The combination - increasingly opaque financial markets and increasingly transparent monetary policy - has created a dangerous brew of financial excesses. Unless both trends are reversed, financial stability will remain elusive.

Kaufman, chief strategist at Solomon Brothers during the 1980's when that firm ruled the bond markets, takes the Fed and the regulatory system to task in this WSJ Commentary (subscription required). Kaufman continues

Briefly stated, this is the now-prevailing view that monetary authorities do not know when a full-blown credit bubble is upon us, but that they do know what to do once a bubble bursts. I have long argued this approach condones excessive credit growth. Massive infusion of new funds following a major market collapse can provide temporary relief, but it does not repair the long-term political, social and economic damage caused by the meltdown. How can this monetary approach not reduce market discipline before the collapse, or incite a quick return to speculative activities after the Fed rescue?

Kaufman prescribes requiring much greater disclosure from banks and non-bank financial entities as to the nature and extent of their risk-taking activities. The current system has failed to keep pace with financial innovation (Kaufman takes a swipe at the Libertarian Alan Greenspan), and has fueled an environment of excessive risk "where profits are privatized and losses are socialized" (e.g. heads I win, tails you lose).

Thanks to Naked Capitalism for the tip.

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