I did not get around to reading Robert Solow's review of Richard Posner's "A Failure of Capitalism: The Crisis of '08 and the Descent into Depression" until the print version of The New York Review of Books physically arrived in my mailbox.
But it is well worth taking a good look at, if only to marvel at the impressive integrity displayed by Judge Posner, a leading light of the Chicago School I so meanly pilloried yesterday. He has clearly rethought some of his fundamental positions. I'll highlight, just as Solow did, Posner's thoughts on various ways to reregulate financial markets to prevent the kind of behavior that created the financial crisis.
Other regulatory changes might be desirable, such as limiting leverage; raising credit-rating standards and changing how credit-rating agencies are compensated; forbidding proprietary trading by banks (that is, trading of their equity capital, which puts that capital at risk); adjusting reserve requirements to take more realistic account of the riskiness of bank's capital structures; requiring greater disclosure by hedge funds and private equity funds; requiring that credit-default swaps be traded on exchanges and fully collateralized; and even resurrecting usury laws.
The times certainly have changed.
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