This led to a sharp decline in transactions in the interbank market, where banks lend and borrow funds, as well as in the corporate bond and CP markets, where firms raise funds, and financial markets ultimately stopped functioning.
Given this fresh experience, and my earlier remarks, I would assess the costs of providing tax incentives for leverage to be higher today than such an assessment in, say, 2006. With that in mind, I believe that my analysis suggests two changes in the tax code.