A couple of years back in a big survey on asset management McKinsey rose up and prophesied the rise of retail structured financial products. It was thinking of fancy shmancy longevity annuities etc.
Frank Partnoy of UC San Diego has written a number of books which argue that Wall Street makes its money on "information asymmetry", making products too complicated for their purchasers to understand them, and sophisticated enough to make the act of purchasing them impute luster to their purchasers.
In the end, then, it looks like fancy mortgages were already that retail structured product that flattered its purchaser with its complexity. "I got 5/1 neg-am ARM." Sounds smooth, no?
What does this imply for the future of financial products? Will there be a return to simplicity, products you can trust?
Sunday, April 20, 2008
Retail Structured Product
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1 comment:
There's always a product for the mathematically challenged, just look at the idiots playing blackjack who lose four times in a row and think they must be "due" to win the next hand. 2 or 1000 mortgages with a 50% chance of default aren't different, except for the amount of money you can lose.
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