Jonathan Ernst / Reuters Protestors hold signs behind Richard Fuld, Chairman and Chief Executive of Lehman Brothers Holdings, as he takes his seat to testify at a House Oversight and Government Reform Committee, October 6, 2008.

In Defense of Financial Innovation

Creative Finance Helps Everyone—Not Just the Rich

At a 2013 conference held by The Economist in New York, business and policy leaders debated whether talented university graduates should join Google or Goldman Sachs. Vivek Wadhwa, a serial entrepreneur, spoke up for Google. “Would you rather have your children engineering the financial system [and] creating more problems for us, or having a chance of saving the world?” he asked. He had a much easier time pitching his case than Robert Shiller, the Nobel Prize–winning economist who advocated for Goldman Sachs by arguing that every human activity, even saving the world, had to be financed. No use; in the end, the audience voted heavily in favor of Mountain View and against Wall Street.


Such bias reflects the profound shift in public attitudes toward Wall Street that followed the 2008 financial crisis. In the decade before the meltdown, bankers were lionized. Policymakers applauded the efficiency of financial markets, and widespread praise for financial innovation drowned out any criticism. But when the crisis hit, the pendulum swung too far in the opposite direction. The new consensus now portrays bankers as villains whose irresponsible practices and shady techniques unleashed disaster. This view holds that only a small part of the financial industry actually benefits society—the one that doles out loans to individuals and businesses. The rest constitutes dangerous, unnecessary gambling, and so financial ingenuity of all kinds is highly suspect. 


Such anger is well founded; finance certainly did a bad job of applying itself to big problems in the run-up to the crisis, and the popular myth of the industry’s invincibility contributed to this failure. Eliminating this misperception was entirely for the best. But demonizing finance is also a mistake, and restricting the sector to its most familiar elements would do nothing to mend its flaws. Worse, such a course could wreak damage outside the banking industry, because financial ingenuity reaches far beyond Wall Street. Innovative financiers are currently helping solve an array of socioeconomic problems—including those related to the strength

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