By: Dr. Lynn Reaser
It has been five years since Lehman Brothers failed, triggering a worldwide financial meltdown. Is there still work to be done to clean up after the 2008 financial meltdown?
It is disturbing how much needs to be done and remains on our plate. Topping the list of reforms we need are the following:
(1) Fannie Mae and Freddie Mac need to be dramatically downsized or phased out from the 90% of the mortgage market they now control. (2) Financial institutions should be downsized or restructured so they are not too big or systemically important to fail and be bailed out by taxpayers. (3) The Federal Reserve needs to exit from a policy of extreme monetary ease, which could trigger another credit and asset price bubble. (4) The shadow banking world, which has actually expanded since 2008 and comprises finance companies, hedge funds, and other investment funds, need to be better monitored and held accountable for excesses.
On balance, we have been too reliant on the Federal Reserve for stimulus and on regulators to prevent another financial crisis. Instead, we should be relying on the underlying strength of U.S. businesses to drive economic growth and on market discipline to prevent excesses on Wall Street and Main Street.