transcript03 - Financial Markets: Lecture 3 Transcript...

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Financial Markets: Lecture 3 Transcript January 18, 2008 << back Professor Robert Shiller: I thought I would just remember a couple of highlights from the first two lectures to consolidate what we said then. In the first lecture, I talked about a lot of things, but one theme that comes to my mind is the theme of the moral purpose and mission of the finance community. We talked about the sense that, I think, young people have a sort of prejudice against the field and they think that finance is a field that you go into if you really value money rather than people. I want to reiterate again that that's not the way I view the field at all. I was just yesterday--I gave a talk in Montreal at the Caisse de Dépôt,et Placement du Québec, which is the big wealth management fund for the Province of Quebec. I met a lot of people there and I never once got the idea that anyone there was evil or grasping. I think they have a moral purpose, which is to preserve the livelihoods of the people of the Province of Quebec. You get a very different view of things when you meet the people. I think our entertainment industry likes to make movies about people in finance, but they are inevitably portrayed as evil and I don't know why that is. I don't think there has ever been a major motion picture about a financial person who ended up a philanthropist. Why is that? I just don't-- people don't like--people would rather hate--I don't know why it's something--it wouldn't be a good movie theme, would it? Anyway, you have to overcome these--you have to think that if you go into the field you would probably--If you're successful--you would probably end up as a philanthropist; but no movie will be made about your life and you may encounter hostility the whole way. It's especially true right now with the subprime crisis. People are blaming the financial community for our troubles now. It is true that we're seeing some people thrown out of their houses, in some cases, because of some rather questionable financial practices that got people into mortgages that they shouldn't have gotten into. But overall, I think that the people in this field are good people. In the last lecture, I talked about–In the second lecture, I talked about the pooling of risks and the basic theme of that lecture was that we now have a mathematical theory, probability theory. When you look at this theory, you realize that it suggests a very important technology for improving human welfare and that is: by spreading risks. The economy, and technology, and the weather, and all sorts of factors create risks. But, the real technology is--the technology that works to eliminate risks is to spread them out, to pool them, to share them among many different people. So, the idea that theorists suggest--and it may be unreachable--but the perfect financial system would have all of our risks pooled completely. That is, nobody suffers alone. If anything happens to me in my livelihood, then it's spread out over everybody and everybody means the
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transcript03 - Financial Markets: Lecture 3 Transcript...

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