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Some Thoughts on Financial Innovation and Financial Crises

  • Giovanni Palmerio


    (Department of Economics – LUMSA University, Rome)

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    Financial innovation, which was originally introduced for a positive aim, over time has actually had relevant negative effects on the economy. This occurred because it encouraged intermediaries to change their way of operating, allowing them to modify their solvency without changing radically their external shape. Financial innovation, which developed on account of both the need to finance the growing USA external debt and the tendency of American families to incur into excessive debts, is certainly the main cause lying behind the recent financial crises. In the future, these can be avoided only by means of a strict regulation of financial markets.

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    Article provided by Academy of Economic Studies - Bucharest, Romania in its journal The AMFITEATRU ECONOMIC journal.

    Volume (Year): 11 (2009)
    Issue (Month): 26 (June)
    Pages: 522-532

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    Handle: RePEc:aes:amfeco:v:11:y:2009:i:26:p:522-533
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    1. Hull, John & Predescu, Mirela & White, Alan, 2004. "The relationship between credit default swap spreads, bond yields, and credit rating announcements," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2789-2811, November.
    2. Elul Ronel, 1995. "Welfare Effects of Financial Innovation in Incomplete Markets Economies with Several Consumption Goods," Journal of Economic Theory, Elsevier, vol. 65(1), pages 43-78, February.
    3. Adam B. Ashcraft & João A. C. Santos, 2007. "Has the credit derivatives swap market lowered the cost of corporate debt?," Staff Reports 290, Federal Reserve Bank of New York.
    4. Houweling, Patrick & Vorst, Ton, 2005. "Pricing default swaps: Empirical evidence," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1200-1225, December.
    5. Jameson, Mel & Dewan, S. & Sirmans, C. F., 1992. "Measuring welfare effects of "unbundling" financial innovations: The case of collateralized mortgage obligations," Journal of Urban Economics, Elsevier, vol. 31(1), pages 1-13, January.
    6. Robert C. Merton, 1995. "A Functional Perspective of Financial Intermediation," Financial Management, Financial Management Association, vol. 24(2), Summer.
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