Introduction

In the current debates on financial reforms we often encounter the aphorism regarding the danger of fighting the last war. Because pervasive financial reforms are predominantly reactions to recent events, the perceived causes of the last crisis tend to attract the attention of reformers. Being right in fighting the last war requires the firm belief that the preexisting strategy was substantially sound, needing adjustments but not a radical redesign. Calling attention to the next war means trying to understand how the recent defeat was the product of a strategy based on the wrong understanding of the art of the war. If the previous financial regulatory framework were considered structurally unfit to contain the explosive effects of endogenous dynamic forces, a radical financial reform would be necessary. If the financial sector were considered as only part of the problem, further reforms should be called in.

The discussions that have arisen or been reignited by the recent crisis and the adopted or planned reforms have followed the two above strands. Reforms have tended to mend, not revolutionize, the previous regulatory framework. To a large extent they constitute a compromise between those calling for harsher measures and the milder position advocated by the industry, with both camps accepting the essentials of the previous approach. The other strand variously singles out structural weaknesses in the general design of public intervention, at international, regional and national levels.

Economists are accustomed to division. Another aphorism says that if ten economists are asked to interpret a passage of the Bible, they will produce ten different interpretations, eleven if one of them were John Maynard Keynes. However, in our case economists may be grouped in two significantly different clusters, so that our interest should lie in understanding what causes the main division. Keynes offers an explanation based on the ideas of past economists and political philosophers that should also apply to our subject, with politicians, financiers and the civil servants of regulatory and supervisory authorities among the main actors.