Lessons of the Financial Crisis from Bill Dudley

I recommend a recent speech by my old classmate Bill Dudley, now president of the Federal Reserve Bank of New York:  More Lessons from the Crisis.

The reading is a little … assumptive of some familiarity with financial markets.  (Some casual readers might call the prose dense, but it's not really aimed at the casual reader.)  However, it's excellent in its explanation of financial crises, doing for the modern era what Walter Bagehot did for the 18th and 19th century period.  (If you have some time this holiday season, read Bagehot's Lombard Street, either online or via Amazon, but avoid the Dodo Press version, which is riddled with typos.)

Dudley explains the risks that arise from the investment banking sectors.  When he describes possible regulatory actions to deal with these risks, he does something unusual: he acknowledges the costs of regulation:  higher costs of financial intermediation and moral hazard.