Instead of focusing too heavily on the welfare effects of individual innovations, on which sensible people can disagree, we could consider incentive issues behind developments in the financial industry, especially purported innovations that  2  While HFT in equity markets has been intensely debated, that in foreign exchange markets has been little discussed.
Likewise, the balance sheets of special purpose vehicles (SPVs), which are off the balance of, but virtually supported by their “parent” commercial banks, accelerated sharply to a degree that exceeded even those of the investment banks. SPVs increased their assets, including investment in securitized products, against a backdrop of favorable funding conditions, which I explain shortly.