Abstract

This essay focuses on the nature and prospects of financial innovation in light of the recent global economic crisis.
My central point is that although financial innovation has lately fallen out of favor because some of its products
acted as vehicles in the credit boom that led to the crisis, criticism should be taken with caution. Innovation has
been with us for a long time, and its overall contribution to finance and welfare has been positive. Provided that we
strengthen prudential regulation to discourage excessive risk taking in the future, innovation can continue to
benefit our societies.

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