What still needs to change as a result of the crisis?

1. Vox Day

   Assets marked to market, the closure of all insolvent banks, the Congressional removal of the Federal Reserve monopoly on money.

2. Ross Levine

   We need institutional reforms that oblige the government officials and financial regulators to more frequently work for the public at large.

3. Jacob Madsen

   Banks need to be regulated more and government and private savings need to increase. We will never overcome the crises if the debt is not reduced.

4. Fred Foldvary

   Taxes on wages should be replaced by taxes on land value. The money supply and interest rates should be set by the market rather than by the Fed. Fannie Mae and Freddie Mac should be completely privatized. The government should eliminate mortgage guarantees.

5. John Rubino

   Everything, since nothing was fixed by the crisis. The government still owns a printing press, the dollar is based on nothing, the military empire and the welfare state are still growing. Debt is so high that no fix is possible, only collapse and then rebuilding.

6. Steve Keen

   Wall Street's power over the political system needs to be broken, financial fraud needs to be pursued as vigorously now as Bill Black pursued it in the aftermath to the Savings and Loans crisis, and much of the debt issued to households in the last 2 decades needs to be written off in a public jubilee.

7. James Kwak

   The financial system needs to become more focused on intermediating credit flows from savers into the real economy and less focused on maximizing the volume of derivative or ancillary transactions and financial assets that provide small benefits (liquidity, price discovery, etc.) for the risk that they introduce. How to do this is an open question.

8. Dean Baker

   We need economic policymakers who believe in accounting identities. The fundamental imbalance in the economy is the trade deficit. The $600 billion trade deficit (it would @$900 billion if we were near full employment) logically requires either a large budget deficit or negative private savings. We teach this in every intro class. If the people at the Fed, CEA, and Treasury understood it, we would have much better economic policy.

9. Robert Hardaway

   1. Promulgate one critical regulation--namely that loans backed by government entities require a 20% down payment
   2. Repeal the home mortgage deduction
   3. Include housing prices in the CPI
   4. Repeal all provisions punishing banks for not lending to uncreditworthy buyers
   5. Restrict power of local communities to jack up home prices by exclusionary rules and zoning restrictions on development

10. Jerry Davis

    Dodd-Frank was a hodge-podge of reforms without a coherent underlying theory, but many of its components would be helpful, if they managed to be filled out without undue influence from the finance sector. But as long as 15-25% of mortgages are underwater, it is hard to foresee an end to the economic malaise in the US, as homeowners are unable to move to pursue employment and other opportunities elsewhere and consumption is depressed by a negative wealth effect.

11. Aaron Clarey

    Too much to fit into one paragraph. People must learn to spend within their means, and not just spend within their means, but not rely on the government to pay for things they personally and individually cannot afford. Banks and their managers must be allowed to fail and I would go so far as to even banish those bankers and managers that full-well knew what they were doing from ever working in banking again. A constitutional amendment criminalizing rent-seeking and lobbying, punishable by death would also be a big help.

12. John Wasik

    1. Fannie/Freddie need to be re-organized or sold off, along with their portfolios while the government sets up a new guarantee system for mortgages without excessive securitization
    2. Homeowners should be allowed to refinance at federal funds rate
    3. Homeowners who are jobless or insolvent should be able to write down mortgage principal in Bankruptcy
    4. The excess inventory of REOs should be sold off in large lots
    5. Those who wish to stay in their homes should be offered refinancing or rent to buy options.

13. Paul Sperry

    Abolish the affordable-housing charter regulating Fannie Mae and Freddie Mac and by extension the primary mortgage market (i.e., repeal the Federal Housing Enterprise Financial Safety and Soundness Act of 1992); and repeal the 1995 revisions to the Community Reinvestment Act. Also, bar Justice Department prosecution of banks and mortgage lenders for lending discrimination under "disparate impact" and "secondary impact" theory. Finally, repeal the provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizing the creation of the Consumer Financial Protection Bureau.

14. Christine Richard

    We need to acknowledge that several decades of trade policy has been a failure. Of course, if you say this people will scream about how limiting trade will bring on the Great Depression. But what about the risks of ceding our financial strength to countries with which we have serious ethical and political differences? Or the risk of trading our manufacturing base for an outsized Wall Street? The resentment of Wall Street reflects this dynamic. It's too easy to make money on Wall Street and too hard to compete in other parts of the economy. We need to figure out a way to draw the smartest people in our society away from Wall Street and into other areas of our economy. This is easier said than done and I wish I had the answer for how to set this change in motion.

