There was an excellent roundtable discussion a few weeks back on The Economist blogs about how to modify financial regulation going forward.
They had an incredible variety of guest writers, from the deregulation fanatic, to the former regulator and a variety of other economists. It will be interesting to see if any of these suggestions are taken up by Congress this year.
There wasn't a lot of coherent agreement (naturally), but I came away with two general thoughts:
1. There will always be a regulator. In times of crisis, most people want a credible public authority with sufficient power to prevent total meltdown. Unfortunately, at the time of greatest systemic risk, the regulator will face the greatest political pressure to not intervene. Therefore the regulator needs political independence.
2.Rather than fight this someone-in-charge impulse, it would be better to have an agency with sufficient resources to credibly quantify the risks of new financial instruments. By actively sharing this information with the public, the agency could help investors make informed decisions and reduce the risk of industry capture.
Going forward, regulation of the ratings agencies will also need to changed. Shutting down tax havens etc. has been a nice sideshow for the G20 et al to unite on, but the real work is clearly remaining.