Via Arnold Kling at the EconLog blog, is his plan to fix the US financial system. It applies with equal force to the UK, I think, apart from one or two specifics. It is not the sort of more radical measure that the likes of Kevin Dowd has favoured, but it is pretty good and it actually is something I could envisage being attempted. I even think it might be possible to contemplate a partial breakup of the banking system to avoid a “too big to fail” issue although I would caution that bigness, per se, is not the problem. What is the problem is the fractional banking system as it now operates under the moral hazard regime of a central bank, legal tender laws, and the rest.
“The overarching principle I have is that we should try to make the financial system easy to fix. The more you try to make it harder to break, the more recklessly people will behave. By reducing the incentives for debt finance and for exotic finance, you help promote a financial system that breaks the way the Dotcom bubble broke, with much lesser secondary consequences.”
Anyway, something for the politicians to ponder.
Here is a related post of mine a few weeks ago about the need to push the case for free market banking even though the details can be sometimes overtaken by events.