Banks often oppose higher equity asset ratios, because equity capital is more expensive than debt capital.

While normal banks need an equity asset ratio of at least 7 , investment banks typically operated on a ratio of only 4 .

First, capital requirements should be set as a straightforward ratio of common equity to total assets, thereby abandoning all reference to banks own risk management models.

That said, the ratio of capital formation does require careful monitoring.

This paper urged a fundamental objection to the traditional view of corporate finance, according to which a corporation can reduce its cost of capital by finding the right debt to equity ratio.

Since 1980 the ratio of stock market capitalization to GDP soared more than 13 fold, while equity financing rose 16 fold.

And a lower growth rate implies that less investment is needed to maintain the capital output ratio.

But the Fed cannot endow the banks with new equity capital and prevent a credit crunch.

Rather, the banking system is at the brink of insolvency, with a permanent loss in equity capital.

Under Chapter 11, companies with a solid underlying business generally swap debt for equity. Old equity holders are wiped out and old debt claims are transformed into equity claims in the new entity which continues operating with a new capital structure.

This is reflected in the current investment ratio for real capital assets of 43 of GDP, compared to 4.3 investment in human capital in the form of education.

Lack of equity capital, in turn, made risk averse shareholders hire gamblers to manage their limited liability investment companies.

Another hoped for benefit was that capital gains could be converted into home equity loans, boosting homeowners living standards.

Reckless balance sheet expansion in pursuit of profit is kept in check if financial companies adhere to statutory capital requirements, which mandate a capital asset ratio of about 8 .

This is why equity capital held by financial institutions typically is more than twice as expensive as debt capital and why these institutions try to minimize its use.

Because of the capital utilization effect, the capital labor ratio would not, in fact, decline, and hence there would be no significant effect on the marginal productivity of hours worked.

Instead, they should become partners of private shareholders, endowing the banks temporarily with new equity capital until the crisis is over.

Given that the combined equity capital stock of all US financial institutions is roughly 1.2 trillion dollars, this is a breathtaking sum.

Investment banks like Bear Stearns and Lehman Brothers got into trouble because they had too little equity capital far less than 10 .

He also has invested in non traditional asset classes, including real estate, oil, timber, private equity, and venture capital and buyout firms.

Although high growth requires large scale capital formation, the relation between investment in real capital assets and human capital in China seems to be out of proportion. This is reflected in the current investment ratio for real capital assets of 43 of GDP, compared to 4.3 investment in human capital in the form of education.

Taming the Private Equity Locusts

Some fear that extending the workday will not produce more jobs because the resulting expansion of hours worked will reduce the capital labor ratio.

The typical bank is capitalized with equity, long term debt, short term debt, and deposits. Investment banks like Bear Stearns and Lehman Brothers got into trouble because they had too little equity capital far less than 10 .

They will continue to deprive the banking system of its equity capital, with little chance of it being recouped in the near future.

These risks are already exacerbating the economic slowdown equity markets are falling everywhere, leading to negative wealth effects on consumption and capital spending.

According to the European Commission, creating a single European capital market would reduce the cost of equity capital for EU businesses by 0.5 and lower the cost of corporate debt financing by 0.4 .

In addition to the tough new regime of personal accountability, the commission would supplement the Basel standards on bank capital with a tight leverage ratio.

Rather, bonds should be at least partly converted into equity capital, and any infusion of new capital by the government should be in exchange for securities that are senior to those of existing bondholders.

Moreover, you should care about equity.

The weight ratio of iron to silicon is 1.05 1.27 in Ganymede, whereas the solar ratio is around 1.8.

But in bad times, when it is important to keep banks lending, bank capital would automatically be increased by the debt to equity conversion.

In particular, if the firm s equity capital erodes, the government should not provide funds (directly or indirectly) to increase the cushion available to bondholders.

One partial result of this is that production in Europe has in many places become more labor intensive, with the capital to labor ratio tightening markedly.

In Africa, the ratio is 900 per 100,000.

In Switzerland, the leverage ratio is now central.

What's the student teacher ratio at your school?

The Golden Ratio is found everywhere in nature.

The mass ratio in this case is 81.30059.

The mutual interaction between the incentive to minimize equity capital and the incentive to gamble in order to exploit the upside risks caused America s crisis.

Equity based awards, coupled with the highly leveraged capital structure of banks, tie executives compensation to a leveraged bet on the value of banks assets.

They calculated that 75 to 80 of economic growth did not come from increasing the capital output ratio at least not if the private marginal product of capital was taken as an indicator of the social marginal product.

Pay equity? Yes. Absolutely a feminist issue.

Today, capital in the developed world is abundant the saving ratio declines as people consume more and production shifts increasingly to services, where productivity gains are limited.

Banks serve a special function in the economy that does warrant a special role for the government not in setting pay, but in imposing effective capital requirements. Higher and pro cyclical equity capital requirements on banks, combined with a requirement to raise contingent long term debt debt that converts into equity in a crisis is a better way forward.