so high a standard of living. over the past half - century, societies have embraced the protections of the myriad initiatives that have partially substituted government financial guarantees and implied certifications of integrity for business reputation. as a consequence, the value of trust so prominent in the nineteenth century seemed by the 1990s to be less necessary. most analysts believe that the world is better off as a consequence of these governmental protections. but corporate scandals in the united states and elsewhere have clearly shown that the plethora of laws of the past century have not eliminated the less - savory side of human behavior. we should not be surprised, then, to see a reemergence in recent years of the value placed by markets on trust and personal reputation in business practice. after the recent revelations of corporate malfeasance, the market punished the stock prices of those corporations whose behavior had cast doubt on the reliability of their reputations. there may be no better antidote for business and financial transgression. corporate scandals and evidence of fraud and malfeasance notwithstanding, the history of rising standards of living in a world fearful of violence is extraordinary testimony to the resilience of free peoples engaged in commerce. our system works fundamentally on trust and individual fair dealing. we need only look around today ’ s world to appreciate the value of these traits and the consequences of their absence. while market economies have achieved much in this regard, more remains to be done. prejudice of whatever stripe is unworthy of a society built on individual merit. a free - market capitalist system cannot operate effectively unless all participants in the economy have the opportunity to achieve their best. if we succeed in opening up opportunities to everyone, the affluence within our borders will almost surely become more equally distributed. of even greater import, all people will come to recognize that they are part of a system that is fair and worthy of support. * * * america ’ s founding fathers, whose thought had deep roots in the concepts of the british and scottish enlightenments, bestowed upon us a system of government and a culture of enterprise that have propelled the united states to the greatest material prosperity the world has ever experienced. today ’ s students, both here at nyu and throughout our country, are carrying forward those traditions. i know they will improve upon this inheritance of democratic government and free markets in ways that we have yet to imagine.

mr ferguson discusses the evolution of financial institutions and markets : implications for public and private policies and practices remarks by mr roger w ferguson jr, a member of the board of governors of the us federal reserve system, at the money marketeers of new york university, new york, on 25 / 2 / 99. this evening i would like to spend a few minutes discussing some of the implications of the rapid and ongoing evolution of our financial institutions and markets. new financial instruments, innovations in portfolio management, and the technological capability of implementing new risk management strategies offer opportunities to reduce risk and to improve efficiency by allocating risk to those most willing to accept it. reductions of trade barriers and the freer flow of financial capital around the world mean better resource allocation, improved productivity, and higher standards of living for citizens of the united states and many other nations. while the current and potential benefits of financial and technological change are real and substantial, they do not come without some costs. for example, the rapid pace of technological change and the wide array of innovative financing techniques have in some ways made it more difficult for outside investors and policymakers to evaluate the risks borne by individual institutions and the broader markets. and, nearly instantaneous communications and heightened interdependencies among nations speed the effects of poor investment and policy decisions around the globe. recent experiences in asia, russia, latin america, and at home have taught us a lot about the risks of an increasingly interdependent world linked by complex financial relationships. in this rapidly evolving world of inevitable benefits and costs, the key question for both financial policymakers and market participants is : how can we retain the benefits of rapid technological and financial innovation and of freer movements of goods and financial capital across national borders, while simultaneously protecting our financial institutions and markets from the risks that these changes might bring? this is not a new question, and i am sure that most of this audience is well aware that many efforts are under way in both the public and private sectors to address the variety of issues that this question evokes. as always, there are no simple answers. but i believe that a number of fundamental principles have emerged that should be used to help shape both public and private policies and practices. private market discipline is the first line of defense perhaps the most fundamental principle that must guide us is that private market participants are the first line of defense against excessive private and public risk in the financial system. private borrowers, lenders, investors, institutions, traders, broker