I don’t think this is just a ﬁnancial panic;I believe that it represents the failure of a whole model of banking,of an overgrown ﬁnancial sector that did more harm than good.
RESTORING THE NATION’S FINANCIAL SYSTEMRestoring the nation’s ﬁnancial system to long-term sustainability consists of fourcoordinated and linked restructuring actions: (1) reforming the Federal Reserve Sys-tem, (2) providing liquidity to sound ﬁnancial institutions, (3) continuing to national-izing failing and zombie banks, and (4) reforming individual ﬁrm regulatory over-sight along with adding new regulatory infrastructure capable of monitoring sys-temic risk to the economy.
REFORMING THE FEDERAL RESERVE SYSTEMThe Federal Reserve shall set balance sheet
requirements for all ﬁnancialinstitutions and intermediaries in the U.S. that provide credit to markets (e.g.commercial banks, insurance companies, mutual funds, and nonbank ﬁnancialﬁrms and funds that disburse credit in the
system such as hedgefunds and private equity ﬁrms, etc. whether onshore or offshore if they do busi-ness in the U.S. or hold funds either directly or indirectly from U.S. investors);The Federal Reserve shall no longer accept ﬁnancial institutions using capitalinstead of reserves for ensuring the
safety and soundness
of their institution;The Federal Reserve shall henceforth provide complete transparency as to openmarket and other transactions it has with individual ﬁnancial institutions begin-ning June 1, 2007 and continuing thereafter. Transaction information must bepublished on the Federal Reserve web site within 24 hours of the transaction oc-curring.PROVIDING LIQUIDITY TO SOUND INSTITUTIONSThe Federal Reserve shall establish interest-free
with ﬁnancialinstitutions by purchasing sound ﬁnancial instruments from credit making ﬁnan-cial institutions. A
between the Fed and the ﬁnancial insti-
MANAGING SYSTEMIC RISK in the FINANCIAL SECTOR
LYLE A. BRECHT DRAFT 2.1 410.963.8680 - CAPITAL MARKETS RESEARCH -Saturday, October 10, 2009 Page 1 of 7
Paul Krugman, “The Market Mystique,”
The New York Times
(March 26, 2009)
“In a ﬁnancial panic, the government must respond with both speed and overwhelmingforce. The root problem is uncertainty—in our case, uncertainty about whetherthe major banks have sufﬁcient assets to cover their liabilities. Half measures combined with wishfulthinking and a wait-and-see attitude cannot overcome this uncertainty.” See See Simon John-son, “The Quiet Coup,”