Andrew Palmer (“In Defense of Financial Innovation,” May/June 2015) notes that “financial ingenuity reaches far beyond Wall Street” and that “innovative financiers are currently helping solve an array of socioeconomic problems.” He describes many of these financiers’ innovative approaches, such as social-impact bonds. But he neglects to mention that most of these innovations were created outside of retail and investment banks. Palmer should question why this is the case, but he does not.

Palmer claims that there is something inherently destabilizing about housing markets. Not so. Pre-crisis instability can be attributed to the process of securitization, whereby real estate debt was converted into financial instruments that concealed risk. Palmer likewise neglects to indicate that some of the key causes of the crisis involved practices in the so-called shadow banking sector, which was ineffectively regulated, in part due to lobbying by financial institutions. These activities were profit driven, not attempts to offer new products or services to the market. The record is clear that this behavior was anything but “a search for safety as well as profit,” as Palmer contends. 

PAUL SEMENZA, Santa Clara, California