^*Ellen Hughes-Cromwick is Past President of NABE and a director and chief economist at Ford Motor Company. She joined Ford in 1996, and now directs the corporate economics group with major responsibility for the company's global economic and automotive industry forecasts. Prior to joining Ford, she was a senior economist at Mellon Bank from 1990 to 1996, and assistant professor of economics at Trinity College in Hartford, Connecticut, during the late 1980s. She served for two years as a staff economist on the President's Council of Economic Advisers during the Reagan Administration. She recently served on the Congressional Budget Office Panel of Economic Advisers. She received her bachelor's degree from the University of Notre Dame and a master's degree in international development and a Ph.D. in economics at Clark University in Massachusetts.

Abstract

Over the past 50 years, one of the key elements of the evolution of the world economy has been the increasing complexity of financial transactions. This complexity is manifested in financial layering and disintermediation that has increased risk in the real as well as the financial sectors. The consequences of an adverse outcome of this risk are obvious in the current economic situation. This paper analyzes the imbalances that have arisen between the real and financial sectors and the consequences of the ballooning of the financial sector without producing positive contributions to the real sector and increasing risk to both. It calls for restraint on excesses of financial innovation and risk taking that cannot be held in check by market forces alone.