Robert Solow on Richard Posner's new book: No one can possibly know how long the current recession will last or how deep it will go. Whenever the US economy returns to some sort of normality, or preferably before then, it will be necessary to improve and extend the oversight and regulation of the financial system. The main goal should be to make another such episode much less likely, and to limit the damage if one occurs. As Posner sees it, talk about greed and foolhardiness is comforting but not useful. Greed and foolhardiness were not invented just recently. The problem is rather that Panglossian ideas about "free markets" encouraged, on one hand, lax regulation, or no regulation, of a potentially unstable financial apparatus and, on the other, the elaboration of compensation mechanisms that positively encouraged risk-taking and short-term opportunism. When the environment was right, as it eventually would be, the disaster hit.
An audio commentary accompanies this article. From earlier threads on the book: Richard Posner presents a concise and non-technical examination of this mother of all financial disasters and of the, as yet, stumbling efforts to cope with it.
How to Understand the Disaster | 
