To: Henry Volquardsen who wrote (6650 ) 9/24/1998 12:13:00 PM From: DMaA Read Replies (1) | Respond to
Mr. Greenspan seems enamored with the new financial technologies. It scares the begeebers out of me.As I have indicated in earlier presentations, the dramatic advances in computer and telecommunications technologies over the last decade have fostered a marked increase in the degree of sophistication of financial products. A vast new array of debt, equity and hybrid instruments, as well as newly crafted derivative products have fostered an unbundling of risks, which, in turn, has enabled investors to optimize (as they see it) their portfolios of financial assets. This has engendered a set of market prices and interest rates that have guided business organizations increasingly toward producing those capital investments that offer the highest long-term rates of return, that is, those investments that most closely align themselves with the prospective value preferences of consumers. This process has effectively directed scarce savings into our most potentially valuable productive capital assets. The result, especially in the United States, where financial innovations are most advanced, has been an evident acceleration in productivity and standards of living, and, owing to the financial sector's increased contribution to the process, a greater share of national income earned by it over the past decade. In its brief existence as a highflying hedge fund, Long-Term Capital -- with the help of two Nobel-laureate partners -- made a name for itself with its complex, billion-dollar bets on the difference between interest rates on various bonds.
