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Posted at 05:35 PM ET, 10/14/2011

Occupy Wall Street vs. Wall Street: Who wins Innovator of the Week?

VIEW THE GALLERY: See past innovators of the week.

It’s time for the weekly matchup where we ask you to vote for the Innovator of the Week. If you are not familiar with the series, you can catch up by reading (and voting on) our past matchups.

Last week, we went with a more theoretical approach, pitting success against failure. The volume of voters in our non-scientific poll barely broke double digits, but, as of the writing of this post, failure won out.

This week, we’re taking a look at the Occupy Wall Street protest, pitting them against the object of their ire: Wall Street.

Occupy Wall Street: I first came to know the Occupy Wall Street protests via Twitter. On Sept. 17, I was sent a tweet by user “laurapcd1” in which she colorfully asked me, “Where the [expletive] is #occupywallstreet...50k people protesting what are you doing?” At the time, the protest was receiving minimal attention, and a few scattered groups with picket signs were taking to New York City’s streets.

Today, protesters literally occupy Wall Street, camping in Zuccotti Park at the heart of New York’s financial district. And they are not alone. In Washington, mere blocks from the White House and on the lobbying corridor K Street, a small tent city has emerged in the middle of McPherson Square behind a painted sign that reads, “Occupy D.C.” Protesters are gathering in California, Chicago, Washington state, Minnesota and Texas. The movement has since gone global. In Italy, protesters stormed the offices of Goldman Sachs, and protests have been planned in Australia and the United Kingdom.

Some Democratic lawmakers in the United States have embraced the movement, and union groups, such as the Service Employees International Union have offered their support. But is the movement innovative? It could be argued that, given protesters’ ability to leverage social media with popular hashtags and Web sites, both here and abroad, the Occupy Wall Street movement and its many incarnations around the world are innovative. The Tea Party protests, which were nationally focused, took on elected officials. Occupy Wall Street, however, gives voice to a worldwide frustration as the global economy continues to falter.

Wall Street: The object of the Occupy Wall Street protesters’ ire has long been a home to innovation. From the integration of new technology into banking and investment tools to the harnessing of increasingly complex algorithms, Wall Street is constantly, albeit cautiously, innovating.

As is nearly always the case with innovation, however, failure is almost inevitable. For example, the creation and widespread use of complex financial tools such as credit default swaps catalyzed the credit crisis that precipitated the nearly $200 billion rescue of American International Group — the first of many financial life preservers tossed to failing financial institutions.

But not all innovation on Wall Street has led to economic free-fall. Often, when innovation is successful, it’s obscured by the cost of the failures. In May 2010, James Surowiecki wrote in the New Yorker that Wall Street had taken on Silicon Valley’s mantra of “innovate or die,” and that although some inventions had led to turmoil in the market, others had proved successful:

Not all of Wall Street’s concoctions have been pointless or destructive, of course. Take junk bonds, whose use Michael Milken pioneered in the nineteen-eighties. They got a bad name when Milken went to prison for securities fraud. But his insight that high-yield bonds could be a good investment—that, historically, the rewards outweighed the risks—allowed new companies, including eventual giants like Turner Broadcasting and M.C.I., as well as countless smaller businesses, to raise billions in capital that previously would have been out of their reach. 

Surowiecki goes on to write that some ideas, though “reasonable,” were taken to “unreasonable extremes.” In a February 2010 paper, Brookings Senior Fellow Robert E. Litan took on a challenge presented by former Federal Reserve chairman Paul Volcker to find one innovation that “had a visible effect on the productivity of the economy.” Litan writes:

My ultimate verdict is that . . . I find that there is a mix between good and bad financial innovations, although on balance I find more good ones than bad ones. Individually and collectively, these innovations have improved access to credit, made life more convenient, and in some cases probably allowed the economy to grow faster. But some innovations (notably, CDOs and Structured Investment Vehicles, or SIVs) were poorly designed, while others were misused (CDS, adjustable rate mortgages or ARMs, and home equity lines of credit or HELOCs) and contributed to the financial crisis and/or amplified the downturn in the economy when it started.

Wall Street has been at the receiving end of a great deal of criticism as of late, not only from the Occupy Wall Street movement but also from experts within its own ranks. However, the financial sector has innovated — both for good and for ill. Whether it is more innovative than those who are protesting against it and its global counterparts, we leave to you.

Read more news and ideas on Innovations:

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By  |  05:35 PM ET, 10/14/2011

Categories:  Business, Innovator of the Week

 
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