And it's a big hole. It's the lack of regulation in a key area - banking - of such organizations as investment banks, money market players and many of the large securities firms. These are the firms managing your 401k or your other investments.
The government backs the money you have in the typical commercial bank so that if it fails you'll get your money back, at least up to $250,000. You are relying on the collateral these organizations hold should they fail - and we saw the quality of that collateral and the management of those organizations in the current Great Recession.
Unless something is done to control these organizations better, we'll eventually hve a repeat of the current situation. Mark Thoma says we should start by setting standards for the collateral these organizations must have.
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