Investors can find value if they pick and mix
The debate about future regulation will rage, but some principles can be laid down:
• Transparency must be paramount • Proper enforcement of existing regulation is the first priority, before creating new principles or extending existing ones • Since all liabilities of all financial institutions, including contingent liabilities and off-balance-sheet items, have proved able to generate requirement for government support, regulation must be able to "reach" them • International coordination is no longer avoidable, including catching offshore/tax-haven funds in the regulatory net (globally, and not just on a country-by-country basis) • Bretton Woods II is a misnomer: Bretton Woods I was a fixed exchange rate regime, rather than regulatory, and China’s heavily managed yuan rate (with other Asian currencies often managed in parallel: the "soft pegs") is arguably already Bretton Woods II, and a thoroughly bad arrangement too • Glass-Steagall II would be a better name for the idea of heavily regulated "utility" banks with a lightly regulated parallel sector for investment banking – but I shall argue that this will not work
The transparency point is obvious, but light regulation has made opacity a major problem.