15. Viral Acharya

    The financial sector recapitalization and to an extent its prudential regulation have improved. But this was a housing sector boom and bust as well, and no decisive measures have been taken in the United States and elsewhere to address this directly. Rather than stimulating the corporate sector and the financial sector further, a better fiscal stimulus would be to restore household equity on mortgages, and get the banks to take a one-time hit (and further recapitalize it if needed), so that both households can rebuild their consumption and demand and banks can get exonerated from the burden of a "zombie" asset class sitting on their balance-sheets and restricting their ability to lend freely until global growth prospects are restored (in some way).

16. Edward Pinto

    The US housing finance market of the future should be governed by four basic principles:

    • Principle I: The housing finance market can and should principally function without any direct government financial support.
    • Principle II: Ensuring mortgage quality and fostering the accumulation of adequate capital behind housing risk can create a robust housing investment market without a government guarantee.
    • Principle III: All programs for assisting low-income families to become homeowners should be on-budget and should limit risks to both homeowners and taxpayers.
    • Principle IV: Fannie Mae and Freddie Mac should be eliminated as government-sponsored enterprises (GSEs) over time.

17. Michael Hirsh

    The size of Wall Street firms, and the disproportionate size of finance in the overall economic equation of America. Finance, when completely unleashed, came to dominate the real economy, rather than serve in its traditional role as a supplier of capital to the "real" economy of goods and services. Through most of the high-tech era of the last part of the 20th century, the wizards of Wall Street were justifiably proud of the role they had come to play in providing venture capital to entrepreneurs. The ability of a smart person with a smart idea in America to turn it into a new company and new product was unmatched in the world. It was the heart of America's strength, and it was thanks in good part to the rollicking open markets on Wall Street. But somewhere along the line, toward the end of this era-as the zeitgeist hit its peak and government regulators backed off completely -- Wall Street became the master of Main Street rather than its handmaiden.

18. Isaac Gradman

    The changes fall into two categories: (1) Changes to the structure of the conventional fixed-rate mortgage. Do away with fixed-rate loans without prepayment penalties, as they impose significant systemic risk on the U.S. economy (because homeowners tend to exercise their free prepayment option, the U.S. financial system is subject to the havoc and systemic risk caused by frequent prepayment waves). (2) Changes to the structure of mortgage backed securities transactions. The goal is to create a system where the economic interests of participants are properly aligned (throughout the life of the deal). Only by doing so can we attract the private capital back to the U.S. housing market (as most would agree that we no longer wish to have a mortgage market financed entirely by the government). We should consider restricting the firms that originate and sell loans from later servicing them to remove the primary conflicts of interest for the servicer. Investors should demand that the trustee be unambiguously independent and provided with economic incentives to protect investor interests. To encourage this reform, rating agencies should refuse to rate a transaction that does not feature an active and independent trustee. The federal government should consider abolishing the practice of allowing trustees to be indemnified by those they are responsible for monitoring. Finally, we should standardize MBS trusts and the agreements governing them, as well as create a new entity that serves, much like ISDA, as the standard-bearer for private label securitization. Additional reforms and details regarding the above proposals can be found in Way Too Big to Fail, authored by Bill Frey and edited by Isaac Gradman.

19. Donald Rapp

    I am not fully sure how to answer this and I don’t think that anyone has a complete answer. I am pretty sure however, about some things that must change. First we need to understand that we are not in the midst of a temporary downturn and all we need to do is ride it out and when we recover, everything will be OK. More than any specific policy change, we need to understand that what we are going through now is a fundamental breakdown of capitalism due to the factors listed in the answer to the previous question: dependence on paper assets rather than salaries, free trade, automation, too much concentration of wealth in the upper bracket, and above all, spending beyond our means at all levels building up debt and obligations that can never be paid back. The purpose of corporations is to maximize their profit, not to maximize production. They can now do that with fewer employees. Some specific things we need to do:

    1. balance the federal and state budgets yearly – cut spending and do not allow them to borrow any more; for example, the federal government can get out of the education business – we do not need a Dept. of Education with its “no child left behind”
    2. severely raise taxes on the rich, particularly for capital gains which should be taxed much higher than salaries
    3. require that mortgages issued by local banks be held in those banks for at least ten years and not be packaged into mortgage securities during the ten year grace period
    4. require that for any real estate transaction, the history of previous sales on the house be provided, and down payment must be at least 20% of a conservative appraisal
    5. require that public and private pension funds place less than 50% of their funds into stocks
    6. enact widespread tariffs to jump start manufacturing in the U. S.
    7. do not engage U. S. troops on the ground in the Middle East firing rifles at natives firing back with rifles
    8. raise interest rates to help middle class savers
    9. if any business (e.g. AIG) is too big to fail, require that they spin off all their subsidiaries
    10. regulate!

20. Laurence Siegel (more than one paragraph - see link)

Compiled by Gary Karz, CFA
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