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Financial Darwinism: Create Value or Self-Destruct in a World of Risk


Praise for Financial Darwinism

"The best business management tool is common sense. While such a timeless truth remains indispensable, it takes new thinking to navigate the astonishingly complex and rapidly changing world of finance. Over the years, I have personally witnessed leading organizations' reliance on Leo Tilman's advice and insights to deliver consistent profits and manage risk. I hope the readers of this smart, original, and practical book will benefit in kind."
Alan C. "Ace" Greenberg, Vice Chairman Emeritus, J.P. Morgan

"Responding to earnings pressures with outdated concepts and tools or, worse yet, blind risk-taking has an unhappy ending in every case. Get your organization's costs under control and staff it with highly competent professionals. Then use Financial Darwinism to prosper in the world of globalization and deregulation."
Jamie B. Stewart Jr., President and CEO, The Federal Farm Credit Banks Funding Corporation Past Acting President and COO, The Federal Reserve Bank of New York

"A masterful treatise on piloting complex financial institutions through the newer and tougher challenges imposed on them by the evolving marketplace. Tilman presents a unified conceptual framework that not only resonates with one's intuition, but also offers specific structural approaches to the decisions made by financial executives. This book is a must for anyone interested in improved strategies for risk management and economic performance."
Dr. Darrell Duffie, Dean Witter Distinguished Professor of Finance, The Graduate School of Business, Stanford University

"Tilman has distilled the larger pattern from the seemingly endless reorganizations of financial institutions, some strategic and others quite foolish. Financial Darwinism articulates a framework for understanding and, for financial executives and practitioners, initiating strategic choices."
Dr. Bennett W. Golub, Vice Chairman, BlackRock, Inc.

"Financial Darwinism explains the tectonic shifts now underway in the investment world far better than any book I have seen to date. Those who are interested in really understanding how financial markets have dramatically changed in the past few years—and how they are likely to change again in the next few years—would do well to read and absorb this important work by Leo Tilman."
David M. Rubenstein, Cofounder and Managing Director, The Carlyle Group

Leo M. Tilman is President of L.M. Tilman & Co., a strategic advisory firm that serves governments, financial institutions, corporations, and institutional investors worldwide. Prior to founding his own company, he held senior positions with BlackRock and Bear Sterns. Tilman teaches finance at University, which is also his graduate alma mater. He is coauthor of Risk Management (Wiley) and editor of Asset/Liability Management of Financial Institutions (Institutional Investor). Tilman is a contributing editor of the Journal of Risk Finance and a frequent speaker at leading business schools and conferences. He serves on the advisory board of the Center on Capitalism and Society at Columbia University and on the board of directors of Atlantic Partnership. Tilman has been honored by the World Economic Forum as a Young Global Leader, joining a select group of executives, public figures, and intellectuals recognized for “their professional accomplishments, commitment to society, and potential to contribute to shaping the future of the world.”



Chapter 1: Understanding and Navigating the Financial Revolution.

Introduction: The Need for Transformational Thinking.

From George Bailey to the Golden Age.

Accounting for Profits the Old Fashioned Way.

The “Great Moderation” As An Evolutionary Catalyst.

Economic Performance in the Dynamic New World.

Pressures on Static Business Models.

Dynamic Finance Perspective on Financial Crises.

Pillars of Strategic Decision Making.

Value Creation Through Dynamism and Business Model Transformations.

Beyond the Façade: The Importance of Risk-Based Transparency.

Chapter 2: The Old Regime and its Demise.

Economic Performance and Viability of Financial Institutions.

Static Business Models.

Dominant Forces: The Future That Has Already Happened.

Pressures on Static Business Models.

Chapter 3: The Dynamic New World.

Risk-Based Economic Performance.

Balance Sheet Arbitrage

Principal Investments.

Systematic Risk Exposures.

Fees and Expenses.

Capital Structure Optimization.

Economic Performance Attribution.

Chapter 4: Business Model Transformations.

Pillars of Strategic Decisions in a Dynamic World.

Responsive Recalibrations of Business Models.

Full-Scale Business Model Transformations.

Making the Strategic Vision a Reality.

Chapter 5: The Road to Financial Darwinism.

Real-World Business Model Transformations.

Stakeholder Communication & Equity Valuation in a Dynamic World.

Economic Value Creation (and Destruction) by Non-Financial Corporations.

The Infamous “Carry Trade” and the Old Ways of Thinking.

A Dynamic Finance Perspective on Modern Financial Crises.

Beyond the Façade: The Need for Risk-Based Transparency.


Epilogue: Financial Darwinism and the Crisis of 2007-2008.

Appendix A: The Risk-Based Economic Performance Equation.

Appendix B: A Case Study in Dynamic Finance.



About the Author.