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Smart Money: How High-Stakes Financial Innovation is Reshaping Our World - For the Better
Seven years after the financial crisis of 2008, financiers remain villains in the public mind. Most Americans believe that their irresponsible actions and complex financial products wrecked the economy and destroyed people’s savings, and that bankers never adequately paid for their crimes.
But as Economist journalist Andrew Palmer argues in Smart Money, this much maligned industry is not only capable of doing great good for society, but offers the most powerful means we have for solving some of our most intractable social problems. From Babylon to the present, the history of finance has always been one of powerful innovation. Now a new generation of financial entrepreneurs is working to revive this tradition of useful innovation, and Palmer shows why we need their ideas today more than ever.
Traveling to the centers of finance across the world, Palmer introduces us to peer-to-peer lenders who are financing entrepreneurs the big banks won’t bet on, creating opportunities where none existed. He explores the world of social-impact bonds, which fund programs for the impoverished and homeless, simultaneously easing the burden on national governments and producing better results. And he explores the idea of human-capital contracts, whereby investors fund the educations of cash-strapped young people in return for a percentage of their future earnings.
In this far-ranging tour of the extraordinarily creative financial ideas of today and of the future, Smart Money offers an inspiring look at the new era of financial innovation that promises to benefit us all.
But as Economist journalist Andrew Palmer argues in Smart Money, this much maligned industry is not only capable of doing great good for society, but offers the most powerful means we have for solving some of our most intractable social problems. From Babylon to the present, the history of finance has always been one of powerful innovation. Now a new generation of financial entrepreneurs is working to revive this tradition of useful innovation, and Palmer shows why we need their ideas today more than ever.
Traveling to the centers of finance across the world, Palmer introduces us to peer-to-peer lenders who are financing entrepreneurs the big banks won’t bet on, creating opportunities where none existed. He explores the world of social-impact bonds, which fund programs for the impoverished and homeless, simultaneously easing the burden on national governments and producing better results. And he explores the idea of human-capital contracts, whereby investors fund the educations of cash-strapped young people in return for a percentage of their future earnings.
In this far-ranging tour of the extraordinarily creative financial ideas of today and of the future, Smart Money offers an inspiring look at the new era of financial innovation that promises to benefit us all.
304 pages, Hardcover
First published April 14, 2015
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258 people want to read
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Displaying 1 - 12 of 12 reviews
September 9, 2025
Finance undergoes constant experimentation and innovations that are met with a mixture of enthusiasm and skepticism, speculation and measured adoption. People often blame the financial industry for downturns and their personal woes, but Andrew Palmer maintains that the industry is "home to creative minds grappling with gigantic problems." He warns investors against complacency, to appreciate thoughtful regulation and to support entrepreneurial endeavors that tackle problems as far-ranging as poverty and inequality.
October 3, 2018
All versions of finance get bashed, except for catastrophe-focused risk aversion and selling your life insurance when nearing death. Im a little upset to learn that real estate property only gains about 1% in value each year. Strange book when you view it as a whole.
This entire review has been hidden because of spoilers.
March 2, 2019
This would be a good text book for a Money and Banking college course. With that said, it is too basic for anyone with some knowledge or experience with finance and investments.
July 24, 2015
By Peter Thal Larsen
Bashing finance is fashionable. Ever since the crisis, critics have lined up to topple the false idol of financial innovation from its pedestal. Spurred on by revelations about irresponsible lenders and rate-rigging traders, they have forged a consensus: institutions need more regulation, excessive growth in activity is dangerous, and anything that claims to be a new idea is to be viewed with suspicion.
Andrew Palmer’s “Smart Money” takes on the lonely task of presenting the case for the defence. Palmer is a journalist for The Economist, which has a knack for making provocative and at times contrarian arguments. His optimistic perspective is refreshing, but never wholly persuasive.
This short book starts by cantering through the history of financial progress. It reminds us how services we now take for granted were once inventions that solved fundamental social problems. Banks evolved to turn short-term savings into long-term loans. The Great Fire of London spurred the growth of insurance. And though derivatives now have a bad name, traders have been using similar instruments to manage risk for centuries.
