Strengthening financial regulations but not to stymie private and individual creativity

Comments on Alan Kohler’s “The index illusion”, 4/05/2009, on http://www.businessspectator.com.au/bs.nsf/Article/The-index-illusion-pd20090504-RPS3W?OpenDocument&src=sph

I have a few quick comments on this topic.

First, apart from those factors mentioned to have eaten away returns to investment, government taxes have also been a significant one too.

Second, I have to say I have not done any research on this and worse still have no theories on this either, but is the mentioned phenomenon (in real terms S&P 500 is at the 1966 level) a reflection of some sort of law of returning to the average, with very long period cycles? Or is it really reflecting an opportunity?

Third, while it is more likely than not that world regulators will overdo/overshoot regulations following the crisis of the great recession with negative consequences on creativity and efficiency, they are not necessarily inevitable with prudent regulations. Australian has withstood the recent test with adequate regulations in place, it seems. This is useful for world authorities when they consider tightening financial regulations. Hope governments will get the regulations right and the media plays in assisting them in doing so.

Fourth, international cooperation in financial regulations is desirable, but it is neither the necessary nor sufficient conditions for effective financial regulations. I think each government can get on with their own business and do what is needed for them. You may specify some conditions and even penalties if you see any financial institutions that will present unacceptable risks.

Five, this round of tightening financial regulations is more likely to be good in reducing systematic risks and possibly consumers, though the unbalanced nature of lobbying power will always exist.

Six, the pendulum will swing towards less favourably regarding greed (risk taking) and consumerism, for now, given what just happened, but it is likely to return to a more normal course after some time. Yes you are absolutely correct that regulation and government fiscal intervention won’t do it and can’t replace or substitute private and individual pursuit of opportunities and rewards.