"Among the changes I called for were the following:
* Compensation reform to better align the interests of Wall Street executives with those of society at large.
* Requiring private equity firms and hedge funds to be registered with regulators.
* Taxing private equity partners’ carried interests at ordinary tax rates instead of capital gains tax rates, and prohibiting private equity firms from going public.
* Sharply reducing the leverage of financial institutions (including hedge funds).
* Banning off-balance sheet vehicles such as Structured Investment Vehicles.
* Reining in quantitative trading strategies.
* Reinstituting the downtick rule with respect to short selling stocks.

At the time these proposals were considered controversial; in retrospect it is clear that they were not aggressive enough. While many of these suggestions have been adopted or are in the process of being adopted, much more needs to be done to stabilize the financial system.

Since the publication of that essay, I have written a new book that is being published by John Wiley & Sons this month. Entitled The Death of Capital: How Creative Policy Can Restore Stability, the book explores the origins of the 2008 financial crisis and expands the call for reform. In addition to the recommendations listed above, the book calls for additional regulatory changes including:

* Derivatives reform, with a preference for an outright ban on naked credit default swaps or, recognizing that such a ban is politically unrealistic, calling for such contracts to be listed on exchanges and requiring substantial capital commitments by their participants.
* A Tax on Speculation that would apply to the types of speculative activities that have so badly damaged the American economy, including naked credit default swaps, leveraged buyout, quantitative stock trading strategies and other stock and bond transactions."

(POSTER’S NOTE:Whether there is ‘real’ financial reform will depend on how many of these recommendations get into the legislation,BTW)

"Adam Smith wrote the following:
“This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect, persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments.”

"There was no reason for the government to handle the AIG failure in a manner that made whole foreign counterparties and Goldman Sachs; alternatives including offering a blanket credit guarantee to the insurance company that would have calmed markets and obviated the necessity of the company paying out one hundred cents on the dollar for its reckless insurance bets on synthetic mortgage obligations."

"Capital is not a thing or a category; capital is a living, breathing phenomenon. Capital is an expression of the human relationships that generate economic value. Just as these relationships are dynamic, so is capital. The most important attribute of capital as it functions in the real world is that it is a relationship; as such it has the capacity to change form. This is often described as its liquidity function. Capital is also a human construct; it is not something found in nature or subject to scientific laws, despite the misguided attempts of today’s rocket scientists to claim that it possesses such qualities. Most importantly, capital is unstable. If capital were better understood for what it is, it could be better managed and regulated."

From here.