Perhaps policy makers should use those squeals as an indication that they are on the right track.
A question, then: what do you think should be happening WRT financial sector reform?
Sorry, Vim, wasn't ignoring the question...
I will confess to being spectacularly out of my depth when it comes to economics, so the following is largely based on vague intuitions and political inclinations.
I certainly think there's a lot of mileage in the argument that banks being too big to fail makes them too big, full stop. It also seems that the UK economy has become unbalanced wrt the overall influence of finance compared with other sectors, meaning that credit bubbles are more likely to go unchecked due to their effect upon overall economic figures.
I mentioned on the BNP thread that I spent a couple of years working in housing market research. Even back then (4/5 years ago) I had a real sense that things were being allowed to develop in a highly unsustainable manner as lending practices were amended in more and more creative ways to keep pace with the booming market: increased salary multipliers, 100%+ mortgages, irresponsible use of self-certs etc. Equally, the reliance of certain parts of the market upon property investment, buy-to-let etc. was likely to amplify trends in prices and make a collapse in prices more precipitous. Obviously this is purely from the customer-facing side of lending - I had absolutely no knowledge of the various derivative products that were being used to parcel all this up, so no idea of how much such practices might affect the economy as a whole, figuring that there might just be a rather spectacular house price slump.
I guess my overall point in this is probably more political than economic. The whole New Labour project has really evidenced a consistent timidity in the face of public opinion, refusing to take unpopular decisions unless their hands are forced by circumstances. Hence, with a booming economy and national obsession with rising housing prices, the tendency was to revel in it rather than asking difficult questions or looking at long-term issues of stability. I guess the frustration I was trying to outline above is due to a nagging worry that a similar unwillingness to upset influential interests may be continuing to undermine the political will of the government. So, if the practices of political parties remain in such constant thrall to polling data, then it may be necessary for regulation to take up the task of ensuring the sustainability of lending practices/financial products.
Sorry if the above remains rather vague but, as someone studying political theory, I'm always far more at home with big questions than concrete specifics...