1. What is fragile should break early, while it's still small.
Evolution in economic life helps those with the maximum amount of hidden risks become the biggest.
2. No socialization of losses and privatization of gains.
Whatever may need to be bailed out should be nationalized; whatever does not need to be bailed out should be free, small, and risk-bearing.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
4. Don't let someone making an "incentive" bonus manage a nuclear plant-or your financial risk.
Bonuses don't accommodate the hidden risks of blowups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.
5. Compensate complexity with simplicity.
Complexity from globalization and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage. It's the leverage of efficiency. Complex systems survive thanks to slack and redundancy, not debt and optimization. Capitalism cannot avoid fads or bubbles.
6. Do not give children dynamite sticks, even if they come with a warning label.
Complex financial products need to be banned because nobody understands them, and few are rational enough to know it.
7. Only ponzi schemes should depend on confidence. Governments should never need to "restore confidence."
Cascading rumors are a product of complex systems.
8. Do not give an addict more drugs if he has withdrawal pains.
Using leverage to cure the problems of too much leverage is not homeopathy, it's denial.
9. Citizens should not depend on financial assets as a repository of value and should not rely on fallible "expert" advice for their retirement.
Economic life should be definancialized. We should learn not to use markets as warehouses of value. They do not harbor the certainties that normal citizens can require.
10. Make an omelet with a broken egg.
We need to break things down in order to make them more simple, more robust.
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