alan greenspan : regulation, innovation and wealth creation remarks by mr alan greenspan, chairman of the board of governors of the us federal reserve system, before the society of business economists, london, u. k., 25 september 2002. * * * since the dawn of the industrial revolution here in britain, virtually every generation in the industrialized world has witnessed advances in living standards. a never - ending stream of innovation has led inexorably to expanded trade and improved productivity in many nations throughout the world. today, we can see on the horizon vast new means of communicating and computing, practical applications of advances in biotechnology, and doubtless many other innovations. but a half - century from now, the goods and services that we produce and consume will, to a significant extent, reflect applications of insights not yet formed or even imagined. could the residents of sophisticated eighteenth - century london, prior to sir william herschel's demonstration of invisible radiation, even contemplate the existence of radio waves that would reach around the world? i still have trouble grasping how the shortwave transmissions of the bbc travel thousands of miles to find their way to my bedroom at night to be picked up by my transistor shortwave radio. our modern electronic devices work according to the laws of quantum mechanics, which were laid out in the 1920s by erwin schrodinger, werner heisenberg, and paul dirac ; they postulated that at the subatomic level the world did not obey the centuries - old newtonian views of how the forces of the universe function. the major revolutions of albert einstein had occurred a few years earlier and nuclear power was a generation or so beyond. i raise such examples only to emphasize that we cannot realistically project future innovations and the potential for those innovations to create economic value. novel insights, by definition, have not previously entered anyone's consciousness. however, that unanticipated discoveries of how to create wealth will emerge in the decades ahead no longer seems as conjectural as it may have, for example, before the industrial revolution. full realization of the benefits of past innovations, and of those our grandchildren will experience, will depend on the forces of globalization already in play to develop the commercial potential of new technologies and to transmit the application of these technologies across our economies. by spreading expertise and expanding the division of labor and specialization to ever broader markets, those forces led to enhanced trade in the past half - century, which in turn has dramatically elevated the

##quent. newly issued covered bonds backed by high quality mortgage loans and issued by strong financial institutions may find a growing investor base in the united states. the federal reserve has long accepted a broad range of high - quality collateral from depository institutions at its discount window. highly rated, high - quality covered bonds would generally fall within that broad range as eligible collateral. private lenders also are likely to find such bonds attractive as collateral for credit extensions. financial innovation, properly understood, can increase the diversity of funding sources, improve the distribution of risks, and provide incentives to monitor such risks - - all helping to promote economic growth. the federal reserve seeks to encourage new and innovative sources of funding, and will continue to work with other policymakers and market participants to accomplish this important objective.