Palmer stretches the argument further when discussing the 2008 crisis. Far from condemning innovation, he makes the case that the blame for the meltdown rests with the lack of creativity in real estate finance. The toxic soup of securitisation, collateralised debt obligations, structured investment vehicles and credit default swaps had a common ingredient: the humble mortgage. If the money men had come up with more flexible ways of funding housing purchases, some of the damage might have been avoided.
There is growing agreement that the sector has become unhealthily preoccupied with financing the purchase of real estate assets, rather than funding new businesses. But if this is bad, then what does the industry do that is good? Palmer reels off a list of new, “socially useful” ideas. He describes social impact bonds that pay investors if ex-convicts commit fewer offences; student loans that vary according to future income; securitisation of possible new drugs; and companies that match start-ups with investors online.
Interviews with driven, idealistic entrepreneurs make a refreshing change from the rogue’s gallery of greedy, myopic traders blowing up the economy or conspiring to hoodwink the public. Though Palmer mercifully avoids the language of disruption, his case studies are infused with the change-the-world ethos of Silicon Valley, where many of the companies are based. The implication is clear: if phones, televisions, watches and even cars can be made smarter with technology, then why not financial services?
The book is stuffed with statistics and striking observations. One of my favourites is that, adjusted for inflation, the price of a property on Amsterdam’s Herengracht was the same in 1992 as in 1646. Yet the taxonomy of innovation is strangely incomplete. The explosion of exchange-traded funds, arguably one of the biggest changes in capital markets of the past decade, is hardly mentioned. There is nothing on ‘contingent convertibles’, novel bonds that banks have started to issue so that they are better able to withstand the next crisis. China, which has been a petri dish for online originality, receives little attention. Bitcoin is ignored.
Meanwhile, in its eagerness to present the case for invention, the book at times strays into cheerleading. The reader is left wondering whether the new companies Palmer describes are genuinely novel, or just using technology to deliver existing business models more efficiently. Those who worry that peer-to-peer lending hides excessive risks, or rests on regulatory arbitrage, will find little to soothe their concerns. A lengthy discussion of the ideas of Robert Merton, the celebrated economist, contains only a glancing reference to his involvement in Long-Term Capital Management, the once-innovative hedge fund that collapsed in 1998.
Financial innovation is worth defending. At a time when other industries are seeing so many upstarts, it would be a mistake to assume that finance is not capable of coming up with fresh ideas. In that sense, “Smart Money” is a welcome corrective to the prevailing conventional wisdom. But not all business models that claim to be ground-breaking are genuinely new. And even new ideas are capable of building up old risks.
Bashing finance is fashionable. Ever since the crisis, critics have lined up to topple the false idol of financial innovation from its pedestal. Spurred on by revelations about irresponsible lenders and rate-rigging traders, they have forged a consensus: institutions need more regulation, excessive growth in activity is dangerous, and anything that claims to be a new idea is to be viewed with suspicion.
Andrew Palmer’s “Smart Money” takes on the lonely task of presenting the case for the defence. Palmer is a journalist for The Economist, which has a knack for making provocative and at times contrarian arguments. His optimistic perspective is refreshing, but never wholly persuasive.
This short book starts by cantering through the history of financial progress. It reminds us how services we now take for granted were once inventions that solved fundamental social problems. Banks evolved to turn short-term savings into long-term loans. The Great Fire of London spurred the growth of insurance. And though derivatives now have a bad name, traders have been using similar instruments to manage risk for centuries.
Palmer stretches the argument further when discussing the 2008 crisis. Far from condemning innovation, he makes the case that the blame for the meltdown rests with the lack of creativity in real estate finance. The toxic soup of securitisation, collateralised debt obligations, structured investment vehicles and credit default swaps had a common ingredient: the humble mortgage. If the money men had come up with more flexible ways of funding housing purchases, some of the damage might have been avoided.
There is growing agreement that the sector has become unhealthily preoccupied with financing the purchase of real estate assets, rather than funding new businesses. But if this is bad, then what does the industry do that is good? Palmer reels off a list of new, “socially useful” ideas. He describes social impact bonds that pay investors if ex-convicts commit fewer offences; student loans that vary according to future income; securitisation of possible new drugs; and companies that match start-ups with investors online.
