What would the shareholders of the big two banks have done if management had refused to get involved in highly profitable development lending in the lead up to 2007? What would politicians – government and opposition – have done if regulators had moved to curb credit expansion and prick a suspected property bubble? What would voters have done if the government had moved to tighten fiscal policy while running budget surpluses? There is a bit too much wisdom after the fact.
John McHale, reviewing Raghuram Rajan's new book Fault Lines, writing about the political economy in Ireland. Needless to say, it is equally true of the U.S. and many other countries. Remember that limiting credit flows has distributional consequences, and will probably exacerbate inequalities even if Wall Street bonuses are lowered. It also means that talk about bringing private incentives in line with public goals must actually begin with government and the polity, not with the bankers. A bit too much wisdom after the fact, yes, but also a bit too much optimism; we can't expect a consumer protection agency, or limits on CEO pay, to make much of a difference if everything else stays the same.
(via Henry Farrell's shared Google Reader feed.)