Financial Innovation: Too Much or Too Little?

In assigning blame for the recent economic crisis, many have pointed to the proliferation of new, complex financial products--mortgage securitization in particular--as being at the heart of the meltdown. The prominent economists from academia, policy institutions, and financial practice who contribute to this book, however, take a more nuanced view of financial innovation. They argue that it was not too much innovation but too little innovation--and the lack of balance between debt-related products and asset-related products--that lies behind the crisis. Prevention of future financial crises, then, will be aided by a regulatory and legal framework that fosters the informed use of financial innovation and its positive effects on the economy rather than quashing it entirely.

The book, which includes two contributions from Robert Shiller as well as a discussion of Shiller’s “MacroMarkets” tool, considers the key ingredients of financial innovation from both academia and industry; the positive potential but also the risks of financial innovation and the influence of producers on consumers; rationality- and behavioral-based viewpoints on the causes of the recent crisis; the link between the cycle of financial innovation and financial crisis; and how future innovation-linked crises might be avoided.

About the Author

Haliassos holds the Chair in Macroeconomics and Finance at Goethe University Frankfurt and is currently Director of the Center for Financial Studies and Executive Director of the Excellence Center S.A.F.E. at Goethe University. He is a Research Fellow of the Centre for Economic Policy Research (CEPR), International Research Fellow of NETSPAR (The Netherlands), and External Fellow of the Centre for Finance and Credit Markets (University of Nottingham, UK). He recently completed a two-year term on the Panel of the journal Economic Policy (2010-11). Haliassos received a B.A. in Economics from Cambridge University and a Ph.D. in Economics from Yale University in 1987. Prior to joining the faculty of Goethe University Frankfurt in 2004, he was a faculty member at the University of Maryland , and then at the University of Cyprus, where he also served as Deputy Dean of the School of Economics and Business. He has held visiting appointments inter alia at the European University Institute in the Chair of Finance and Consumption, and at the Center of Studies in Economics and Finance (CSEF). He is advisor to the European Central Bank on the construction of a Eurozone Survey of Household Finances and Consumption. His research interests lie in Macroeconomics and Finance with emphasis on household finance. His papers have appeared in major international journals, including the Review of Economics and Statistics, International Economic Review and the Economic Journal; and in edited volumes, including the Handbook of Monetary Economics and the New Palgrave Dictionary of Economics and Finance. He has co-edited an MIT Press volume on Household Portfolios, that has become a standard reference in household finance. He has recently edited a book on Financial Innovation: Too Much or Too Little?, published by MIT Press in 2013, and co-edited a special issue of the Review of Finance on Household Finance (2012).

Haliassos is currently a member of the Greek National Council on Research and Technology (ESET).