Keys to Restoring Confidence

Yesterday, the U.S. Congressional Joint Economic Committee held a hearing on the systemic threats of large financial institutions involved in the current financial crisis.  Here is what Columbia University Professor and winner of the 2001 Nobel Prize,  Mr. Joseph Stiglitz had to say about the current steps being taken by the U.S. Government.

In short, our bail-outs run the risk of transferring large amounts of money, often in non-transparent ways, to those banks that did the worse job in risk management—hardly principles on which normal market economics is based. Among these are some of the too-big-to-fail banks. In effect, the government is tilting the playing field—towards the losers, worsening the tilt that is always there simply from the implicit guarantees associated with being too big to fail.

Regrettably, some of the discussion of regulatory reform has skirted the main issues. There is talk about the need for comprehensive oversight, bringing in the hedge funds. We should remember that the core problems were not with hedge funds; they were with regulations and regulatory enforcement of our big commercial and investment banks. This is what has to be fixed.

Again, transparency and accountability are his main themes and the keys to restoring confidence in the financial system.  The quicker these keys are fully embraced, the quicker we can move beyond the current crisis.