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We're "Absolutely" Headed for Another Crisis Without Reform, Economist Stiglitz Says

Posted Feb 17, 2010 02:58pm EST by Heesun Wee in Investing, Newsmakers, Recession, Banking, Politics
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More than a year after the global credit crisis, what's changed? Not much, says our guest, Nobel Prize-winning economist Joseph Stiglitz.

"In many ways, things are worse now than they were before," says Stiglitz. As outlined in his new book, "Freefall: America, Free Markets, and the Sinking of the World Economy," Stiglitz argues we're headed for another financial disaster without meaningful reform.

As Stiglitz tells Henry in the accompanying clip, we need to change the incentive structure that still rewards high risk and short-term decision making. One and a half years after the collapse of Lehman Brothers, banks are even bigger and there's less competition. The word on Wall Street remains -- bet the system and fail, taxpayers will pay for the mess, says Stiglitz, also a professor at Columbia University. As Stiglitz tells Henry in the accompanying clip, successful reform must include several key ingredients:

Stop the conflicts of interests: Stiglitz has long been a critic of the revolving door between Wall Street, the Treasury and back to Wall Street. He's also concerned about the links between White House advisers and Wall Street.

The Volcker rule: He's in favor of more regulation for banking and trading. Specifically, Stiglitz likes the Volcker rule that calls for eliminating proprietary trading by depository institutions. He's among a group of elder statesmen of trading and banking that supports the rule.

Click "more" to get Stiglitz's take on how financial history is likely to repeat itself without change now. 

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