Financial Innovations Forge Fiduciary Faults.

   Financial innovations are sometimes not good.  This was the testimony of Federal Reserve Chair Ben Bernanke to the Financial Crisis Inquiry Commission at the "FCIC Meeting on 'Too Big to Fail'--Day 2," Thursday, September 2, 2010 (video archive provided by the Financial Crisis Inquiry Commission and by C-Span).  For reporting on this testimony, see, e.g., this summary by Sewell Chan, "Bernanke Says He Failed to See Financial Flaws: p. B3, col. 1 (New York Times Nat'l ed., "Business Day" Section, Friday, September 3, 2010):

   Asked about the role of financial innovation in the economy, Mr. Bernanke, said that "innovation is not always a good thing."  Some innovations [1] have unpredictable consequences, [2] are used primarily "to take unfair advantage rather than to create a more efficient market," and [3] create systemic risks, he said.

[Bracketed numbers added.]

   Financial innovations are not good, in particular, when they are destructive of the financial system and the relations among the participants in the financial system, as they were in the actions that led to the recent Financial Catastrophe through which we are now living.

   Financial innovations led to the recent Financial Catastrophe largely because they fostered Fiduciary Breach.

Dennis Wall is Co-Author of the leading book on Insurance Coverage for Insurance Claims that are a result of natural and man-made Catastrophes:  "CATClaims:  Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process).  Mr. Wall will be a featured speaker on several panels which will address the BP Oil Spill Catastrophe.  On September 15, 2010, he will be a featured speaker on a panel addressing "BP Oil Spill Damages Claims:  The Coverage Predicates" at the September 15, 2010 Seminar of the Insurance Law Committee sponsored by the Orange County Bar Association in Orlando, Florida.   Mr. Wall will speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters:  How to Properly Investigate and Handle Overwhelming Claims".  The American Conference Institute is offering a discount to readers of this Blog:  Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.

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Comments

[Inheritance Advisers]

Thanks for the post. Of course inovations would breed tort. There is a saying in these parts 'if you invent trains, you invent train spotters'.

[Dennis Wall]

Thanks for your Comment. Innovations breed responses, there is no doubt. But there is more than innovation at work on Wall Street, and in the Gulf of Mexico, and in other areas where the denizens do not seem to know that they are following a failing Business Model, which is clearly not Capitalism but opposed to it.

The explosion and spill in the Gulf of Mexico, and the Financial Fiasco produced by Wall Street, both resulted from a failed Business Model which inherently makes a few people rich and many people destitute, unlike Capitalism has done since it was followed the first time and every time since then. Instead, the prevailing Business Model kills eleven people in the Gulf of Mexico and harms many others, for example. The Business Model followed by Wall Street and the Oil Producers depends on nonexistent or fraudulent Regulation.

That is the way it is. What we are living through is nothing less than a reexamination of that Business Model.

Whether Insurance does, may, or as a matter of public policy, should provide Coverage to this way of doing business even as a new Business Model is emerging to take its failed place, are questions even now beginning to be addressed.

Thank you again for your Comment.