Innovation, Nussbaum, Crisis
I’m almost afraid to promote this article. Bruce Nussbaum allows that innovation may be responsible for the current financial crisis:
I’m reminded of the criticism I heard at the World Economic Forum in Davos in January that innovation is responsible for this mess. A European banker came up to me and and said, “isn’t innovation at the root of all our problems?” “All those new financial instruments failed, right?”
He’s right. So what went wrong? I’ve talked to a lot of folks and the answer lies in the innovation process that took place on Wall Street.
He then goes on to make some interesting points about the lack of testing, the lack of iteration (the MFA really is the new MBA!), and the lack of transparency. All interesting points, and probably fair (what the hell do I know about financial instruments), but I can hear my wonky number-fetish friends now: see what happens when innovation isn’t tested? nothing should be launched until validated! hell, nothing should be conceived without prior testing!
My (totally ill-informed) thin slice assessment is that there are valid points about testing and transparency, though I would frame them up as “vetting” and “regulatory approval”. I’m not sure markets can be used for iterative testing, but surely there can be the equivalent of peer reviews within a company and it’s possible to force groups to reveal the mechanics and some of the thinking behind the instruments without creating competitive problems. Pharma might be an interesting model. Anyway, I do seriously love the idea of shaking innovation-fetishists by the lapels with this argument.
Nussbaum did get my kindle crackling this morning, with a book reco for Numerati. I’m sharing an image of it, cuz all my blog entries recently have been text.
