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Time to push the Bouton.

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When those in power come out with such demands as more legislation to control the out-of-control finance community, it's time to examine why that may not be a good idea. It is, of course, nonsense and too much legislation will stifle any chance of recovery - but let's take a closer look. To my way of thinking, what really needs to be done is punish the right people for the right thing, including SocGen's Daniel Bouton.

He's still chairman of a bank that lost $7.73 billion and still chairman of the French Banking Federation. Bodes well for other French banks, doesn't it? There does need to be a way to make sure that free markets behave themselves but I don't recall any private companies offering to build roads, pipe water and provide police to keep your Olympic torch safe from ne'er-do-wells.

We also need good schools for our greatest asset - human capital. Education is the way out of most situations and preferably not with schools for profit. The bottom line of a balance sheet can never be a determining factor for a child's education. If anyone is interested in writing legislation, that would be a good place to start.

It has been said that the reason for the recent mess in the banking sector is because of misguided legislation in the first place. Look back to the 70s with its bank failures in Europe and America. The original Basel agreement was that banks would increase their capital if they increased loans or other 'risky' assets.

The banks immediately set to work looking for ways to evade the new legislation. Shaky loans and other detritus made their way off the balance sheet into all manner of hiding places.A Never forget that politicians and lawyers write the rules and markets develop ways around them - hopefully without transgressing them - although you'd need better eyes than a Premier League linesman to see just how fine that choice becomes.

Regulations didn't stop Enron, the dot-com crash or the Lat Am debt hoo-hah, did they? More legislation and bail-outs will destabilise markets further as the playing field becomes increasingly less than level. The world needs balance.

"The path to salvation is narrow and as difficult to walk as a razor's edge." - Somerset Maugham in his book, 'Razor's Edge', - but that is exactly what we are asking of the governments (legislators) of the world. That, and to have a bit more backbone when it comes to taking down the real bad guys, you know, like Bouton.

Governments have a responsibility to prevent systemic crises and financial collapse but they should not try to legislate their way out of a crisis. Stifling creativity is a sure-fire way to do the splits on that razor rather than make it to the end. And if that isn't enough to think about, to close, a quote from another of my favourite writers: "When buying and selling are controlled by legislation, the first things to be bought and sold are legislators." - PJ O'Rourke.

Greg Hunt is an author, journalist and amateur historian. Email him at:

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Publication:7 Days (Dubai, United Arab Emirates)
Date:Apr 11, 2008
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