First of all, there is now clear recognition that the problem is international, and international coordination and cooperation is both necessary and underway. The days of finger pointing and schadenfreude are over. The concerted reduction in central bank interest rates is one concrete manifestation of that fact.
More important in existing circumstances is the clear determination of our Treasury, of European finance ministries, and of central banks to support and defend the stability of major international banks. That approach extends to providing fresh capital to supplement private funds if necessary.
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The inevitable recession can be moderated. The groundwork can be laid for reconstructing the financial system and the regulatory and supervisory arrangements from the bottom up. The extraordinary interventions by the government (and taxpayer) should be ended as soon as reasonably feasible.
That rebuilding will be the job of another day -- of a new administration here in the U.S., of finance ministries and central banks working together. It must draw upon the strength of the now chastened private sector. It will require more understanding of the risks embedded in so-called financial engineering and of the perverse compensation incentives that have exalted risk over prudence.
http://online.wsj.com/article/SB122360251805321773.htmlVolker says that we're on the right track. As long as the Fed and the Treasury Department do not act as they did when Greenspan was at the Federal Reserve then we'll be well on our way to recovering from this crisis. More transparency and less opacity will help tremendously. Our current situation arose from Greenspan and Rubin's insistence on opaque financial mechanisms. But the cure takes time: our scarcest commodity right now.
Edit: Why is time of the essence? Because the intertwined banking/investment world is insane. Monetary injections alone will not cure our illness. Only a massive realignment of investment rules, banking rules and a shock of reintroduced regulatory legislation (read: Glass-Steagall) will make things right again.
There's another crazy part that must be addressed: investors are accustomed to ridiculously high levels of return. That has to change. I remember when 5% annual return was great. 3% was pretty good. 1.5% was okay. To change this expectation will require that we change a cultural mindset borne from the effervescent era under the stewardship of Alan Greenspan.
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