On January 27 the NYU Law Forum addressed the difficult question of how to deal with the aftermath of the economic crisis of 2008. The panel “After the Fall: How Should Financial Institutions Be Regulated?,” moderated by Vice Dean Barry Friedman, gathered a quartet of experts including Geoffrey Miller, Stuyvesant P. Comfort Professor of Law and director of the Center for the Study of Central Banks and Financial Institutions; Eliot Spitzer, former New York State governor and former attorney general; Lewis Kaden, vice chairman of Citigroup Inc.; and Bloomberg News financial correspondent James Sterngold.
Miller began the discussion with a breakneck but thorough overview of the origins, development, and aftermath of the crisis, noting that “the financial capital of the United States has moved from New York to Washington.” Kaden described the crisis as evolving in three phases: the initial crack in capital markets during the second half of 2007 due to problems in the mortgage securities market, followed by a “classic consumer economic bust” and then the collapse of the commercial real estate market.
Spitzer offered a blunt assessment of the crisis: “This isn’t about good people and bad people. This is about ideology gone awry, it’s about government failure, private sector failure, but the vast majority of the people involved in this crisis are good people, so vilifying individuals except in the rarest of instances will be counterproductive. Angry populism is not any better a guide to policy than libertarianism masquerading as capitalism.”
According to Sterngold, critical regulatory questions remain unaddressed, such as whether employees at financial firms are rewarded in ways that make them consider the long-term viability of financial products rather than just collecting a commission, and the lack of transparency in transactions involving over-the-counter derivatives.
Reform would involve a real effort to find new ways of thinking, the panelists agreed. “We need to have a conversation as a society about what principles should underlie government intervention,” said Spitzer, “because if we don’t we will not create an alternative to the free-market mania that Alan Greenspan spoke to.”
“This is a very dynamic society,” said Kaden. “Over the course of a couple hundred years plus, what we’ve done best is respond to complex problems.... I think part of the challenge in every one of the arenas we’ve discussed—the political arena, the regulatory arena, and the business and civic or social arena—is a challenge of leadership. A lot of these problems get better the better the people you have in place.”
Ultimately, Sterngold concluded, only time would tell whether reforms in response to the crisis had been effective. “There are social and even ethical facets to what we have to address.... You can’t say, okay, here’s our checklist and we’re going to go down the checklist. Fundamentally, we will know whether we came up with the right answers when we have the next crisis.”
Watch the full recording of the event (1 hr, 13 min):