A failure of innovation and metrics

Bruce Nussbaum offers a useful lesson for social entrepreneurs who think innovation & metrics are inherently successful. Key excerpts:

Please read the testimony of ex-Federal Reserve Chairman before Congress on why the financial innovation of recent years, which he championed, failed so utterly. It is important to understand this failure of metrics, this failure of modeling. . . .

Greenspan: " . . . A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivates markets. This modern risk management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria. Had instead the models been fitted more appropriately to historic periods of stress, capital requirements would have been much higher and the financial world would be in far better shape today, in my judgment.”

Got that? [T]he products of financial innovation weren’t stress tested in the real world properly. It was bad innovation methodology.

It's a big reason I get torqued when SE-types criticize me for calling attention to the movement's weak points--if you don't factor in the negatives you are on your way to destruction.