One of the great unstated canards of the high-modernists: that one can generate and capture ongoing value with an innovation that, when all said and done, takes the shape of a basic triage between dross and hard stuff.
It won’t. You will quickly bank it, retire or redeploy the units that are committed to handling the dross and move on.
Time for one of the JC’s famous morality tales.
Anyone who has had the misfortune to be employed documenting them will tell you that at is is painful and, in large part, composed of dross. Generally speaking, one will require the services of a sophisticated law firm to document the the various arrangements that are going on. Dematerialised securities are formally complicated, long-winded, dense, and they involve the agency of many market participants all of whom like to extract rent. Because of this cost hurdle they tend to be of large notional, such that the economies of scale overcome to produce any debt securities after all.
As a younger man the JC was involved in the production of such debt securities and was presented with the problem of of the complexity, fitness, error rate, time, and cost of producing what, apparently, was a very simple product. The solution was to automate it. This week achieved within a week, and is to hook our machine up to to a training book, and before you could say straight through processing we had solved the problem of of documenting fully half the teams portfolio without the need for any intervention between trading system and clearing system.
Two things happened immediately. One was that trading volumes doubled overnight, both on the automated products, but also on the products that we had not automated since the the drafting team now had a great deal more capacity and could take on will products. We literally doubled volume of automated products.
Secondly the management team immediately claimed, it would cost £5,000 to document through a law firm. Since volume is had doubled, the management team figured on a annual saving in the order of 5 million for which it claimed grandiose credit