The one innovation that would most affect our culture isn't a thing ( like solar panels, hybrid cars, etc) but is rather a revised mindset, one that could be propelled forward by a simple regulation.  This innovation isn't the creation of something new, but rather a return to something old and wise that we once held but then discarded.

This "innovation" is a return to long-term thinking in finance.

If you consider the carnage of the last eight years, a pattern emerges, one of short-term thinking that has had dire results. There are many examples of the pitfalls of hyper-short term thought in finance, but two stand out the most:

Housing: As the market heated up, people rushed to buy overpriced homes that they had no intention of living in for years, if at all. Instead, they tried to flip them for profit, a motive that caused demand to surge, home prices to skyrocket, and builders to vastly overbuild. To accomodate demand, lenders issued increasingly sketchy loans, like NINJA loans and ARMs that eventually pummelled banks, builders, and the economy as a whole.

Lending: Mortgage lenders and banks issued loans with no interest in holding on to them for the long term. Instead, they were packaged together and offloaded to investors, who themselves had no long-term interest in the loans, and subsequently sold them to other investors. And so on, like a game of Hot Potato. The result has been catastrophic -- scared banks have stopped lending, don't really know the value of what's on their books, and will only use additional money to protect against future losses.

These new approaches to lending are what the industry (and Alan Greenspan) liked to call "financial innovation."

In the good old days banks made a home loan and held it to term.  My parents obtained a home loan from a local bank and that loan resided with the same bank for thirty years. This manner of doing business forced the bank and the consumer to insist on generating a solid loan. The bank had to care about quality in lending since it was the one who would pay the price for a shady loan. They couldn't just walk away from junk (like the banks are trying to do today). In the 1950's (when my folks got their mortgage) lending was a long-term affair. Quite simply, the recent shift to short-term thinking in lending has allowed the fianaciers to not care about quality. Why should they? It works, for a while at least. Until everything melts and the industry disintegrates.

My proposed innovation is a simple, bland regulation: Make all lenders hold onto their loans for five years. This would apply to car loans, college loans, home loans, furniture loans, etc.

This would have the effect of sending the snake-oil salesman and the quick profit financeers scampering for the exits, where they belong, and leave lending to professionals with a long-run perspective. It's time to admit the ugly truth of a very simple fact--the lenders who led us into this mess never cared about the effect of their actions, the future of America, or the fate of their customers. They only cared about themselves and their profits. And they did their nasty work using "financial innovation."

I'll admit my "innovation" is boring. It's not flashy or exciting or something you can show off to an envious neighbor. It's not really even new. But, when coupled with other reasonable changes (like lessened leverage), it will force the most critical industry in the American economy to start caring about quality and its impact on the future. We can build earth altering  solar roofs connected to I-Pod windows, but if the industry financing the innovation isn't coerced into caring about the long-run future, we'll be in much the same place ten years from now. Thus, we need to de-innovate the financial industry before we can innovate our way forward. If not, our innovations run the risk of becoming little more than the other bubbles driven by bad finance, like the dot com bust or the housing bust or the stock market bust.