It Takes a Village to Maintain a Dangerous Financial System

Abstract

I discuss the motivations and actions (or inaction) of individuals in the financial system, governments, central banks, academia and the media that collectively contribute to the persistence of a dangerous and distorted financial system and inadequate, poorly designed regulations. Reassurances that regulators are doing their best to protect the public are false. The underlying problem is a powerful mix of distorted incentives, ignorance, confusion, and lack of accountability. Willful blindness seems to play a role in flawed claims by the system’s enablers that obscure reality and muddle the policy debate.

Keywords: financial system; systemic risks; reforms; capital regulations, capture, conflicts of interest; ignorance; willful blindness; accountability

JEL Classification: D72, E58, H25, G21, G28, G32, G38, L51, M48, H81, K23