Periodically, it is nice to see I am not alone in what I proposed was and still is necessary to end the Great Financial Crisis (and no, the crisis hasn’t ended as we don’t have a self-sustaining economic recovery, but rather one that requires constant injections of fiscal stimulus and monetary accommodation).  In this case, the speaker is James K. Galbraith, an Economics professor at the University of Texas.

To cure the financial crisis would require two comprehensive measures.  The first is debt restructuring for the entire household sector, to restore private borrowing power.  The second is a reconstruction of the banking system, effectively purging the toxic assets from bank balance sheets and also reforming the bank personnel and compensation and other practices that produced the financial crisis in the first place.  To repeat:  this is the only way to generate deficit-reducing, privately-funded growth and employment.

Both of these measures can be achieved by restoring transparency to the financial system.

Transparency lets the market exert discipline.  When the market can exert discipline, it forces the write-off of the debt that can never be repaid.

As the famous saying goes, sunlight is the best disinfectant.  Transparency ends the ability of bankers to misbehave behind a veil of opacity.  When the market can see what bankers are doing, bankers don’t misbehave as they know they will be caught and punished.