5 Indeed, in a July 2016 article, The Economist noted that Minksy had been referred to only once in their publication during his working life from the 1950s through to 1996 when he died, but that he had been mentioned around 30 times since the crisis broke in 2007. 6 For a review of this broader phenomenon, see Padoa-Schioppa, T (2010), “Markets and government before, during and after the 200720xx crisis”, The Per Jacobsson Lecture, June. 7 See also Turner, A (2010), “Market efficiency and rationality: why financial markets are different”, Lionel Robbins Memorial Lectures, London School of Economics. 3  3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  addressed. Such thinking dominated the practical indifference to the housing and credit booms before the crisis.8 Second, if markets always clear, they should possess a natural stability. Evidence to the contrary must be the product of either market distortions or incomplete markets. Much of financial innovation springs from the logic that the solution to market failures is to build new markets on old ones.9 Progress through infinite regress. During the Great Moderation, this view became an organising principle for financiers and policymakers. The latter pursued a light touch regulatory agenda in quest for a perfect real world of complete markets first described as abstract theory by Arrow and Debreu.10 Of course, markets only clear in textbooks. In reality, people are irrational, economies are imperfect, and nature itself is unknowable. When such imperfections exist, adding markets can sometimes make things worse.

Too many participants neither felt responsible for the system nor recognised the full impact of their actions. Bad behaviour went unchecked, proliferated and eventually became the norm. Yet a system reliant on total regulation and large ex post sanctions is similarly bound to fail because it promotes a culture of complying with the letter of the law, not its spirit, and because authorities will inevitably lag developments in fast-changing markets. A more comprehensive and lasting solution combines public regulation with private standards and then buttresses both with incentives to increase materially the understanding and accountability of individuals. In the UK, new laws and regulations are doing just that.20 Compensation rules now align risk and reward, with a significant proportion of variable compensation deferred for up to seven years across the banking industry. Regulatory references mean that the histories of those with a record of misconduct will be known to anyone considering hiring them.21 Authorities have also used their convening powers to encourage market participants to develop standards of market practice, such as the new Global FX Code and the FMSB standards for FICC markets.22 23 The UK Senior Managers' Regime (SMR) gives teeth to voluntary codes by incentivising firms to embed them and by re-establishing the link between seniority and accountability.24 Under the SMR, the most senior decision-makers of banks, insurers and major investment firms can now be held individually accountable if they fail to take reasonable steps (including training or proper oversight) to prevent regulatory breaches in their areas of responsibility.