Indeed we must not try to avert crises; we must make them more manageable

Sir Benn Steil in “We need a safe-fail approach to avert new crises”, November 20, argues for “interventions that recognize that institutional failure will continue to occur and that focus on limiting the systemic damage after they do”. He is absolutely correct and in this respect I have argued for a progressive tax on our financial institutions based on the bigger you are the bigger it will hurt us when you fall concept, which could help us to contain the size of the damages.

We need to be very aware that this crisis is turning out to be one of the worst ever just because our regulators in their sincere but silly efforts to avert a crisis, introduced some minimum capital requirements for banks based on what they wished to understand as risks and empowered the credit rating agencies as their global risk surveyors. These man-made artificialities created and leveraged some awful systemic risks.

Of course, like Benn Steil mentions, we also need some basic operative “fail-save” solutions, like adequate clearing houses that can safely assure us that our expected small net exposures are not turned into irreconcilable monsters.