Financial Darwinism

In Financial Darwinism, author Leo Tilman lays the groundwork for understanding the new financial order by introducing his evolutionary thesis and then outlines an actionable decision-making framework that enables financial institutions and investors to fully leverage the power of business strategy, corporate finance, investment analysis, and risk management. Financial Darwinism is an invaluable road map to today's financial world and an essential guide to surviving and thriving during these challenging times.

Foreword ix Preface xv Acknowledgments xix CHAPTER 1 Understanding and Navigating the Financial Revolution 1 Introduction: The Need for Transformational Thinking 1 From George Bailey to the Golden Age 5 Accounting for Profits the Old-Fashioned Way 7 The “Great Moderation” As an Evolutionary Catalyst 11 Economic Performance in the Dynamic New World 14 Pressures on Static Business Models 18 Dynamic Finance Perspective on Financial Crises 21 Pillars of Strategic Decision Making 25 Value Creation Through Dynamism and Business Model Transformations 26 Beyond the Facade: The Importance of Risk-Based Transparency 35 CHAPTER 2 The Old Regime and Its Demise 39 Economic Performance and Viability of Financial Institutions 39 Static Business Models 41 Dominant Forces: The Future that Has Already Happened 46 Pressures on Static Business Models 55 CHAPTER 3 The Dynamic New World 65 Risk-Based Economic Performance 65 Balance Sheet Arbitrage 68 Principal Investments 69 Systematic Risk Exposures 71 Fees and Expenses 74 Capital Structure Optimization 75 Economic Performance Attribution 75 CHAPTER 4 Business Model Transformations 79 Pillars of Strategic Decisions in a Dynamic World 79 Responsive Recalibrations of Business Models 81 Full-Scale Business Model Transformations 86 Making the Strategic Vision a Reality 93 CHAPTER 5 The Road to Financial Darwinism 99 Real-World Business Model Transformations 99 Stakeholder Communication & Equity Valuation in a Dynamic World 109 Economic Value Creation (and Destruction) by Non-Financial Corporations 112 The Infamous “Carry Trade” and the Old Ways of Thinking 115 A Dynamic Finance Perspective on Modern Financial Crises 118 Beyond the Facade: The Need for Risk-Based Transparency 127 Conclusion 129 Epilogue: Financial Darwinism and the Crisis of 2007–2008 133 Appendix A: The Risk-Based Economic Performance Equation 137 Appenidx B: A Case Study in Dynamic Finance 141 Notes 157 References 163 About the Author 167 Index 169