Sunday, May 01, 2005

Susan Schmidt Bies on corporate and personal finance

Fed Governor Susan Schmidt Bies gave an interesting speech on trends in both corporate and personal finance. She also called for increased financial education.

A few highlights:

*"The improvement in corporate balance sheets in the past few years has been substantial. Most noteworthy are the gains achieved in balance sheet liquidity. Firms have taken advantage of low long-term interest rates to pay down short-term debt with longer-maturity debt. At the same time, firms have built up their cash positions to extraordinary levels. At the end of last year, the ratio of cash and equivalents to short-term debt at nonfinancial corporations stood at about twice its average level since the 1950s."

To which I would ask, I wonder if Jensen's Free Cash flow problem has slackened (pun intended) with increased monitoring by more active boards. Interesting research question.

* "In the household sector, some analysts have expressed concern about the rapid growth in household debt in recent years and the decline in the household saving rate. They fear that households have become overextended and will need to rein in their spending to keep their debt burdens under control. My view is considerably more sanguine. Although pockets of financial stress exist among households, the sector as a whole appears to be in good shape."

As evidence she points out that debt to net worth is in better shape than debt to income due to rising equity and real estate markets.

* "

College graduates preparing to enter the labor force will soon assume a new level of responsibility for managing their finances. Personal financial management includes the strategic use of both credit and savings to enhance asset accumulation and financial well being. Just as the choices that students have made regarding their education play a vital role in determining career opportunities, the decisions they make and behaviors they establish regarding financial management in the coming years will also impact future opportunities and their ability to capitalize on them.

Compared to a generation ago, the financial marketplace of today is significantly more complex. There is now an extensive range of consumer financial products and services, and providers of these goods and services."

hence the need for FinanceProfessor ;)

Definitely recommended reading!!!

As an aside, this speech took place at Canisus college! Shame on you Katie for not letting me know! ;)

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