With the ghost of a smile on his face

Having recently studied, in a rudimentary fashion, the causes of the recent economic crisis in an exo-Sauder course, I was a little taken aback by some of the dialogue during the ‘introduction to finance’ lecture. Firstly apparently not everyone knows what short selling is, hedging, securitization, or collateralized debt obligations. I guess this should not surprise me but apparently I need some new hobbies… Getting back to the point, I was a little taken aback by the manner in which hedging was introduced. Traditionally this tool allows one to mitigate risk; yet, in reality it is often used to purchase rights to futures and thus exponentially increases risk.

What I am trying to get at is the ideal manner in which to introduce students to the study of finance. Should we get the 1950s version of investment, or be introduced to the reality of the situation. Derivatives markets are in the trillions of dollars. Personally I believe that students need to properly understand the development of recent financial tools. If this is ignored and a traditional teaching approach is taken students may find themselves as unprepared for real trading and ignorant to the inherent dangers of many modern forms of investment.

View John Lanchester’s cityphobia for a brief introduction to recent financial tools, and their role in the economic crisis.

Nils Frahm Down Down

Musical inspiration for this post: Descent from from simplicity into increasing cacophony and disorder.