FINANCIAL REFORM

The Crash of 2008 and the ensuing Great Recession was primarily caused by excessive borrowing on the part of gigantic financial institutions for the purpose of engaging in unregulated betting on the value of derivatives backed by dubious mortgages. Only a massive program of government intervention prevented an even more drastic economic downturn, and perhaps even worse. As it is it took almost a decade to repair at least most of the damage.

But a properly-functioning market economy should not require taxpayer bailouts of private companies in order to maintain stability, and a free market economy shouldn't be a free-for-all, either. A combination of improper regulation and poorly-reasoned (and perhaps even corrupt) deregulation over the last several decades contributed greatly to the Crash of 2008. 

We must learn from the mistakes of the past and institute a regulatory regime which honors all the best attributes of capitalism and free enterprise while protecting the population at large from the errors, mistakes in judgment and malfeasance of a few well-connected bad actors. 

Proposals:

• Bank executives whose institutions require government bailouts due to unethical business practices should be "named and shamed," permanently banned from working in financial services and prosecuted if warranted by the evidence.

• The employment contracts of senior bank executives should be required to include bonus "claw-back" provisions which can be exercised if they are found guilty of financial misconduct. Institutions must also admit wrongdoing as a condition of legal settlements and the fines they pay must be increased.

• "Too big to fail" financial institutions should be broken up and a bank’s size capped at 3 percent of the total assets in the banking system.

______________________________________________________________________

The Modern Whig Institute is a 501(c)(3) civic research and education foundation dedicated to the fundamental American principles of representative government, ordered liberty, capitalism, due process and the rule of law.