An interview with Squam Lake Group member, Anil Kashyap
How did you get involved in the Squam Lake Group?
As the financial system was buckling in the fall of 2008, a lot of financial economists were talking about what they could do to help. Ken French called and told me that he was gathering a group of experts to think about what they could do to improve the policy discussions. When he gave me the list of people involved, I jumped at the chance to participate.
How do the recommendations made inThe Squam Lake Report differ from other prescriptions for financial reform? Why is your plan better?
Our recommendations are closely tied to our views about the fundamental, underlying forces that caused the financial crisis. Focusing on these deeper problems makes us confident that our recommendations are going to fix real problems without creating a slew of unintended consequences.
One of the big lessons from history is that firms and markets evolve to get around rules. My favorite example is that health care benefits in the United States were first tied to employment because pay increases were restricted after World War II; there was no good reason to connect health insurance to employment except to get around the pay regulations. Now, sixty-five years later, almost all economists agree that breaking the link between insurance and employment would be a good idea, but doing so is immensely complicated. So in writing The Squam Lake Report we worked hard to identify and avoid potential unintended consequences.
We hope our book will read just as well in three years as in three months.
If only one recommendation from The Squam Lake Reportcould be implemented, which one do you think is most important, and why?
I would like to see bankruptcy reform, specifically making it possible to gracefully close down large, complex financial institutions when circumstances require doing so. The goal of The Squam Lake Report is to make financial crises less likely--and to lower their costs when they do happen. This will be impossible without reforming bankruptcy rules.