Preventing Another Financial Meltdown

by Stuart Shapiro

Shelia Bair is one of the few heroes to emerge from the financial crisis.  She ran the FDIC during the crisis and saved taxpayers billions of dollars.  Now she is running the Systemic Risk Council and she does a Q and A with herself about what still needs to be done to avoid a repeat of 2007.  My two favorites:

1) Does anybody have a clear vision of the desirable financial system of the future?

Yes, me. It should be smaller, simpler, less leveraged and more focused on meeting the credit needs of the real economy. And oh yes, we should ban speculative use of credit default swaps from the face of the planet.

8) Can we realistically solve the “too big to fail” problem?

We have to solve it. If we can’t, then nationalise these behemoths and pay the people who run them the same wages as everyone else who work for the government.

Dodd-Frank runs the risk of creating a very complicated regulatory structure without solving the real problem of “too big to fail.”  And if it is not solved, it is just a matter of time until history repeats itself.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.