"WASHINGTON — Congress should create an oversight council made up of the nation’s top financial regulators to scrutinize “too big to fail” institutions for risky practices that could lead to the next financial crisis, the chairwoman of the Federal Deposit Insurance Corporation told a Senate committee on Wednesday."
The above is from today's NY Times and has a lot to say about how difficult it is and has been to monitor and control systemic risk in today's financial markets. The funny is that Glass Steagall, the act that prevented banks from engaging in some types of businesses, was repealed in 1999, moving us away from the idea that some institutions should control risk (banks) and some institutions should take risks (investment banks et al).
The new system whereby we encourage everyone to take big risks then throw taxpayer money at the problem once it craps out is miserably flawed. Sheila Bair is a smart cookie but the rank and file at Lehman, Bear Strearns and AIG were the best and brightest out there and you could argue that they could not fathom the risk on their own books. Good luck with the rank and file regulators doing it, and no offense to them. No quick fix.