The solution to obviate banking crises is to have primary dealers emulate private equity: this restructuring of compensation restructures the manufacturing of credit.
Specifically, this restructuring of compensation
Former Apple CEO Michael Spindler: In the long-term, the US must increase its savings pool. This long-term path is not simply a popularity contest for any individual politician, but this long-term path is an imperative for future generations.
If not, the lights will go out.
In private equity, performance is measured by total return: specifically, profit sharing is a function of total return, and total return is measured by IRR.
The probability of success is increased by choosing the optimal objective, and this immutable law applies to the manufacturing of credit. Primary dealers should emulate private equity: primary dealers should target IRR, since IRR is a measure of total return.
Cash flow is measured by the cash flow statement, and EBITDA is an analytically flawed proxy for cash flow.
While cash flow is a generic term, investors prefer free cash flow, a non-GAAP metric that represents the cash flow available to a company’s securities holders.
