Monday, December 15, 2008

International regulation: so I wasn't "naive" after all

When I first expressed the view, several years ago, that we need a system of global regulation (a "global level playing field"), I was called naive, an utopian, and worse.

Now, though there is nothing yet like unanimity even among the decision-makers, at least opinion is beginning to swing around. See:

The danger, however, is that the pendulum will swing too far by the time decision-makers do achieve consensus on the matter. There are already calls for "regulation with teeth".

Yes, we do need regulation with teeth (otherwise, as was demonstrated by the USA during the last 20 and more years, it is worse than having no regulation at all).

However, we need the sort of regulation that preserves freedom in financial innovation, trade and civil society.

As momentum builds FOR regulation, that balance will be difficult to maintain .

It is, paradoxically, now up to civil society to ensure that regulations do not strangle, and that freedoms are maintained.

I have already suggested that one key is multiplicity in the exchanges on which hedge funds, derivatives and the like must register and on which they can trade.

And I continue to worry, that most of the world's decision-makers are still fixated on addressing the results of the crisis (liquidity, inter-bank lending, inflation/ deflation, and so on), rather than the causes of the crisis.

As I have argued elsewhere, the fundamental cause of the crisis is the turn away from Biblical principles (which are what led to the rise of the West since the 16th century). The resulting cultural. political and legislative entrenchment of greed (which I have charted in some detail - though perhaps not enough!) is what has led to the crisis.

The most obvious result was the unchecked and unregulated rise of hedge funds and derivatives - in spite of the collapse of LTCM !!! - and the proximate cause of the crisis was NOT the defaults on sub-prime housing, but the fact of those defaults being magnified because of the leveraged bets taken on sub-prime housing and associated instruments, AND the fact that the related risks were so widely dispersed through the system because everyone wanted to play the game of ever-higher rewards for apparently low risk. Sphere: Related Content

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