Going Beyond Greek letters

My new article in Mint summarises most of what I have been saying all along- finance is important, but the practices are making it too dangerous and complex.

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3 Responses to “Going Beyond Greek letters”

  1. Umakanth V Says:

    The observations in your article are interesting. Disclosures relating to complex transactions will always result in information asymmetry. However, that just seems to be a fact one cannot wish away. It is almost impossible provide these disclosures in simple terms that is comprehensible to a lay investor. If at all that is attempted, there is a risk of oversimplification that may alter the meaning, relevance and importance of that information. Therefore, the option of providing simple disclosure that lay investors understand may not be a viable option.

    As Steven Schwarcz notes in his article Rethinking the Disclosure Paradigm in a World of Complexity (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=336685), what we have is a “dilemma that some structured transactions are so complex that disclosure to investors of the company originating the transaction is necessarily imperfect – either oversimplifying the transaction, or providing detail and sophistication beyond the level of even most institutional investors and securities analysts.”

    This then means that disclosure is not the proper means to regulate complex financial transactions. Such transactions must either be restricted by law and regulation, or alternatively such complex investment opportunities must be made available only to sophisticated investors (e.g. qualified institutional buyers) and not to those who cannot understand and appreciate the full extent of the risks they may be taking with these investments. This must, of course, be weighed against the need for vibrant financial markets that encourage financial innovation – always a tough balance.

  2. Financial Education: is teaching ABC enough? « Mostly Economics Says:

    […] Education: is teaching ABC enough? My earlier article on Finance becoming increasingly Greek pushed me into writing a paper on the […]

  3. UBS appoints a chief communications officer « Mostly Economics Says:

    […] is needed is a person who can explain the developments in finance in plain English (read my post and research here). It is a much bigger task than creating all the fancy instruments. I hope Mr […]

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