#81 Planet Money: Is Financial Innovation A Friend Or Foe?

We started our debate on financial innovation a few weeks ago with Mike Konczal and Charles Calomiris. Today Tyler Cowen of Marginal Revolution and Felix Salmon of Reuters join Mike to answer the question: has financial innovation in the last 25 years has been positive or negative?

Felix Salmon says that financial innovation was a good thing — until about 25 years ago, when it became a way for bankers to get around regulation. Tyler Cowen says that it's not financial innovations that caused economic calamities — it's the leverage — banks being able to borrow huge amounts of cash with little money down. While Mike Konczal argues that it's all about competition: if a rival bank comes up with a new innovation, you need to compete whether it's dangerous or not.