• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
Lessons from the global financial crisisfor regulators and supervisors
Willem H. Buiter
*
 Professor of European Political EconomyEuropean Institute, London School of Economics and Political Science,CEPR and NBERMay 26, 2009
*Paper presented at the 25th anniversary Workshop " The Global Financial Crisis: Lessons and Outlook" of theAdvanced Studies Program of the IFW, Kiel on May 8/9, 2009. It develops ideas first discussed in my Den UylLecture (Buiter (2008)),
 
 2
Abstract
This lecture is a tour d’horizon of the financial crisis aimed at extracting lessons for futurefinancial regulation. It combines normative recommendations based on conventional welfareeconomics with positive assessments of the kind of measures likely to be adopted based onpolitical economy considerations.
 
 1
Introduction
“Never waste a crisis. It can be turned to joyful transformation”
. This statement isattributed to Rahm Emanuel, US President Barack Obama’s White House Chief of Staff.Other versions are in circulation also, including
“Never waste a good crisis”
, attributed toUS Secretary of State Hilary Clinton. The statement actually goes back at least to that fountof cynical wisdom, fifteenth century Florentine writer and statesman Niccolo Machiavelli
“Never waste the opportunities offered by a good crisis.”
Crises offer unrivalledopportunities for accelerated learning.
 
I believe that the current crisis teaches us two key lessons. The first concerns the roleof the state in the financial intermediation process and in the maintenance of financialstability. The second concerns the role of private and public sector incentives in the design of regulation.Unless these lessons are learnt, not only will the current crisis last longer thannecessary, but the next big crisis, following the current spectacular example of market failure,will be a crisis of state 'overreach' and of government failure. Central planning failed andcollapsed spectacularly in Central and Eastern Europe and the former Soviet Union.Stultifying state capitalism, initiative-numbing over-regulation and overambitious socialengineering may well be the defining features of the next socio-economic system to fail afterthe collapse of the Thatcher-Reagan model currently under way – the chimera of self-regulating market capitalism with finance in the driver's seat – finance as the master of thereal economy rather than its servant.
1.
 
The essence of the current crisis
This lecture focuses on the lessons for financial regulators and supervisors of the financialcrisis that started around the middle of 2007 and the global contraction in economic activity that
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...