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Comment by bko | Hacker News Reader

A lot of people would say the same about the merits of creating a new way to message people or share pictures.

These financial products aren't about shuffling money around but shuffling risk around. For instance, one mortgage may be risky but you if you pool a thousand mortgages together, divide the cashflows so that one investor is willing to take on the first losses (for a higher return), and so on, this would attract many new buyers with different risk profiles. This would also reduce the cost of that mortgage to the buyer.

This is the theory at least.

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Imo people can create as many shitty photo-sharing apps as they want if this means not fucking up the world's financial system.

>Imo people can create as many shitty photo-sharing apps as they want if this means not fucking up the world's financial system.

So quickly we forget that it wasn't long ago what were essentially "shitty photo-sharing apps", and the hype behind them, crashed the financial system.

I don't think that the apps themselves crashed the system. The greedy investors on the other hand did because the speculation on the app's valuation was completely wrong.

In the same sense "greedy" investors incorrectly speculated on the securities valuations, leading to an increase in price and lowering of underwriting standards in order to meet the increased demand. The actual products themselves were neither good or bad but just overvalued.

Thing is, though, that these financial products only affected the shape of a particular country or region's problems, they were not the fundamental cause of "fucking up the world's financial system". The US subprime residential real estate crash did not cause e.g. the European residential real estate crash, and is not causing what appears to be a PRC residential real estate crash right now.

For that, IMHO you have to look at more fundamental things, like the US and other countries governments running massive deficits (not to mention private debt). Or the PRC looking at the consequences of the 1997 Indonesian financial crisis (https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#In...) and deciding they were intolerable, and engaging in https://en.wikipedia.org/wiki/Financial_repression + no government social safety net + the demographic problems of their "one-child policy" (https://en.wikipedia.org/wiki/One-child_policy) resulting in not enough children to take care of retired parents and grandparents resulting in a big mess.

One consequence being people investing in real estate, plus other policies, like local governments selling land for real estate development, and the prior central government encouraging economic activity and "growth" through the construction industry ... well, as the PRC's new government "takes away the punch bowl", messy things are happening, but none of them have financial products as their root cause.

Or look at the Euro/EU, is the problem particular financial products, or a monetary structure that allowed "Mediterranean" countries like the PIIGS to borrow money like Northern European countries (for a while)?

In some cases fundamentally unsound financial products might be the cause, e.g. allowing Eastern Europeans to borrow in hard currency denominated financial instruments, when the currencies they earned money in had every chance of falling.

But the really big problems seem to me to be structural. Heck, look at extremely conservative Japan, which without to my knowledge any "financial innovation" has managed to thoroughly wreck their economy for decades and the foreseeable future.

but as practice has shown, the exposure of the global economy to a photo sharing startup going belly up is negligible, but the exposure of the global economy to a miscalculated risk was significant enough to warrant a less cavalier attitude to it :)

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