Subprime Mess Highlights Need for Tough Rules

The events of the past few months in global credit and other asset markets show that the world economy must be shielded from the actions of financiers and that bankers, insurers and money managers must be protected from themselves.

Everyone mentions the need for lower interest rates and government aid to homeowners, but few advocate tougher regulation of the wholesale market. Like the 1980s U.S. savings-and-loan debacle, the Latin-debt crisis in the same decade and the technology bubble in the late 1990s, the U.S. mortgage mess offers more evidence that while deregulated markets are great at generating booms, their ability to clean up the aftermath of a bust is less impressive.

U.S. and other financial regulators, under the auspices of the Bank for International Settlements, will have to come up with a common set of rules to avoid a repeat of the subprime meltdown.

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