Alan Blinder, former vice chairman of the Federal Reserve, offers 10 “commandments” we can take away from the 2008-09 financial crisis.
“There will be financial crises in the future, and the next one won’t be a carbon copy of the last,” he writes in The New York Times. “Neither, however, will it be so different that these commandments won’t apply.”
1.
Remember That People Forget: “When the good times roll, investors expect them to roll indefinitely,” he writes.
Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion
2.
Do Not Rely on Self-Regulation: Inmates can’t rule the asylum.
3.
Honor Thy Shareholders: Part of that means keeping a watch on top executives, who are “employees, not emperors.”
4.
Elevate Risk Management: “What you don’t know can hurt you.”
5.
Use Less Leverage: Borrowed money was a major trigger of the crisis.
6.
Keep it Simple, Stupid: Complicated derivatives can hurt more than they help.
7.
Standardize Derivatives and Trade Them on Exchanges: If properly traded and regulated, “derivatives can help investors hedge risks.”
8.
Keep Things on the Balance Sheet: Banks’ off-balance sheet assets came back to bite them in the crisis.
9.
Fix Perverse Compensation: Pay was out of control during the crisis and afterward.
10.
Watch Out for Consumers: They got fleeced.
Some experts say that as the memory of Lehman Brothers’ 2008 collapse fades, banks are losing sight of the need to curb their risk.
“We said to ourselves back in 2008, a crisis is a terrible thing to waste,” Cornelius Hurley, former assistant general counsel to the Federal Reserve, tells The Times. “It seems the farther away we get, the evidence is that we are wasting it.”
Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion
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