The global financial crisis that began in August 2007 and reached full force in 2008 resulted from a massive, unavoidable cognitive mistake on the part of regulators and bankers. It is now 10 years later, and few are willing to admit this fact, let alone explore appropriate remedies.
In fact, the opposite has happened: Regulators have piled on ever-more complex rules, and too-big-to-fail banks have become still bigger. Even worse, the wrong-headed response to the crisis threatens not just the financial sector but open societies generally.
To be sure, the financial crisis had different catalysts in different countries, including subprime loans, real estate bubbles, sovereign debt, and economic downturns that affected small and medium-size enterprises. But there was also a common denominator: a structural weakness in the banking sector — already one of the economy's most regulated sectors — that left highly regulated banks unable to withstand economic perturbations as well as unregulated financial institutions.