The financial innovation of the century is …
David A. Noyes & Co., a Chicago investment firm, is conducting a fascinating online poll to select the greatest financial innovation of the past century.
Trouble is, most of the choices are pretty pedestrian. I ruled out 401ks and IRAs as mere tax gimmicks, and options because they’ve been around for far more than a century. As Wikipedia notes:
In London, puts and “refusals” (calls) first became well-known trading instruments in the 1690s during the reign of William and Mary.
I also ruled out “electronic trading,” “online trading” and Nasdaq as more evolutionary than revolutionary. I gave serious consideration to the mutual fund, which played a big role in democratizing stock ownership, and to deposit insurance, which helped stabilize the banking system. When I showed the question to Michael Alderson, professor of finance at St. Louis University, he put in a good word for the futures and options markets:
You are correct in observing that those securities existed at least as far back as the Civil War, but the Black-Scholes model and related pricing developments did a great deal to enable their use as risk management tools (which the shareholders of Southwest Airlines, among others, should deeply appreciate).
In the end, I cast a write-in vote for mortgage-backed securities. Despite the havoc that some of the more exotic varieties have caused recently, the securitization of the mortgage market ranks as a major advance. It solved an asset-liability mismatch problem for banks and it has made home ownership much more affordable.
Imagine my disappointment when, after putting so much thought into this, I clicked on Noyes’ results page and learned that “401ks and IRAs” is leading with 59 percent of the vote. “Electronic trading” is second with 13 percent. Looks like people are voting for things that affect them personally rather than things that have truly revolutionized the markets.
Anyone else care to vote in the comments section?
(1 votes, average: 4 out of 5)
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
I think that any sort of financial instrument that gives everyone the option of investing money in a way that is extremely secure is very valuable to individuals and to the overall economy (by adding stability). Federal deposit insurance is one example. Inflation-protected Treasury Securities are another. Of course, for these to be of much value to individuals, they have to be smart enough to keep a part of their assets in bank deposits and Treasury securities, rather than to be mesmerized by the greater returns that are possible with riskier investments.
Social Security is another example of a very secure “investment” which — to the benefit of many people — they must “purchase” whether or not they are sufficiently prudent to plan for their retirement. Like Treasury securities, Social Security is essentially backed by the credit of the U.S. government and is unlikely to default on its payments unless the entire government collapses. In that case, not many financial assets will have any value anyway.