A Libertarian Perspective on the Financial Crisis and Financial Reform

The pre-crisis financial environment was close to a libertarian's ideal, although it might not have seemed so at the time. Now, we need to add to the basic function of sound government in a modern economy rules and conditions to reduce the risk of financial crisis. Two such rules would be a subordinated debt requirement for banks and the end of tax incentives for households and businesses to accumulate debt. Given current directions it will take painful future events to persuade Congress to adopt more market-friendly approaches. How these events will play out is highly uncertain. Surprises are inevitable. Unfortunately, most of the surprises will be unhappy ones.