http://online.wsj.com/article/SB10001424052748704825504574586330960597134.html A few years ago I happened to be at a conference of business people, not financial people, and I was making a presentation. The conference was being addressed by a very vigorous young investment banker from London who was explaining to all these older executives how their companies would be dust if they did not realize the joys of financial innovation and financial engineering, and that they had better get with it. I was listening to this, and I found myself sitting next to one of the inventors of financial engineering. I didn't know him, but I knew who he was and that he had won a Nobel Prize, and I nudged him and asked what all the financial engineering does for the economy and what it does for productivity. Much to my surprise, he leaned over and whispered in my ear that it does nothingâand this was from a leader in the world of financial engineering. I asked him what it did do, and he said that it moves around the rents in the financial systemâand besides, it's a lot of intellectual fun.
Maybe he was angry because he wasn't serving on the board of directors of GS, UBS, MS or Barclay's et al.
i was taught in my finance class that financial engineering is bull shit. appreantly green span and bernake don;t understand the financial instruments that sparked this crisis. and they certianly are very competent both sacastically and truthfully. my lectuer said that these financial engineers need to justify their high salary and it is better (and less complicated) to just invest in the underlying asset the financial instrument is based on.
It is unfair to make such an indiscriminate, broad-brush statement... There's all sorts of financial innovation, some good, some bad.
heh ,my lectuer's opinion not mine. ive yet to understand or look at a financial instrument besides the one that caused the subprime crisis.
Name some good ones. It is actually a well known fact among the financial community that most of, if not almost all, of the financial engineering is plain bullsh*t. I think there is some smart innovation that is good for generating investment, but this is a tiny minority.
I look at it this way: Financial Innovation results in new types of trade. Trade is good when both parties end up with more utility after they exchange than before. The innovation itself isn't bad.
Well, I am not sure which financial community you might be referring to here... As to financial innovation/engineering, at which point do you start defining products as innovative? Are futures, being derivatives, financial engineering?
Have some friends in London who used to work the financial engineering of MBS, CDOs and some work on LBOs. The smart ones who do not BS themselves, and my buddy is like that, know that it's all bullsh*t. I agree, futures are useful, so are options, even if both of these got oversaturated with speculators. However, the term financial engineering applies more to the current wave of worthless paper instruments and really started with Michael Milken and his games with junk bonds. At the end of the day, there is only so much you can do with crap, no matter what kind of platter you put it on.