In this keynote address, Robert Merton chooses not to focus on the financial crisis. It is clear to him there were "fools and knaves," as well as "many structural elements that would have happened even if people were well behaved and well informed" -- risks are simply "embedded in our systems." Instead, Merton explores how financial engineering is essential in preparing for the inevitable next crisis, and in solving critical challenges. "The world has changed; we can't go back. Let's talk about what we should do going forward."

To illustrate society's need for financial innovation, Merton uses "a live case study:" the vast problem of retirement funding. In the past decade, stock market declines and falling interest rates have hit mainstream employer pension plans hard. Municipal pension plans may be underfunded to the tune of three trillion dollars. ("It makes the S&L crisis look like nothing.") But people seek, and are due, "the standard of living during retirement they enjoyed in the latter part of their work life."...