So what about those regulatory proposals we've heard about? I completely agree with Posner, who believes that politicians are picking the easy, popular aspects of the financial industry to regulate, rather than take measures to focus on the real causes. The example he uses is the Wall Street compensation witch trial. As I mentioned last week, even the Federal Reserve has jumped on that band wagon. I don't believe there's a legitimate economist out there who actually believes that Wall Street compensation structure was the root cause, or even one of the top five causes, of the financial crisis. Off the cuff, Posner names ten better candidates, and I could name a few more: allowing banks too much leverage and financial institutions to become too systemically important.
Posner is correct that Washington needs to address the real problems that caused the crisis -- and fix them now. Attacking those actual causes might not be as political popular as attacking Wall Street pay, banning complex derivatives most people don't understand or putting and end to tricky-sounding "flash" trading, but the nation will be better off if it faces reality and focuses on the bigger problems.
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