Preventing the Next Great Meltdown

David Levine ()
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David Levine: Sanford C. Bernstein & Co., Inc. (Retired), Postal: After a merger and name change, my former company is now part of AllianceBernstein, 1345 Avenue of the Americas, New York, NY 10105

Journal of Financial Transformation, 2010, vol. 30, 95-104

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.

Keywords: deregulation; meltdown; regulatory framework; subprime mortgages; credit default swaps; financial innovation; re-regulation; system-threatening; financial crisis (search for similar items in EconPapers)
JEL-codes: D02 D53 E42 E44 G21 G24 G28 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1434

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