The medical benefits are very good.
Everyone seemed really happy during my visit to corporate headquarters.
I’d get to travel to Europe regularly.
The starting salary is $130,000.
Employees have significant control over their work assignments.
The office was recently renovated.
I got an offer from McKinsey.

Which statements were most likely to spread on the student grapevine? Those that conveyed the most prestige: The starting salary is $130,000 and I got an offer from McKinsey. Statements about medical benefits and office renovations, by contrast, received scant attention. Other students tended to take note of the most vivid attributes of job offers, and the students who received these offers no doubt noticed that they’d impressed their peers.

See more at: http://www.pon.harvard.edu/daily/business-negotiations/the-power-of-vivid-data/?mqsc=E06/29/10+7:30+AM

Expand the Pie with Matching Rights

June 28, 2010
Edited by: PON_Staff, filed in: Business Negotiations, Daily, Financial Negotiations, Negotiation, Personal Negotiations

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Adapted from “Create Value with Matching Rights,” first published in the Negotiationnewsletter.

The problem: You and your counterpart have different ideas about how much freedom you should have to negotiate with others and/or how long your agreement should last.

The tool: Matching rights (sometimes known as rights of first refusal) are a contractual guarantee between negotiators that one party can match any offer the other party later receives for a given asset. Once the exclusive domain of high-flying mergers and acquisitions specialists, matching rights are now common in many contexts, including procurement, real estate, and investment deals.

How it works: Suppose that a small-business owner is negotiating with a landlord over office space. The business owner wants the stability of a long-term lease, and the landlord wants greater flexibility. They can both meet their goals by adding a matching right to a short-term lease. When the lease expires, the landlord (the “grantor”) will be able to negotiate with other prospective tenants, and the business owner (the “right holder”) will have the chance to match the best offer from a third party.

What it can do: Inexpensive to give and valuable to receive, matching rights can be a negotiation no-brainer. By granting a matching right, you demonstrate your flexibility and goodwill. When you hold a matching right, you gain the opportunity to outbid a future competitor.

See more at: http://www.pon.harvard.edu/daily/business-negotiations/expand-the-pie-with-matching-rights/?mqsc=E06/29/10+7:30+AM

When Emotions Converge

June 29, 2010
Edited by: PON_Staff, filed in: Business Negotiations, Daily, Financial Negotiations, Negotiation, Personal Negotiations

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Adapted from “I Know Exactly How You Feel,” first published in the Negotiation newsletter.

Theorists have long distinguished one-shot deals from repeated negotiations. People who know they’ll never see one another again may be tempted to take advantage of one another, for example. By contrast, parties in ongoing relationships, even ones that have a competitive edge, may temper their behavior, mindful of the risk that “what goes around, comes around.”

Research by Cameron Anderson of New York University’s Stern School of Business and Dacher Keltner and Oliver P. John of the University of California at Berkeley’s Psychology Department suggests another reason why long-term negotiations seem distinctive: people who spend protracted time together become more alike emotionally. This convergence is not quite the same as so-called emotional contagion, the phenomenon whereby expressive people tend to temporarily influence the feelings of those around them. (For example, if you’re in a waiting room with a fidgety person, you’re likely to get a bit more anxious yourself.)

See more at: http://www.pon.harvard.edu/daily/business-negotiations/when-emotions-converge/?mqsc=E06/29/10+7:30+AM

Recommended Book - Predictable Surprise: The Disasters You Should Have Seen Coming and How to Prevent Them

9/11 was preceded by a stream of warning signs in the years and months leading up to the disaster. Yet when the attacks occurred, leaders at every level were taken by surprise. A lack of auditor independence and creative accounting procedures have long been tagged as "ticking time bombs" in the financial markets. However, when Enron toppled, it sent shockwaves through Wall Street - and the world. Why do leaders consistently ignore looming signs of crises even when they know the consequences could be devastating?

Decision-making experts Max Bazerman and Michael Watkins argue that "predictable surprises" - events that catch leaders off guard even though they had all the information necessary to anticipate them - represent a pervasive failure of leadership that holds grave consequences for individuals, organizations, and society.

Predictable Surprises goes beyond simply assigning blame to explore whyleaders so often miss or ignore impending disasters and what they can do to prevent them. Through detailed and riveting accounts of the events, missed signals, and ignored warnings leading up to 9/11, the fall of Enron, and other high-profile disasters, Bazerman and Watkins explain the cognitive, organizational, and political biases that make predictable surprises so common, and outline proactive steps leaders can take to overcome them.

See more at: http://www.pon.org/catalog/product_info.php?products_id=361/&mqsc=E06/29/10+7:30+AM