Given the clear public purpose that banks serve, why don we just make finance a public utility?
JS: There are actually several problems that carry a long history with governments trying to run banks. In many countries, they have not done it very well because of the potential politicization of the lending process. And that’s why I’m actually fairly supportive of the approach that we took in the years after the Great Depression where we had private banks, strong incentives, but we made sure that they don’t engage in excessive risk-taking, that they were regulated to serve the public purpose so that we try to shape their behavior. This public/private interaction that I think has worked most effectively. There is no one today who believes the government should not be involved in finance. Even the bankers acknowledge this when they ask for bailouts, and they’re also very protective of the Federal Reserve system. There would be no mortgage market today without the government. What we need to do is find the right balance, the right kind of government involvement in finance, because righ
