Government, legislative and regulatory intervention and how much (if any) is needed to bring about economic stability in these volatile financial times

Purpose and Methodology: This paper addresses the diverse mechanisms that Regulators, Governments and Legislators have, and are proposing to utilise in order to intervene with success into the financial markets. The methodology utilised will be a two step approach: 1. to review the complex instruments, such as, the credit derivatives and how they played their part in exacerbating the financial crisis; 2. where more regulation and legislation is required or necessary for the creation of stability. Theoretical perspective: In these turbulent times Regulators and more specifically Governments have to look at a number of terms to coordinate and modernise their financial systems in the hope of preventing a deterioration of the global economic crisis from getting worse. In Australia the government is taking positive, pro-active steps to increase liquidity both for the banking and non-banking sectors. Similar intervention measures are occurring in all other major financial centres to strengthen supervision which will maintain the stability of the banking system. Quantifiable evidence suggests that intervention by Government and their regulators have been supported by their respective communities as it prevents further erosion of confidence. The paper will explore the success of emergency legislation and explore the thesis of reducing regulations and what effects that has on the long term repercussions on stability. Findings and Implications: The global economy is at a major inflection point, growth uncertainty is very high. The world growth is slowing, and it is hard to predict the response of policy makers. In particular, confronting uncertainty about both the resolution of sovereign debt problems and the prospects for economic growth in Europe and the United States. Regulatory, legislative and government interventions are paramount, with gradual institutional reforms through the strengthening of the European Financial Stability Facility (EFSF), introduction of new laws, like the U.S.'s Dodd-Frank Wall Street Reform and Consumer Protection Act (the 'Dodd-Frank Act'), private sector involvement and bank recapitalisation. All these intervention scenarios will continue to underpin bouts of market volatility due to worries over debt sustainability. At this critical juncture, the question is - will it be more regulation and more laws that is required or would it be a mistake as it would accelerate de-leveraging and this alone could have further negative implications on stability.1 page(s