We are seeing a steady stream of news stories saying a “sweeping overhaul” of the financial system is just around the corner. The system definitely needs to be fixed. But as I point out in my new column, the restructuring process could cause even more damage to the economy if it’s not done properly.
I offer up three principles the government should keep in mind before enacting any new financial regulations:
- First, regulators should make sure they are identifying and addressing the root problems.
- Second, when redesigning regulations to avoid future cascading meltdowns, lawmakers should design laws that require firms to be responsible for their market activity. In simple terms: require companies to have some skin in the game.
- Third, the government should ensure that its newly adjusted regulatory system does not restrict entrepreneurial activity.