Some unpleasant policy challenges from the sub-prime lessons

The sub-prime lessons have left many unpleasant policy challenges, and the emerging dilemma for the policy-making community is that while there are no easy answers to many of these complex questions, in the absence of clearer policy positions on most of them the financial systems may continue to remain vulnerable. The general perception, that 'saving finance' is critical to 'save market capitalism', has allowed a process of 'destructive creation' in finance, with mushrooming growth in financial innovations or 'weapons of financial mass destruction', which in turn has increasingly weakened the link between 'finance and growth' while also creating unsustainable pressures on the policy-makers to ensure that 'capital' remains as the only winner in a market economy all the time. This paper calls for appropriate regulatory and policy responses to enhance the congenial influence of finance on economic growth as well as to better balance the interests of 'capital' and 'labour' in any market economy.