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Investing in Change: The Reform of Europe?s Financial Markets by Andrew Gowers

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7In defence of the indefensible: financial innovation and complex financial instrumentsAVINASH D. PERSAUD

Introduction

The explosive increase in derivative instruments over the past two decades — they now exceed the size of their underlying cash markets many times over — runs against the better instincts of many outside the financial sector. To them, it seems unsavoury for the tail to wag the dog. A popular view of the financial crisis is that it was caused by bankers, pulling out of their back pockets newly invented instruments of mass destruction, throwing them into a crowd of bewildered consumers, grabbing the money and running away. More prosaically, others argue that the central business model of banks is to take advantage of asymmetric ...

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