“Certainly, banks wishing to run proprietary trading books should be required to hold large amounts of capital given the negative externalities when things go wrong. Further, there is a debate to be had about which forms of lending are inherently risky if left to expand. These are all questions about the match and the flame. The fuel of this crisis was the profound imbalance between Asian saving and Western (and to some extent South African!) consumption. How to limit the risk of such imbalances building up is an important question.
Post-crisis ideologizing, fun as it may be, can go too far. There will always be a need to bring together funders and those in need of funds, i.e., a need for financial intermediation.”
