Everything might still have been O.K. if other major economic players had stepped up their spending, filling the gap left by the housing plunge and the consumer pullback. But nobody did. In particular, cash-rich corporations see no reason to invest that cash in the face of weak consumer demand.
The challenge of maintaining a stable financial system is exacerbated by the difficulty of
balancing the benefits of regulation against the costs of excessively restraining prudent risk
taking behavior. If we were to set the overall combination of margin, liquidity, and capital
requirements too high, we could handicap the ability of the financial system to support
economic growth. Further, financial activity would inevitably move more quickly to firms,
markets, and countries where the intensity of regulation is weaker. So we need to continue
to strive for a careful balance between the imperatives of creating a more stable system and
promoting a level of innovation and dynamism.