[AnimalMuppet]

Right. New financial products/services should be, essentially, "guilty until proven innocent". Regulations should be very tight in the beginning, and then slowly relaxed - say, over 50 years.

By way of analogy, if I create a new kind of medical device, the FDA does not say, "We don't have any regulations that cover that, so it's completely unregulated until we see the need to write some." No way.

But a new financial product, while it can't kill anyone, it can still cause massive damage. (We just got a case study in this in 2008.) The default for any new financial idea should be regulated, not unregulated.

And "but it's not a bank!" doesn't cut it. Mortgage securitization wasn't a bank activity, but it still nearly destroyed the world economy. Repo isn't a bank activity, either, but it played a significant role in the crash. Both are "bank-like" enough that they needed serious regulation. Since the risks were not yet understood, any regulation in place was not nearly stringent enough.

[cm2187]

How did repos play a role in the crash?

[randomname2]

This sounds like Paul Krugman's thesis that the run on the (unregulated) shadow banking system was at the "core of what happened" to cause the crisis and if only it was regulated, the crisis wouldn't have happened.

A great writeup about this by someone a bit more credible than Krugman can be found at http://blogs.wsj.com/economics/2010/02/23/so-what-exactly-ca...

Written by Yale and Wharton Professor Gary Gorton, who has held positions at the Bank Of England, the Federal Reserve and the FDIC.