The question is how we can best get rid of the TBTFs without increasing the power of government in the economy still further. This should be among the first priorities of an incoming Conservative Chancellor of the Exchequer.
Niall Ferguson isn't afraid to think big, and to consider calamity. He's held his nerve, whilst most others succumb to fear. Bravo.
by the spring of 2008, a three-part conventional wisdom about the crisis had taken hold that still governs mainstream thinking about what happened
This “executive compensation” theory of the crisis is now the keystone of the conventional wisdom, having been embraced by President Obama, the leaders of France and Germany, and virtually the entire financial press. But if anyone has evidence for the executive-compensation thesis, they have yet to produce it. It’s a great theory. It “makes sense”—we all know how greedy bankers are! But is it true?
The evidence that has been produced suggests that it is false... For one thing, bankers were often compensated in stock as well as with bonuses, and the value of this stock was wiped out because of the investments in question. Richard Fuld of Lehman Brothers lost $1 billion this way; Sanford Weill of Citigroup lost half that amount. A study by Rüdiger Fahlenbrach and René Stulz  showed that banks with CEOs who held a lot of stock in the bank did worse than banks with CEOs who held less stock, suggesting that the bankers were simply ignorant of the risks their institutions were taking.
I have spent the best part of the last two decades picking my wits against the market. It’s an unforgiving game: I’ve seen ups and downs, and many of my rivals buried under an avalanche of hubris, passion, illogical thought and unchecked emotion.
"They can print money out of thin air and serve special interests," he says. "It's central banking that causes economic bubbles."
Ron Paul, quoted in the FT. I've long-held the view that whether the Bank of England should exist should not be taken for granted. It's simply anti-intellectual to mandate that only preservers of the status quo should have a seat at the table. Provided one is rational, reasonable, and polite, dissidents deserve a place.
Have a look at the following article from Paul Krugman in 2002 (via Arnold Kling):
"We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction."
Here's a passage from Hayek where he's advocating that policymakers should stabilise MV:
At that time [early 1930s] I believed that a process of deflation of some short duration might break the rigidity of wages which I thought was incompatible with a functioning economy.
The thing I found interesting is that Hayek viewed deflation as a way to "break" the rigidity of wages. I think the likes of Krugman are inconsistent about whether rigidities *are* an empirical fact, or *should* be compensated for.
By contrast, Mark Thornton outlines an "Austrian" recipe. The unity stems from recognising the root cause of financial crises - excess credit creation.