After the Financial Crisis
Edited by Sylvester Eijffinger and Donato Masciandaro
Chapter 3: Reflections on the Crisis and on its Lessons for Regulatory Reforms and for Central Bank Policies
Alex Cukierman1 When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We're still dancing.2 Introduction The global financial crisis (GFC) has exposed numerous problems of moral hazard and of asymmetric information in financial intermediation. In good times such problems are not as salient because various excesses – such as exaggerated commissions, large compensation packages, biased financial advice and outright fraud – are overshadowed by the generally good performance of the economy. When everybody is making money and credit is plentiful the general public, as well as politicians, are not inclined to be inquisitive and various excesses are more likely to be glossed over. Easy access to credit makes it possible to maintain such excesses and even outright fraud over long periods of time.3 An earlier version of this work was published in the Journal of Financial Stability and was presented as a keynote lecture at the Finlawmetrics Conference on ‘After the Big Bang: Reshaping Central Banking, Regulation and Supervision’, June 2009, Bocconi University, Milan, Italy. 2 Interview with Citigroup CEO in the Financial Times, 9 July 2007. 3 A salient example is the Madoff case. 66 1 Reflections on the Crisis 67 Many of those problems call for substantial reforms in the regulation and supervision of financial institutions and some reconsideration of the way central bank policies operate. Paradoxically, a benefit of the crisis is that it has exposed the fact that in a...
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