Four financial innovations for a new generation
While financial innovation is often associated with nearly toppling the international economic system, some entrepreneurs are preparing a different breed of financial tools.
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By putting money in firms within 100 miles of Charleston, S.C., “it allows us better oversight into those companies, to formally interact by going to annual meetings, for example,” Mr. Silverman says. “You’re going to read about the CEOs in the local paper and maybe it’s somebody you know at the local country club.… My clients were feeling distance from their investments and 100-mile investing will allow them the touch-and-feel factor.”Skip to next paragraph
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The development of local investment schemes takes a lot of work, Silverman acknowledges. “This type of approach not only needs folks with a sensibility for [the] communal aspect, but it also means being able to read through and understand those extra reports and sustainability reports, and go visit those companies, and [for] an investment adviser, that’s an expensive proposition.”
Financial innovation in the medium term has its fair share of skeptics.
“I just don’t see that there is a great need for innovation for quite a while. It’s a period for consolidation,” says George Kaufman, a professor of finance and economics at Loyola University in Chicago. Right now, he says, the financial industry faces a time “to make sure we don’t throw out the baby with the bath water” as regulators try to cope with the fallout from the bursting of the stock market and housing bubbles.
Some homeowners and investors might not be ready either. Many have been stung by overextending on their home equity.
“I think the challenge is that people are going to wait a long time before they start using their homes as ATMs,” said Jim Eckenrode, a research executive for banking at TowerGroup, a financial-consulting firm in Needham, Mass.
For example: While home-value protection was arguably successful in Syracuse, it hasn’t been adopted anywhere else, despite prominent champions like Mr. Shiller and Mr. Nalebuff behind the idea. Even in Syracuse, community reaction was mixed.
Some embraced it, says Karen Schroeder, marketing and research development manager at Home Headquarters Inc., the Syracuse nonprofit that oversees the program. “On the other hand,’ she says, “we had people who thought that it magnified the problem.”
Yet there are stirrings of approval from industry leaders for some of these ideas. For example, the Global Impact Investing Network – backed by the Rockefeller and Gates foundations and banks like Citigroup, Deutsche Bank, and JPMorgan Chase – has big aims: quantitative measures for socially conscious investing and lobbying for regulatory changes to make such investing easier.
“Can you invest in the welfare of people?” asks John Katovich, chief legal officer at the Boston Stock Exchange. “Can you invest in health support of a community … in small, local innovations? And can you invest in bringing people, actually, together.” Mr. Katovich continues: “If you can maintain a healthy growth in your bank account and support all of [those things] at the same time, which one are you getting a better return on? That or a hedge fund?”
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