Wall Street and the British financial system both survived the threat of meltdown a year ago, thanks to government intervention — and now they must be weaned off that support, says The Economist.
Not much has changed in the past year, continues their editorial — and that is cause for justifiable outrage on the part of the public that has funded the bailout (to the tune of one-sixth of GDP). But, it’s easy to zero in on symptoms like inflated bonuses and get distracted from the root causes of the crisis: ineffective and poorly enforced regulation, and the implicit guarantee that the government won’t allow big banks to fail.
Both better regulation to improve bank safety and clear, credible limits on expectations of future intervention are necessary — but, both will be challenging to achieve. There are risks that the left’s view of regulation will be too extreme, and impossible to implement — and that the right will use the current calm to fight any reform.
For more on The Economist’s perspective on moving forward after the crisis, read the full editorial here.