A decade or so ago, economist Lester Thurow of the Massachusetts Institute of Technology observed that while finance was supposed to serve as handmaiden to industry, industry seemed to be becoming a plaything for finance. Other acerbic critics of the last decade's financial doings asserted that the economy was being propped up by what one called "paper entrepreneurialism." At a time when leveraged buyouts were all the rage, these comments had a ring of truth.
Today, though, with the financial markets so much larger, stronger, and more vibrant than they were then, it's clear that the world of finance has evolved. There are two ways to look at financial markets today, markets in which trillions of dollars' worth of foreign exchange and securities are traded daily. Think of them first, juxtaposed against traditional notions of the "real economy," as a giant parallel universe in which money is raised, fortunes are risked, and profits are booked. At the same time, think of the markets as a vital and critical actor in the global economy--pushing, pulling, and influencing economic policy. For all their gyrations, financial markets do, over time, tend toward efficient outcomes. And that's a lesson that is driven home, over and over again, both in the markets themselves and in the global economy.
The new stars of finance, a number of whom are not Americans, such as the 21 financiers, scholars, and investors profiled in this issue, have each played a part in designing the new world of finance. So, too, have their intellectual predecessors, such as Nobel prize-winning finance economists Robert C. Merton and Myron S. Scholes, who were cited for their work in determining the value of derivatives. By searching out new niches and new products around the globe, and by probing the inefficiencies of markets, these people have helped to promote a dynamic and energetic engine of growth. The world of finance, in turn, has taken the lead in showing the rest of the world how to become more efficient.