Evaporational Exuberance

The regulatory framework established during the Great Depression spared us system-threatening financial failure for nearly four decades after World War II. The author gives a brief history of how the progressive deregulation of the financial system led to the crisis of 2008 and discusses the steps that need to be taken to prevent such a crisis from recurring. In particular we must (a) downsize institutions that are quot;too big to fail,quot; (b) eliminate quot;moral hazard,quot; (c) regulate activities (regardless of who engages in them) that have the potential to threaten the financial system, (d) prevent creators of financial risk from offloading that risk onto (unsuspecting) others and (e) not allow the marketing of complex financial instruments to consumers (now that it is clear that even the architects of such instruments do not understand them)