Playing with fire: Financial innovation

Greed is bad, according this Economist article that touches on financial innovation.  As with anything too much of a good thing can turn bad.  The housing bubble is one clear example that should come to mind.


Full piece here

• When bubbles froth, greedy folk use innovations inappropriately—to take on exposures that they should not, to manufacture risk rather than transfer it, to add complexity in order to plump up margins rather than solve problems. But in those circumstances old-fashioned finance goes mad, too: for every securitisation stuffed with subprime loans in America, there was a stinking property loan sitting on the balance-sheet of an Irish bank or a Spanish caja. “Duff credit analysis is always the cause of the problem,” says Simon Gleeson of Clifford Chance, a law firm.