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Preventing the Next Great Meltdown

Author

Listed:
  • Levine, David

    () (Sanford C. Bernstein & Co., Inc. (Retired))

Abstract

The regulatory framework established during the Great Depression was dismantled in stages after 1969. The deregulation of deposits at banks and savings institutions created incentives to widen the scope of investments that banks and thrifts could make. Novel instruments were created that should have been more carefully regulated but were not. Despite the collapse of the savings and loan industry, which might have (but did not) inspire a period of re-regulation, the pace of innovation increased. The two instruments that produced the Great Meltdown of 2008 - subprime mortgages and credit default swaps - did not begin to grow explosively until several years after the S&L crisis ended. Assuming it is too late to restore in its entirety the pre-1970 regulatory regime, this paper details the kinds of steps that should and can be taken to prevent another system-threatening financial crisis.

Suggested Citation

  • Levine, David, 2010. "Preventing the Next Great Meltdown," Journal of Financial Transformation, Capco Institute, vol. 30, pages 95-104.
  • Handle: RePEc:ris:jofitr:1434
    as

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    More about this item

    Keywords

    deregulation; meltdown; regulatory framework; subprime mortgages; credit default swaps; financial innovation; re-regulation; system-threatening; financial crisis;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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