So, what is the difference between these entrepreneurs and the self-proclaimed financial “entrepreneurs”? An important element has been missing in financial markets, one of the core principles devised by Walter Eucken necessary to sustain a functioning market economy: the concept of liability. I think that the CEOs of large financial institutions are right in seeing their role as one of entrepreneurs.
However, this implies that they should assume unlimited liability for their decisions. Would this hamper financial innovation? I don’t think so. But it would certainly be a strong safeguard against excessive risk-taking and procyclical behaviour during financial booms. More generally, any preventive measures that will be decided upon in the coming months should be guided by some simple principles.