Irreverent Economics

Some governments are actively calling for reform of financial regulations and others seem to be dragging their feet. So what is the optimal government strategy?

The continental Europeans are not wasting the crisis to get their pre-crisis regulatory agenda passed,  such as hedge funds and private equity. Now they are including short sales and other popular bugbears.

But the most important debate may be central counterparties (CCP) for OTC derivatives. How should the  UK government do  its strategy?

If it acts too quickly in changing regulations, as they sometimes have done in the postcrisis fracas, they come across as incompetent and anti-market. Not the signal you want to send to one of the most important industries.

If they act too late,  the clearinghouses, and the eventual exchanges may end up in Paris, Singapore and New York,  perhaps with the banks’ OTC->CCP’d derivative operations following. That would create a nasty hole in the budget.

The government therefore must act at the right time. The previous government was dithering and the current one doesn’t seem to have a policy.

Is it time to look for different shortselling strategies?