This article treats some ideas and issues that are part of ongoing reflection at the OECD. They were first raised in a major research article for the Reserve Bank of Australia conference in July 2008, and benefited from policy discussion in and around that conference. One fundamental cause of the crisis was a change in the business model of banking, mixing credit with equity culture. When this model was combined with complex interactions from incentives emanating from macro policies, changes in regulations, taxation, and corporate governance, the current crisis became the inevitable result. The paper points to the need for far-reaching reform for a more sustainable situation in the future. At the recent Reserve Bank of Australia conference on the current financial turmoil, the paper by Adrian Blundell-Wignall and Paul Atkinson explained the current financial crisis as being caused at two levels: by global macro policies affecting liquidity and by a very poor regulatory framework that, far from acting as a second line of defense, actually contributed to the crisis in important ways. The policies affecting liquidity created a situation like a dam overfilled with flooding water. Interest rates at one percent in the United States and zero percent in Japan, China’s fixed exchange rate, the accumulation of reserves in Sovereign Wealth Funds, all helped to fill the liquidity reservoir to overflowing. The overflow got the asset bubbles and excess leverage underway. But the faults in the dam – namely the regulatory system – started from about 2004 to direct the water more forcefully into some very specific areas: mortgage securitization and off-balance sheet activity. The pressure became so great that the dam finally broke, and the damage has already been enormous. When economists talk about causality they usually have some notion of homogeneity in mind; that relatively independent factors changed and caused endogenous things to happen – in this case the biggest financial crisis since the Great Depression. The crisis itself was not independent but originated from the distortions and incentives created by past policy actions.