Innovation to Stimulate Churn

Innovation to stimulate churn

Jun 18th 2010, 18:30 by M.S.

I HATE it when somebody else writes something that's perfect. How am I supposed to blog about that? All I can do is link to it. I can't earn any blogger cred that way. Might as well just re-tweet it.

This is similar to the financial-industry phenomenon Joseph Stiglitz talked about here at a conference hosted by the Roosevelt Institute back in March, again via Mike Konczal.

[I]t goes back to the fundamental problem that I mentioned in the beginning of failure of alignment between private rewards and social returns. When I was on the council of economic advisors I saw that not only was the financial sector not innovative, they resisted our innovation. We came up with this idea of having inflation-indexed bonds, and it was initially resisted by Treasury, resisted by the financial markets. I scratched my head and I asked why. And then we figured out why. People buy these products and hold them to retirement. If you hold them to retirement you don’t make fees, because you don’t have people selling and buying them. And so for the financial sector they were disastrous. For Americans worried about the risk of inflation, they were a fantastic product.

Mr Stiglitz also talks about how the end result of all the financial innovation in the mortgage-backed securities sector was to make it harder for Americans to manage what for many of them was their primary lifetime investment: their home. In short, it's a brilliant little talk by Mr Stiglitz and the Mike Konczal post I found it in is great too. There's really nothing for me to add. But sometimes it's worth it just to repost stuff, even if you don't earn a monetary or aesthetic percentage off of it. 

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