Smart Money: How High-Stakes Financial Innovation Is Reshaping Our World—for the Better

As official national villain, Wall Street has recently been supplanted by other malefactors (such as the CIA, local police forces, and Ebola), yet the Great Recession has undeniably left finance with a tarnished reputation. Economist journalist Palmer hopes to burnish its image in this eloquent manifesto, highlighting current innovations in finance that promote social good. Wisely, Palmer begins by admitting Wall Street’s recent sins: namely, disastrously miscalculating the risks of subprime mortgages and triggering the global financial crisis of 2007–2008. Yet, as he observes, financial crises are nothing new, dating back to 33 C.E. Palmer argues that a world without finance (and thus without loans, credit, insurance, or investments) would be far worse. He points to how the Internet now allows individuals to bypass conventional financing, gives borrowers access to lower interest rates, and lets entrepreneurs obtain capital via crowdfunding. He also discusses social-impact bonds, wherein nonprofit organizations that, say, reduce recidivism pay off investors using the money saved by the government. Palmer responsibly notes the potential risks of such brave new innovations, spotlighting a not-so-novel innovation, catastrophe modeling for insurers, which could also be valuable, specifically for modeling risk in markets. This intelligent, balanced study of current innovations in finance does much to exorcise its recent demonization. Agent: Andrew Stuart, Stuart Agency. (Apr.)