The most important lesson former Fed Chair Ben Bernanke says he learned from the 2008 financial crisis is that for the Fed, financial regulation needs to have the same priority as monetary policy. The clear implication from this statement is that this was not the case before the crisis.
Bernanke was not the first economist to have made this argument. Distinguished economics scholar Hyman Minsky made the same point; and Minsky died more than a decade before the financial crisis erupted. Minsky was a realist. He argued that because of psychological excesses, financial crises are unavoidable. Therefore, we should be careful not to conclude that regulation can prevent such crises. Instead, we should consider what kind of regulatory structures will mitigate the severity of these crises when they materialize.
