Finance: Science, Securities Intermediation, and Secured Lending Efficiency

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[...] To conclude, secured loans definitely improve social credit allocation, helping companies in need such as start-ups or medium businesses to access funding with affordable interest rates and acceptable amounts. However, this type of loans could raise a question about credit allocation according to profitability and risk. Financial analysts should consider both of this assumption while monitoring a project, which is not always the case. A System of Securities Intermediation Securities intermediation is the process by which financial intermediaries (bankers, insurers, brokers . ) buy securities issued by companies and emit themselves other securities that they sell to investors to realise capital appreciation. [...]

[...] Moreover, financial innovations has created several types of direct funding but also different marketplace and new job positions for financial analysts. In any case, it is proved that intermediation improves economies of scale, risk diversification, transaction cost reduction and information asymmetry because intermediaries acts with the information of both buyer and seller. However, intermediaries' missions is also to make profit, leading them to risk the money engaged by owners. Indeed, most of the biggest financial crisis are caused by capital markets and speculation. Is Finance a Science? Finance can be described as the study of money and the financing system. [...]

[...] Indeed, the biggest economic and financial crisis in the world is based on mistaken decisions from investors. Let's take the example of the subprime crisis: it starts with mortgage loans, that middle-class Americans signed up to finance their home with low interest rate with a mortgage coverage. These coverages are risky because there is a high probability of default from owners, which is why insurers diversified the risk into financial products called Credit Default Swaps. However, they underestimated the risk of this product, and created a gargantuan number of risky products, which caused a speculative bubble. [...]

[...] According to the INSEE institute, the activity of intermediaries involves the acquisition of assets, and meanwhile takes on liabilities on its behalf on the financial market. If intermediation is constantly used nowadays, the securities intermediation actors do not always benefit from the same approval rating from individuals. Until the early 1980s, intermediation was exclusively managed by banks with traditional loans and savings. This system gives liquidity and risk diversification to the financial market because intermediaries (essentially banks) connect demand with offer. [...]

[...] Finance is based on risk, but risk is unpredictable. Indeed, the riskier the investment is, the higher the expected return should be. So several economists and mathematicians have developed theories to minimize the risk for any level of return. The American Nobel Prize economist Harry Markowitz underlined the innovative concept of mean and variance, explaining that risk should be distributed into several types of financial assets in a portfolio so as to estimate a probability of risk distribution. Harry Markowitz and many others after him recommended to investors to diversify their investment portfolio in order to minimise the risk level. [...]