Russ Roberts of George Mason University and EconTalk has written an interesting analysis of the financial crisis. His major new insight is why shareholder discipline cannot dampen risk taking when creditors are protected from losses. The importance of this insight may be even greater than Roberts recognizes, given that risk-based capital requirements (rather than risk-based premiums) are the main way, ever since the S & L crisis, regulators have tried to control the widely acknowledged moral hazard arising from deposit insurance. The paper also has some strong implications for those libertarians suspicious of limited liability.

Here is Tyler Cowen's summary of the paper. I still think, however, that Roberts pays insufficient attention to the role of international savings flows and to the 2007 collapse of the repo market that is identified by Gary Gorton and is responsible for Scott Sumner's negative velocity shock.