Thursday, April 15, 2010

Quote of the day on financial innovation

Felix Salmon is blunt:
In the world of credit, innovation generally consists of taking risky stuff, waving some kind of diversification and/or overcollateralization magic wand, and ending up with something which is (a) meant to be safer, and (b) much more difficult to analyze on a fundamental basis: you end up having to use models instead. And models have a tendency to break.

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