Conference Presentation, Panel
A Conversation With Financial Innovators
- The Milken Family Foundation and Center for Financial Markets intend to leverage financial market mechanisms to inform policy, empower individuals, create jobs, and solve societal challenges such as global warming, healthcare, and education, with a specific focus on reducing government involvement in capital markets where feasible.
- Experts predict that pricing externalities (clean air, water, carbon) and internalizing costs will drive efficiency, incentivize behavior, and unlock trillions in value for issues ranging from energy to infrastructure, potentially saving 30,000 to 40,000 lives annually through environmental interventions similar to the Acid Rain program.
- Significant risks are identified regarding the mispricing of assets and insurance, specifically noting that current flood insurance and housing markets face potential losses of $500 billion to $1 trillion due to inadequate risk pricing and slow foreclosure processes (taking 2 to 4 years in states like New York and Florida), which correlates with aggressive market recovery speeds.
- A major challenge involves the gap between public sentiment and financial reality, as society lacks education on metrics like free cash flow, often views defaulting on mortgages as acceptable, and fears government withdrawal, leading to regulatory uncertainty and the potential for the Dodd-Frank framework to be reinterpreted for future generations.
- Future outlooks emphasize the critical need to address unfunded pension liabilities (projected at billions in perpetuity), the displacement of workers by technology requiring a shift up the value chain through K-12 education and immigration, and the potential obsolescence of traditional services due to technological innovation like drones and infinite storage.
- Economic predictions include a potential "explosion of philanthropy" driven by wealth accumulation among the 20, 30, and 40-year-old demographic, combined with unprecedented market liquidity, to fund social capital and solve issues the government cannot, though this requires overcoming the "scary" nature of true market costs for government leaders.
- Global challenges are highlighted regarding job creation for 1 to 2 billion people as agriculture modernizes in China and Vietnam, while the U.S. faces specific hurdles in housing and energy markets due to a lack of political will to enforce personal responsibility or clear regulatory definitions for defaults and trustees.
- Technological shifts are expected to disrupt established industries, exemplified by mobile phones resolving legacy telecommunications issues and fintech competitors like Alibaba potentially becoming the world's largest bank within two years, alongside the prediction that data availability will force the "reverse engineering" of flawed models.
- Material constraints include the "real cost" of risk that the private sector may refuse to bear without government subsidies, the difficulty of rebuilding capital markets without consumer demand for immediate gratification, and the reliance on government acceptance to implement solutions in energy, water, and environmental sectors.
- Specific quantitative data points mentioned include a 12% desired return over 40 years versus 2.5% government yields, the historical cost of $7-$8 trillion defending shipping lanes since 1974, and the trade-off of investing $500 million in technology to save lives currently spent on protection.