Big Thinkers Discuss How To Prevent Next Financial Crisis

Bankers, regulators and politicians met in Boston to discuss the future of the financial system. At issue: Why did regulators fail to prevent the crisis that pushed the country into recession?

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People who think big thoughts about the financial system gathered in Boston yesterday. They were asking how to prevent the next financial crisis.

NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Speaking to a room full of bankers and regulators, former Sen. Chris Dodd took people back to a moment in 2008. Lehman Bros. had just collapsed, and he was called into a small, emergency meeting with other top lawmakers and Fed Chair Ben Bernanke.

CHRIS DODD: The moment that I remember most clearly was Ben Bernanke saying the following: Unless you act in a matter of days, the financial system of this country - and a good part of the world - will melt down.

ARNOLD: Lawmakers bailed out the banks. But, of course, the damage was still massive.

DODD: Had there been an intervention earlier on, we would have had a crisis. Never the magnitude that we saw. Never the 26 million jobs that were lost. Never the 4 and a half to 5 million homes that were foreclosed. It didn't ever have to come to that.

ARNOLD: One of the biggest reforms so far is the so-called Dodd-Frank legislation, which six years later is still just slowly being implemented. The law has drawn some criticism from the right and the left. But former congressman Barney Frank said it is making a difference.

BARNEY FRANK: The suggestion that we - as a result of the bill the system is less safe, is nonsensical.

ARNOLD: Still, Frank said he is worried about something. The law says that firms that bundle mortgages and sell them have to retain some of the risk. And that's an incentive not to sell garbage home loans. They'll be on the hook if the loans go bad. But he's afraid that risk-retention is being watered down as regulators finalize the rules.

FRANK: It's the one part of the implementation that troubles me.

ARNOLD: Some bankers argue, though, that if the rule is too tough, that will make it much harder for average Americans to get home loans.

Chris Arnold, NPR News, Boston.

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