Hi Safwan,

That is a great question and outside of the scope of the blog post's comment section. But I will answser your question in a shorthand way and I will also consider writing another blog post with suggestions for how to prevent a future crisis of the kind described above.

1. There has to be a separation between the speculative activities of an investment bank and the lending activities of a traditional bank. In the United States this was done by the Glass-Steagall act which was repealed. However, there is a move toward reinstating it.

2. The EU and the Eurozone each need to coordinate fiscal activities, and not just monetary policies. Unfortunately, changing the charter requires a unanimous vote so this is unlikely.

3. The EU and the Eurozone need to establish means to enforce their treaty in order to prevent violations. As it stands their charter is "all bark, no bite."

4. Human beings - from consumers to business people to politicians - need to learn contentment. Debt financing of an idea is a way to live beyond one's means due to a lack of contentment with their current situation. This, for me, is at the heart of the issue. Obviously, this particular point is almost impossible to rectify, it can only be managed.

5. Encourage actual underwriting of risks. Banks issued loans to just about anyone and without any appreciation of the risks they were taking on.

6. Increasing transparency. With transparency, and the will to act on the information discovered, the interlinkings between players in the financial ecosystem is more obvious and easier to regulate/correct.

7. Encourage governments to run surpluses in good times so that they have reserves to cover losses in bad times.

8. Banks in Europe need to develop alternative funding sources other than markets. That way, when markets seize up, they are able to maintain quality reserves.

And so forth. I might add that each of these points have been in place before, but that over time each of them was removed because they were seen as impediments to growth. But growth at any cost ignores risks...to everyone's peril. It is kind of like building a car and putting all of your brain power into making it go faster without regard to either the steering or the braking. Ouch!

With smiles,

Jason