Financial Side Effects

If we measure the quality of a newspaper by the wackiness of the letters sent to its editors, the Financial Times would probably come on top. Recently Mr Mike Standing and Mr Hanno Ronte wrote to suggest a way of preventing future financial crises — test new financial products like we test new drugs:

“Sir, The emergence and widespread use of new and complex financial service products are an important driver of the financial crisis. In order to help prevent a recurrence of the problems around many of these products, financial regulators could learn from the experience of the US Food and Drug Administration and their drug approval process. A comprehensive testing, evaluation and approval process to assess the benefits and risks of new financial products would make an important contribution to ensuring financial stability.” (from “Test new financial products like drugs”, Financial Times, October 22 2008)

Great thought… what could it possibly mean? If we were to regulate financial products like we do pharmaceuticals, what would a clinical trial look like? Could we recall a product from the market in the same way we can recall drugs? That would require labels, barcodes, devices to mechanically read them… Could we perhaps develop animal models — or their equivalent — to try things out before we release the stuff out there? How would we go about monitoring for side effects? The answer: in a future letter to the editor.


  1. foamsociety,

    It’s really a curious thing that this blog’s first post after the “collective turn” is possibly the first to take slightly seriously the blog’s testing motto.

    Buy the way, one feature of clinical trials in the pharmaceutical industry is that they pay some money to their guinea pigs. Just an idea.

  2. panik

    The development and approval of pharmaceuticals might be moving away from clinical trials. Having been following developments in grid computing for some time, one of the most promissing actual applications of this technology appears to be in the development and testing of pharmaceuticals.

    The massive computing power and distributed architecture involved means that it is now possible to do some amazing molecular level simulations and to also allow the regulatring authorities and their scientists to actually look-in on the actual development and testing process, have access to the data as it is generated, and also run simulations of their own. The idea is that the approval cycle can be shortened and that live experimentation on either animals or humans can be reduced to a minimum, if not entirely eliminated.

    It is not so far-fetched to imagine some such large scale market microstructure experiment/simulation for financial products.

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