Financial disaster continues

While the Indian economy slows to 6-7% growth, the overall international financial system still looks like it is in horrible shape. I'm not convinced the plan floated yesterday is a positive step, despite the positive response of the stock market. I liked this interview with Paul Krugman criticizing the plan entitled "the Zombie Ideas Have Won" and criticizing the timid response of the government. I agree with him that it appears that folks are afraid to acknowledge the true scope of the problem and the need for drastic restructuring of the whole financial system, including regulation of it. How do you provide appropriate incentives for innovation that is productive in a social sense, especially if it entails public money? On this one, I'd rather have the government spending huge quantities of money on a range of green technologies rather than bailing out financial institutions (and their staffs) that made bad decisions, but earned ridiculous amounts of money before passing the buck to the government and taxpayers.

I look forward to hearing what the "big plan" that Geithner promised turns out to be -- will it be a return to Glass-Steagal? That would be okay, as long as it also includes better systemic supervision of all parts of the financial system. Someone at the federal level needs to look at insurance companies for example. The SEC, Fed, and Treasury (not to mention FDIC, CFTC, etc.) need to be mandated to work together better and cooperate rather than view each other as competitors. Someone needs to clearly be in charge but it needs to be stronger than the current "umbrella supervisory powers" that the Fed has, cause the Fed clearly wasn't doing it. We shall see.