Ten years after the acute phase of the Great Financial Crisis has financial stability been restored or are we teetering on the edge of the next acute phase of the crisis?

If you ask the financial regulators, they will tell you financial stability has been restored. Not only that, but they are putting the finishing touches on the regulatory architecture to prevent another financial crisis ever occurring again.

This new regulatory architecture makes the financial system dependent on the regulators performing a task they are not designed to do or particularly good at.  The task involves spotting risks in the global financial system and taking proactive steps to ensure the risks do not get out of hand.

If you ask any engineer, they will tell you a system will always fail that has a single point of failure.  Unfortunately, the regulators represent a single point of failure.

Why am I so negative about the regulator centric redesigned financial system and its chances of preventing another financial crisis?

Regulators are no better at identifying and managing risks in the opaque portions of the global financial system than anyone else.  And it is these risks that generate financial instability and financial crises.

When you cannot see the risks hidden there, how are you suppose to effectively manage these risks?  Of course, they could do so by limiting the size of the opaque portion of the global financial system.  However, does anyone see a regulator capable of and trying to bring transparency to these areas?

Didn’t think so.