Ben Bernanke gave a speech on Friday praising financial innovation and warning that we shouldn’t be too hasty in dismantling the progress of the past few decades. Ryan Avent comments:
According to Bernanke, no one, “wants to go back to the 1970s,” but neither could Bernanke point to a truly helpful piece of financial innovation developed after that decade. His examples of successful financial products? Credit cards, for one, which date from the 1950s. Policies facilitating the flow of credit to lower income borrowers was another, for which he credited the Community Reinvestment Act of 1977. And, of course, securitization and the secondary mortgage markets developed by Fannie Mae and Freddie Mac in…the 1970s.
In fact, the only post-70s innovation Bernanke pointed to was the rise of subprime mortgage financing, which, Ryan points out, might not be quite the compelling example he thinks it is. So what has financial innovation gotten us, aside from massive profits for clever bankers?
Beats me. I remember that Dani Rodrik asked this question a few months ago, and I also remember that he didn’t really get an awful lot of persuasive replies. The broad answer usually boils down to “easier access to credit,” but in hindsight, that wasn’t necessarily such a terrific innovation after all, was it? The innovation crowd probably ought to take another crack at this.