The law of unintended consequences is right up there with the diktat of sod and gravity as among the ineluctable forces of the universe. The credit crunch and attendant economic crisis have wrought chaos. Some of this has been completely predictable. Did anyone really believe that house prices could only ever rise, credit was a limitless free good or that CDO-squared was an important financial innovation?
However, some of the collateral damage has been inflicted in surprising places.
1. De-equitization Do you remember when the fashion for share buybacks and private equity buyouts had commentators burbling on about de-equitization? For a fleeting moment the phenomenon was real. In 2006, US companies raised $41 billion through initial public offerings, less than half the $97 billion of public-to-privates. UK companies raised $19 billion, but $27 billion of equity capital left the market.
So far this year, equity capital raisings have hit $136 billion in Europe and $100 billion in the US. There will be more to come. The peak year for European equity capital-raisings following the last recession was 1993. That was after the economy bottomed and growth had resumed.