Financial Darwinism

Leo M. Tilman (NY, NY) has been named Young Global Leader of the World Economic Forum for his professional accomplishments, commitment to society and potential to contribute to shaping the world.  As the Chief Institutional Strategist and Senior Managing Director at a leading investment firm, Tilman is known for providing institutional clients with advice and solutions regarding strategic decision making, corporate finance, investment strategy, product design, asset/liability management, and risk management.  Tilman is also a lecturer in the financial engineering program on foundations of finance at Columbia University.  He is co-author of Risk Management and editor of Asset/Liability Management of Financial Institutions, as well as contributing editor of The Journal of Risk Finance.  He makes regular TV appearances and is often quoted in the financial media such as The Wall Street Journal, New York Times, Forbes, Bloomberg, and Barron’s among others.  He earned his B.A. and M.A. degrees from Columbia University.

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

"As the world places increasing emphasis on fair valuation, risk-based financial disclosure and risk-focused regulation, Tilman's guide becomes more important for CEOs, directors and fiduciaries who must build risk evaluation into all fundamental decisions." (Corporate Governance) “While Tilman's thesis is directed to financial firms, the concept applies to all businesses. Failure to adopt a risk management strategic planning model will lead to extinction, hence the "Darwinism" in the title. Summing Up: Recommended.” (Choice, April 2009)"...Tilman couldn't have chosen a better time...clearly written and with plenty of rational advice for financial institutions" (City A.M., December 11th 2008)"One of the book's merits is that he offers tables that provide taxonomies of business model transformation." (Financial World, February 2009)"This book is highly recommended for finance professional sat all levels of an organization as well as investors desiring insights into how firms can weather the "tectonic shift" in the financial landscape. The terminology and models used should be within the grasp of anyone who has taken an undergraduate course in finance." (Journal of Corporate Finance and Accounting)“[Tilman] sees much to be learned from the collective blindness that led to the economic meltdown. … says the first steps to recovery are humility and innovation” (Alpha magazine)"This book offers a deeply thoughtful and well-reasoned analysis of what has gone wrong and the outlines of an eventual road to recovery." (Financial Executive International)