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by Martin Wolf
These are dramatic times. By Monday of this week, three of Wall Street’s top five investment banks – Bear Stearns, Lehman and Merrill Lynch – had disappeared as independent entities. The insurance group AIG is in serious trouble. What was, until recently, the brave new US financial system is melting away before our eyes.
Over the past few weeks three experiences have helped clear my mind on this crisis. First, I reread Hyman Minsky’s masterpiece, Stabilizing an Unstable Economy. Second, I engaged in a debate on the future of regulation with my admired colleague and friend, John Kay.* Finally, on Monday, I moderated a session on this crisis at the Swift International Banking Operations Seminar in Vienna.
I structured this latter discussion around four questions. What went wrong? Is the worst over? What are the lessons for financial institutions? What are the lessons for governments? Here then are my current answers to these questions.
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