It’s tonight, to a private audience. I only have ten minutes, which is good, because many of the guests are more knowledgeable and distinguished than I am. What I plan to say:

1. If you look at the sequence of housing finance crises (the Depression, the S&L crisis, and the current mess), the response to each crisis became the basis of the next crisis.

2. Regulation is a chess mid-game, not a math problem. With a math problem, once you solve the problem, it stays solved. In a chess mid-game, new opportunities and threats arise constantly. You try to plan ahead, but your plans inevitably degrade over time.

3. We tend to think of the task of regulation as one of making systems hard to break. An alternative to consider is making systems easy to fix. Think of a computer. You can try to use firewalls and anti-virus software to make your computer hard to break. But it still pays to back up your data to make it easy to fix.

4. The The Group of Thirty report (a focal point for the discussion this evening) is mostly focused on “hard to break,” not “easy to fix.” In particular, it seems to contemplate a European type of financial system, which is less heterogeneous than the U.S. system. The report contemplates consolidation in the banking sector, a single regulator, etc. That might help make the system harder to break, but it will make for a system that is much harder to fix. The current U.S. system, although it can be improved, is better than the system that is envisioned in the Group of Thirty report. I would focus much more on reforms that make the system easy to fix, rather than count on creating a system that is hard to break.