Douglas W Diamond is the Merton H Miller Distinguished Service Professor of Finance at University of Chicago’s Booth School of Business. He is the Centre for Analytical Finance (CAF) Academic Fellow 2012 and gave the keynote speech at the CAF summer research conference. In a conversation with Professor Krishnamurthy Subramanian of ISB, he recently discussed vulnerabilities in the financial sector that contribute to financial crises and the importance of meaningful financial regulation. Here are some highlights.
Let me begin with a question on capitalism. How do you let the invisible hand play its role and create economic welfare? The recent financial crisis has highlighted that you don’t really have free markets and that the markets get rigged. Is capitalism, in its true sense, ever possible?