Incentive-Robust Financial Reform
Charles W. Calomiris
Will Rogers, commenting on the Depression, famously quipped:
“If stupidity got us into this mess, why can’t it get us out?” Rogers’s
rhetorical question has an obvious answer: persistent stupidity fails to
recognize prior errors and, therefore, does not correct them. For
three decades, many financial economists have been arguing that
there are deep flaws in the financial policies of the U.S. government
that account for the systemic fragility of our financial system, espe-
cially the government’s subsidization of risk in housing finance and its
ineffective approach to prudential banking regulation. To avoid con-
tinuing to make the same mi