A very insightful article from Gillian Tett in the FT on unconventional wisdom since the financial crisis. I will not present all of the arguments but will say that it is a good road map on what are the key take-aways from the Great Recession.
1. Bigger in banking is not better. We do not need institutions that are too big to fail.
2. Finance is self-stabilizing. Yes, and speculators will always drive markets to equilibrium.
3. Taxpayers are on the hook. Always. We cannot take pain in the modern capitalist economy
4. Leverage matters. Leverage kills financial businesses
5. Liquidity matters. You never have it when you need it.
6. Bubbles must be popped early. Yes, bubbles do exist.
7. Structural solutions are not taboo. But that does not mean we will get it right.
8. Shadows should not stay shadowy. There are shadows because markets will try and avoid regulation.
So now we have this information, but that does not mean we will know how to use it.
1. Bigger in banking is not better. We do not need institutions that are too big to fail.
2. Finance is self-stabilizing. Yes, and speculators will always drive markets to equilibrium.
3. Taxpayers are on the hook. Always. We cannot take pain in the modern capitalist economy
4. Leverage matters. Leverage kills financial businesses
5. Liquidity matters. You never have it when you need it.
6. Bubbles must be popped early. Yes, bubbles do exist.
7. Structural solutions are not taboo. But that does not mean we will get it right.
8. Shadows should not stay shadowy. There are shadows because markets will try and avoid regulation.
So now we have this information, but that does not mean we will know how to use it.
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