The Economist makes an excellent point before starting out on a review of a new book on global finance:
"FINANCIAL history has been sliced in two: there is BC and AD—Before Crisis and After Disaster."
An excellent point indeed to keep in mind, especially as we contemplate the world past November of 2008. The Economist goes on with it's review*:
If Mr Wolf were to rewrite his book—a new edition is promised at some point—he would no doubt shift his emphasis. But his first run at the subject, which grew out of a series of lectures delivered in early 2006 and comes out in Britain later this month after being published in America last September, holds up remarkably well despite all that has happened.
Mr Wolf, chief economics commentator for the Financial Times,
begins with a truth that is easy to forget: sophisticated finance does
bring benefits. Finance allows the creation of vast enterprises out of
the combined capital, supplied at modest cost, of millions of people.
It permits upstarts to launch companies, challenging the power of
incumbents. It allows people to smooth their spending over a lifetime.
It facilitates risk sharing and insurance. Empirical studies confirm
that these advantages are real. Countries that had large financial
sectors in 1960 grew faster over the next three decades than those that
A doubling in the size of private credit in a developing country has been shown to boost the growth rate by an average of 2 percentage points a year. Developing countries that open their stock markets to foreign investors reap big benefits: output per worker grows by 2.3 percentage points faster than it would have done otherwise.
So financial sophistication is a boon. But it is also dangerous."
We now all to well how dangerous, and that story has not yet fully unfolded unfortunately. But it is precisely at this time A.D. (after disaster), we need to keep in mind the benefits of "sophisticated finance". May we see those benefits again some day, with of course the necessary precautions and oversights.