Indeed, the moral hazard still remains and looms over all transactions entering and exiting the markets. Yet, a key challenge lost to the regulators and politicians resides with a comprehensive restructuring of the markets the banks operate within.
More to the point, if we are concerned with the banks, their risks, and the leverage they assume, it must be holistically examined as part of their business operations – residential mortgages, commercial lending, HELOC’s, securitization, insurance, and so on. Addressing the macro issues and concerns without fixing the underlying micro models and processes of operation is akin to painting a car that doesn’t run.
Each of the aforementioned areas is of great concern for US and UK taxpayers. With cross-border exchanges and operations the norm for the last two decades, the use of “paper” walls of regulation will do little to address the fundamental causes of the market’s dysfunctional behaviors.
Perhaps it is time to “think big, but start small,” while iterating our markets to success? After all, we have debated changes since 2008. What really has been done outside of throwing money at the problems?