“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence,” said Mr Volcker ...
Strong statement by the former Fed chief. Where is the evidence of the contribution of finance to growth? Surely the energy and excesses of Wall Street could be spend better on Main Street. I may agree that some of the extremes have marginal contribution, but that is a far cry from saying that Wall Street has to be dismantled. The well-developed mortgage capital markets have been a blessing for the vast majority of home-owners. The impact of the extreme "innovations" or practices, however, have been significant for the entire economy. These have often involved fraud not a failure of finance. The issue is not whether innovation helps but whether every innovation is useful and whether there should be any controls on the innovation process. This is a better starting point.
The best evidence is in the structure of capital markets between developed and emerging markets. The latest international finance research suggests that one of the reasons for the global crisis and imbalance is because there is a shortage of developed capital markets structures in emerging markets. Yes, sovereign ratings have improved but there is a shortage of risk free assets for investors. This has caused EM investors to move more capital to the developed world at the same time that many developed investors have sought risky investments in the EM world.
The comments of Paul Volcker do not help the global economy. It does provoke but it does not advance the discussion.
Strong statement by the former Fed chief. Where is the evidence of the contribution of finance to growth? Surely the energy and excesses of Wall Street could be spend better on Main Street. I may agree that some of the extremes have marginal contribution, but that is a far cry from saying that Wall Street has to be dismantled. The well-developed mortgage capital markets have been a blessing for the vast majority of home-owners. The impact of the extreme "innovations" or practices, however, have been significant for the entire economy. These have often involved fraud not a failure of finance. The issue is not whether innovation helps but whether every innovation is useful and whether there should be any controls on the innovation process. This is a better starting point.
The best evidence is in the structure of capital markets between developed and emerging markets. The latest international finance research suggests that one of the reasons for the global crisis and imbalance is because there is a shortage of developed capital markets structures in emerging markets. Yes, sovereign ratings have improved but there is a shortage of risk free assets for investors. This has caused EM investors to move more capital to the developed world at the same time that many developed investors have sought risky investments in the EM world.
The comments of Paul Volcker do not help the global economy. It does provoke but it does not advance the discussion.
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