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The Lehman Brothers Collapse: Financial Regulation One Year Later

by David C. John

Policy Mistakes to Avoid

The President and Congress should:

• Avoid making the Federal Reserve serve as systemic risk regulator.
• Do not create a Consumer Financial Protection Agency (CFPA).
• Resist giving the FDIC resolution authority for "Too Big to Fail" financial firms.

Moving Toward Real Financial Regulatory Reform

Instead, the President and Congress should explore the following key policies and principles during its deliberations over financial markets:

• Bankruptcy, not bailouts.
• Consolidate financial regulators to modernize the regulator framework.
• Privatize Fannie Mae and Freddie Mac.
• Use capital requirements to reduce the systemic risk of large financial institutions.

Implementing Good Policy Is Preferable to Action for Action's Sake