links for 2009-11-08

We ought to learn our lessons from the mistakes of the Greenspan period. It's a shame that after the near-vaporization of the financial system last year, with all the attendant consequences, so little intelligent thought has been given to how we got into the mess and how to prevent us from getting there again.

So all of those folks who thought Barrick had done all it had to do — and call that a sign of a top one month or so ago — will now have to come up with a new reason to say the gold market has peaked. In my opinion, we can't even think about a meaningful top until such time as gold stocks are embraced with enthusiasm. Meanwhile, gold stocks trade as though an attack of the swine flu or worse will infect anyone buying them.

Calomiris argues that it is important to put the crisis in historical perspective in the context of other bank crises. He argues that bank crises differ widely across time and place–some times and some places are placid, others are prone to regular crises. Calomiris argues that frequent episodes of failure are tied to government guarantees such as various forms of deposit insurance or similar incentives for risk-taking. Looking at the current crisis, Calomiris indicts "too big to fail," the government's reliance on ratings agencies as a measure of risk, and poor corporate governance as the key causes.

I don't know when it's going to happen, but if history is any guide, it has to happen again–the "it" being another financial crash. Of course, it won't happen tomorrow or next week, or maybe not even two years from now. But when the memory of 2008 wears off, and mark my words it will wear off, excessive risk taking will be back in a form that evades all these alleged regulatory controls that have been established. Regulation can never cure the disease of excessive risk.