Interviews with driven, idealistic entrepreneurs make a refreshing change from the rogue’s gallery of greedy, myopic traders blowing up the economy or conspiring to hoodwink the public. Though Palmer mercifully avoids the language of disruption, his case studies are infused with the change-the-world ethos of Silicon Valley, where many of the companies are based. The implication is clear: if phones, televisions, watches and even cars can be made smarter with technology, then why not financial services?
The book is stuffed with statistics and striking observations. One of my favourites is that, adjusted for inflation, the price of a property on Amsterdam’s Herengracht was the same in 1992 as in 1646. Yet the taxonomy of innovation is strangely incomplete. The explosion of exchange-traded funds, arguably one of the biggest changes in capital markets of the past decade, is hardly mentioned. There is nothing on ‘contingent convertibles’, novel bonds that banks have started to issue so that they are better able to withstand the next crisis. China, which has been a petri dish for online originality, receives little attention. Bitcoin is ignored.
Meanwhile, in its eagerness to present the case for invention, the book at times strays into cheerleading. The reader is left wondering whether the new companies Palmer describes are genuinely novel, or just using technology to deliver existing business models more efficiently. Those who worry that peer-to-peer lending hides excessive risks, or rests on regulatory arbitrage, will find little to soothe their concerns. A lengthy discussion of the ideas of Robert Merton, the celebrated economist, contains only a glancing reference to his involvement in Long-Term Capital Management, the once-innovative hedge fund that collapsed in 1998.
Financial innovation is worth defending. At a time when other industries are seeing so many upstarts, it would be a mistake to assume that finance is not capable of coming up with fresh ideas. In that sense, “Smart Money” is a welcome corrective to the prevailing conventional wisdom. But not all business models that claim to be ground-breaking are genuinely new. And even new ideas are capable of building up old risks.
January 25, 2020
Interesting book to learn about new financing formulas and even business opportunities. To have it on the office shelf
June 1, 2015
This is a superbly written book. His analogies are wonderful: "the acts of saving and borrowing are both forms of time travel...the more connected we feel to our future selves, the more likely we are to save for 'them'." "The problem with financial innovation is not that products have original sin, but that the financial system is programmed to change these products in ways that make them more dangerous."In describing better ways to obtain data to decide to lend to a marginal borrower he says "like the dabs on a pointillist painting, each bit of data creates a more powerful overall impression."Then of course there is his whole chapter on residential real estate titled "The Most Dangerous Asset in the World." He offers compelling arguments for supporting global financial innovation vs. the oft-stated going back to "ma and pa" lending and deposits institutions. I recommend this book to Barney Frank, Elizabeth Warren, and other peeps skeptical of the financial industry's ability to do good for society.
December 3, 2015
The chapters on social impact bonds (ch 4) and direct lending (ch 7) are novel, fresh and inspired.
Some other chapters drag, and I feel some uncomfortable British bias that I can't quite place, especially with respect to VC and crowdfunding.
"SmartMoney" especially financial professionals may not be smart, but dumb money is still certain to get screwed, and I do not see enough financial innovation protecting against that. Retirees are in bad shape and demographics are stacked against developed economies -- so we need to evolve the social contract, and this book shows no innovation in that direction.
Some other chapters drag, and I feel some uncomfortable British bias that I can't quite place, especially with respect to VC and crowdfunding.
"SmartMoney" especially financial professionals may not be smart, but dumb money is still certain to get screwed, and I do not see enough financial innovation protecting against that. Retirees are in bad shape and demographics are stacked against developed economies -- so we need to evolve the social contract, and this book shows no innovation in that direction.
December 31, 2016
Nice basic review of innovations in finance
This is a decent overview of new innovations in finance and it's pretty readable. It's definitely not earth shattering material though, and it seemed like the author could have explored other significant developments
This is a decent overview of new innovations in finance and it's pretty readable. It's definitely not earth shattering material though, and it seemed like the author could have explored other significant developments
May 26, 2015
Or not...
Read
February 11, 2016Young lad, "To join Google, or to join Goldman Sachs", that is the question! Andrew Palmer wants the the latter.
August 19, 2015
Insightful look at the way financial products and ideas are changing the way the world works, often in good ways.
Book was the perfect length (240ish pages). Never dwelled on a topic for too long.
Book was the perfect length (240ish pages). Never dwelled on a topic for too long.
December 16, 2014
Not exactly scholarly, but a nice look at a competing view of financial innovations
Displaying 1 - 12 of 12 reviews