09.22.08, 1:45 PM ET
Finance requires discipline. The next act of regulators and policymakers should be to restore any sources of market discipline that were eroded before the system shook. That will contribute to a sound regulatory policy that enhances competition and brings back incentives for companies to grow in a way that benefits the financial system and the whole economy.
Regulators should, in particular, consider the impact of government policies on housing finance, since no sector of U.S. financial markets has more state involvement. Investments in housing may have been stimulated by a series of policies--the "implicit guarantee" of Government-Sponsored Enterprises' liabilities, mandated investments in "affordable housing," lower bank capital requirements for mortgages than for corporate loans--that could reduce market discipline.
While attempting to serve the worthy goal of increased home ownership, policies like these also may have resulted in mortgage loans to people who can't afford them, distressed borrowers and huge losses on those loans. Now that the costs are clearer, the easiest first step to restore soundness could be to remove impediments to market discipline.
Mark C. Brickell is the chief executive officer of Blackbird Holdings, Inc., and former chairman of the International Swaps and Derivatives Association."