How to Prevent the Next Crisis

The following is a section from Mark Zandi’s book Financial Shock.

As this is being written, the financial and economic crisis rages on. While progress has been made in quelling the panic in the financial system, it remains far from normal and the global economic downturn remains intense. The global economy will likely continue to shrink in 2009; the last time that occurred was during World War II. The subprime financial shock thus continues to reverberate.

Policymakers understandably have had little room to consider how to ensure that something like this never happens again. The crisis hit its apex when the Bush presidency was winding down and the Obama presidency was getting off the ground. Both were very short- staffed at a time when an army of policymakers would have had an impossible time keeping up with events. But after the panic subsides and the crisis is quelled—and it will—policymakers must quickly refocus their attention to preventing the next crisis.

What follows is four of the most pressing of my “top ten” list of what I believe needs to be done…