FT.com / Comment / Opinion - Ways to avoid another stampede

The Financial Times has a few tips on how to regulate the financial markets to counteract the more perverse incentives that exist.
FT.com / Comment / Opinion - Ways to avoid another stampede

These are welcomed, particularly the variable leverage ratio. But "financial innovation" is precisely learning how to get around these, and creating new rules are often only effective until the next GOP admnistration takes a chainsaw to them.

Consider the press conference held on June 3, 2003 — just about the time subprime lending was starting to go wild — to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.

There needs to be a breakthrough in the issue of moral hazard.