Today in Krugman

Today Paul Krugman sums up the current state of the financial markets in a column called “Success Breeds Failure.” He attributes the recent market panic to the introduction of new financial instruments by institutions that escaped regulation because they managed to avoid being banks. Operating in a new frontier, these institutions took great risks, and when things began to come apart at Bear Stearns, Fed Chairman Ben Bernanke was forced to act quickly.

Krugman praises Bernanke’s response to Bear Stearns and credits him for what appears to be the current stabilization of the market. But Krugman also worries that the motivation for much needed regulatory oversight has ebbed away with the crisis and that, as a result, the next debacle will be much worse. Krugman is undoubtedly correct. We seem to live in a political-financial world that responds only to today’s financial drama, and the financial services industry, believing that everything has worked out OK, is back to vigorously fighting the threat of regulation.

Of course, stabilizing the market is only one part of our current financial problem. Those who are not in the investment class are still losing their homes and jobs in great numbers. Where is the relief for them?