QOTD: Greenspan on Financial Innovation

The Maestro:

“Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. . . . With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . . Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending . . . fostering constructive innovation that is both responsive to market demand and beneficial to consumers.”

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-Remarks by Chairman Alan Greenspan
At the Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Consumer Finance
Washington, D.C.
April 8, 2005

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