November 2, 2018

Fragile innovation

This video explains how financial innovation helped cause the 2008 financial crisis.

Innovation is seen as universally good. New ideas make our lives easier and more productive. This should apply to financial innovation as well. But a paper by Francesco Ferrante published in the October issue of American Economic Journal: Macroeconomics highlights some large risks that may outweigh any benefits. One financial innovation in particular, securitization, likely played a central role in the 2008 financial crisis.