Financing the Future: Market-Based Innovations for Growth

by Franklin Allen, Glenn Yago

"Allen and Yago demonstrate clearly the importance of the interaction of theory and experience in explaining the evolution of financial innovations.""Myron S. Scholes, Nobel Laureate in Economics, 1997, and Frank E. Buck Professor of Finance, Emeritus, Graduate School of Business, Stanford University ""Despite its role in the recent economic crisis, financial innovation, wisely used, can play a crucial role in solving some of the world's most pressing problems, particularly by delivering sustainable growth and economic development. Allen and Yago's compelling, contrarian analysis punctures the current gloom about finance, and shows how its creativity can make a huge, positive difference.""Matthew Bishop, New York Bureau Chief of "The Economist" and co-author of "Philanthrocapitalism" and "The Road from How to Revive Capitalism and Put America Back on Top" ""This book provides a clear and concise history of financial innovation as an engine for growth in various fields--an often ignored or misunderstood topic. From its role to help finance new industries and technologies to upcoming advances in environmental and health areas, it will prove an important reference to those of us who are interested in how ingenuity in capital markets can help advance social goals. A must-read in these times.""Richard L. Sandor, Chairman and Founder, Chicago Climate Exchange; Executive Chairman, Climate Exchange plc ""The right book at the right time. Allen and Yago colorfully relate the history of financial innovation down through the ages. With facts and analyses, they restore the concept of financial innovation to its rightful a medium by which long-standing problems of social, economic, and environment have been addressed, sometimes solved.""Lewis S. Ranieri, Ranieri Partners LLC ""From housing to microfinance to drug development, Allen and Yago explore the important role financial innovation plays around the world. The authors prove in plain English the vital role creative finance played in building America and why stifling innovation poses a risk to our financial future.""Brian Sullivan, Fox Business Financial innovation can drive social, economic, and environmental change, transforming ideas into new technologies, industries, and jobs. But when it is misunderstood or mismanaged, the consequences can be severe. In this practical, accessible book, two leading experts explain how sophisticated capital structures can enable companies and individuals to raise funding in larger amounts for longer terms and at lower cost--accomplishing tasks that would otherwise be impossible. The authors recount the history and basic principles of financial innovation, showing how new instruments have evolved, and how they have been used and misused. They thoroughly demystify complex capital structures, offering a practical toolbox for entrepreneurs, corporate executives, and policymakers. "Financing the Future" presents clear, thorough discussions of the current role of financial innovation in capitalizing businesses, industries, breakthrough technologies, housing solutions, medical treatments, and environmental projects. It also presents a full chapter of lessons essential insights for stabilizing the economy and avoiding pitfalls. Distinguishing genuine innovation from dangerous copycatsCrafting sustainable financial innovations that add value and manage risk The best tools for the choosing them, customizing them, using themSelecting the right instruments and structures, and making the most of them Financial innovations for business, housing, and medical researchFinding new and better ways to promote entrepreneurship and advance social goals Innovating to save the planet and help humanityThe power of finance to protect natural resources and alleviate global poverty "This is the first in a new series of books on financial innovation, published through a collaboration between Wharton School Publishing and the Milken Institute. Future titles will focus on specific policy areas such as housing and medical research. " "The Milken Institute is an independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations in the United States and around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. It puts research to work with the goal of revitalizing regions and finding new ways to generate capital for people with original ideas.

Genres: Finance

262 pages, Kindle Edition

First published March 3, 2010

Reviews

[Frank Stein · Rating 3 out of 5]

I'm not sure exactly what this book was setting out to do. On one level it is a rapid introduction to corporate finance, describing everything from the Modigliani-Miller Hypothesis to Black-Scholes and junk bonds; on another level it is a series of too-quick histories of financial innovation in housing, environmental, medical, and other industries. Some of the individual facts are fascinating (like the abstruse varieties of "poison pill" stock plans used to prevent hostile takeovers in the 1980s) and some of the theories presented are intriguing (like the "regulatory dialectic," in which new financial forms are invented to avoid regulation but then are incorporated into common use ("preferred stock" was a way for railroads in the 19th century to avoid debt limitations, today it is used everywhere)), but I'm not sure what it all adds up to. The fact that the authors uncritically celebrate everything from the Gennesse County (home of Flint, Michigan) Land Bank to the Drinking Water State Revolving Fund to the Chicago Climate Exchange seem to show how little effort they spent investigating any one of these individual programs.

The authors of course take time to differentiate true financial innovation from mere complexity meant to confuse and defraud (widely used in the housing boom), so this book, for all its faults, is worthwhile reminder that much seeming financial legerdemain actually forms the linchpin to our economy. In the midst of widespread skepticism, they confidently show that the continuing evolution of finance is essential for the world's growth.