Monday, March 24, 2008

Innovation and the Stock Market

In a recent article written by Robert J. Schiller, a economics professor at Yale University, he discusses how innovation for the stock market ten years ago is just now showing it’s true effects. This article appeared in the Daily Times.


One of the biggest innovations a decade ago was the invention of subprime mortgages. This is allowing people who had non-preferable credit scores to borrow more money to spend is new to the economy, and we’re starting to see the effects of that. Since the Untied States is so liberal when it comes to the stock market and spending, the chances of growth are very high. And growth was positive over the last few years, until recently. Schiller is in part accusing this innovation for the troubles we are having with the stock market today.


But, while it does sometimes appear that the current crisis is due, at least in part, to financial innovation, financial-market liberalisation has been shown to be a good thing overall.


So our stock market has grown in part due to the liberal way our government allows us to work with our economy. The government, for the most part, has not dipped its hands in to the stock market in years allowing innovation to step in and help the market grow. Innovation is not always perfect the first time. We all may be more affected by this type of innovation more than anything else.


So since we are having these problems with our stock market, do you think it’s better to stop innovating and go back to the way the market was twenty years ago or do we continue innovating at this speed to find a better solution ten years down the road? Either way, people’s lives will be affected now. Is a few years of financial uncertainly for a few years worth the chance for another innovative way to grow the stock market could affect financial times in a few years?


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