The Macroeconomic Reversal
By Arnold Kling
Regulation and supervision can never eliminate financial instability. If your faith is contingent on being able to prevent financial crises, you have lost the faith.
Read the whole thing. I too am struck by the rapid change in macroeconomic orthodoxy. A few years ago, pretty much everyone said that monetary policy could correct any aggregate demand shortfall coming from the collapse of a bubble. Now, pretty much no one, other than you know who, says so. The new consensus is that banks matter, and bailing out banks was a key policy move to prevent calamity.
The only thing I will add to Nick’s post is that the exponents of the orthodox view were contemptuous of dissenters when they held their views of three years ago, and they are just as intolerant of dissenters to the new consensus.