"Two reforms stand out as necessary. The complex securities that are traded 'over the counter' between banks, hedge funds and other players must be brought wherever possible onto exchanges, because this will reduce the pressure on the Fed to stage rescues. Bear Stearns was not too big to fail; it was, as The Economist has said, too entangled to fail: Its bankruptcy would have stranded holders of billions of dollars of its securities with nobody on the other side of their contracts. When trading moves onto an exchange, the exchange itself guarantees the contract. One impetus to Fed rescues can thus be neutralized."
The second reform involves a lesson from the clever authorities in Spain. Until now, banks have measured their capital cushions by figuring out what their holdings of securities would fetch in the market. This is a formula for bubbles: As markets rise, the value of banks' holdings grows, allowing banks to lend more and drive markets up still further. Spain's central bank broke this cycle by requiring lenders to increase capital cushions during a market upswing. It would be a fitting acknowledgment of America's tarnished preeminence if the world now embraced the Spanish model.
I am in a grouchy mood. I have a very bad feeling the economy is about to tank in a very bad way. Why not? I am finally a little bit healthier, trying to get my myself and my business back on its feet, and with my luck we are heading towards Great Depression II.
Then there is this column from Paul Krugman - Grains Gone Wild:
These days you hear a lot about the world financial crisis. But there’s another world crisis under way — and it’s hurting a lot more people.Which follows the topic raised in my post here. As I see it, the best thing is that Bush is on his way out and the worst thing is Bush has not left.
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