By Arnold Kling
John Reed stresses the same issue that I do on the financial crisis: capital requirements, and their perverse encouragement of banks to hold securities instead of the underlying mortgages. One point that he makes that is new to me is that securities held in a “trading account” did not require capital. I do not know how large the “trading accounts” were at large banks, but it is an interesting issue. Reed is interviewed by Richard Schmalensee, one of the folks who signed my Ph.D dissertation back in the day.