the problem with the current mess is that many of those responsible acted bona fide. greenspan was very sure he did the right thing. and those people, the crowd, who look for guys to blame do not see their own embedment. i find it frightening when politicians and fed chairmen truly believe that if credit flows again everything will return to normal. the problem is the way the average american deals with credit in the first place. if they can bail the system out too quickly, nothing will change in this respect. a while back i saw the US savings rate over decades and its quite sudden decline in the nineties. and actually the whole thing is an american misperception of economics that grew over time. and it is shared by both parties. the mortgage twins, as far as i know, were deeply rooted in the democratic family. that pointed finger towards the failed bush policies seems to be a little stretch of reality. people, especially crowds, do not learn the easy way. if i had to clean the trouble, i'd make two regulations. first: financial institutions are only allowed to use exchange traded derivatives for hedging. all other trades do not offset risk, but increase it. in the futures market we know that only a fraction of the futures that are brought to the market, really make it. the others vanish due to too weak market structures. so, if structured credit desks want to hedge something they cannot just go out and create their private game, like cdx or itraxx. second is company size. this must be reduced. my guess would be about USDbn 10-20 in market cap. when companies grow bigger they are torn apart. yes, that would kill some economies of scale. yes. google is bigger. yes, microsoft, yes GE and so forth. my guess is the world would be way more competitive and way less corrupt, since all of a sudden the material power of certain groups ... vanish. funny thing with this latter point is that it sounds weird, but we actually have it in place already, just the size which is seen as critical is some orders above my proposal. the real point is that we are in a post industrial era and the point of economies of scale is way less valid than it was 100 years ago ... anyways ...
His comments on the minimum wage are nonsensical. lets say he is correct, is he really endorsing that the government becames a hedge fund that 'adjusts' the 'correct' minimum wage to match productivity growth? the last thing you want is barney frank or nanci pelosi trying to create a more 'efficient' market with blunt instruments the Fed with a staff full of phds and highly educated people has a hard time doing that with interest rates. plus in election years it wouldn't be any surprising to see a sudden 'need' to 'ajdust' the markets further
from what I read the way to counteract this effect is highten minimum wages and make a fixed exchange rate to countries with a trade deficit at the same time. also from what i read they actually lowered minimum wages in a 40 year time span from $8 hour to $5 an hour. So they have already been messing with the number.