Preventing the next sub-prime mess

I questioned here whether "financial innovation" is a good thing and implied that it's just rhetorical deception in the service of autonomy for players in the financial economy (as distinguished from the "real economy"). Paul McCulley, Managing Director of PIMCO (one the world's largest fixed income securities management companies) doesn't go that far, but here is one of several newsletters and speeches in which he fervently urges regulation of "the shadow banking system" including investment banks.  After giving a useful explanation of what's been going on and why it's dangerous, he says this:

Minsky’s insight that financial capitalism is inherently and endogenously given to bubbles and busts is not just right, but spectacularly right. And when the financial regulators are not only asleep but actively cheerleading financial innovation outside their direct purview, a disaster is in the making, as the last year has taught us. We have much to learn and relearn from the great man as we collectively restore prudential common sense to bank regulation—both for conventional banks and shadow banks.