Questioning the Usefulness of Recent Financial Innovations

By on May 9, 2009

Adam S. Posen and Marc Hinterschweiger have co-written an article questioning the usefulness of innovations designed by the looters on Wall Street, the once-called “Masters of the Universe.”

An excerpt:

“But not every innovative product is safe, let alone productive. Unlike pharmaceuticals, aerospace, and a host of other technical fields, financial innovations have been allowed to proliferate unscrutinized and untested for safety or effectiveness. Yet the negative spillovers on the public at large from faulty financial engineering and toxic products have now been clearly demonstrated to be enormous. In particular, there is some solid evidence that the most recent batch of financial innovations was used in manners inconsistent with their labeling, and not only had terrible side effects, but did not even yield the advertised benefits.”

SMA Comment: Amen. It appears the primary innovation was the development of ingenious ways of hiding risk and selling it to the unsuspecting.


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