Secondary Sources: Financial Innovation, Euro’s Trojan Horse, Forecasting
A roundup of economic news from around the Web.
- Defending Financial Innovation: The Brookings Institution’s Robert Litan warns against reacting to the financial crisis by stifling financial innovation. While Paul Volcker dismisses the value of financial innovation since the ATM, Litan offers a long list of developments — from indexed mutual assets to asset-backed securities to futures exchanges — that “are a net clear for the nation.” He writes: “Society would benefit from even more financial innovation in the future that would help cushion individuals or firms from certain financial risks to which they are now exposed but can do small or nothing about. ? At the same, but, policymakers must do a much better job than they have in the past of stopping destructive innovation and the mishandle of constructive innovation, either or both of which can lead to future financial bubbles that expose the economy to financial crises.?
- Trojan Horse? Writing for Project Syndicate, Barry Eichengreen looks at the troubles in Greece (along with Spain, Portugal and Italy) and what European leaders must do to address longer-term risks. “Making the euro was not a mistake, but it could still be a mistake in the making,” he says. “The Greek crisis shows that Europe is still only halfway toward making a viable monetary union. If it stays place, the next crisis will make this one look like a walk in the park.” Eichengreen says Europe needs “a proper emergency financing mechanism” that allows other member states to offer help with conditions and temporary control of the national budget by special masters appointed by the European Union. “The Greek crisis could be the Trojan horse that leads Europe toward deeper biased integration. One can only hope.”
- The Murky Science: The British Ambassador to the U.S., Sir Nigel Sheinwald, uses the recent blizzard to look at weather forecasting and economic forecasting. “Weathermen and weatherwomen have the luxury of knowing just so what the weather is doing right now and delight in pretty accurate surveillance mechanisms to enhance their small-term forecasting,” he writes. “Economic forecasting is way murkier.” Improving international coordination and cooperation in economic monitoring and policymaking can mitigate the challenge, he says.