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Katherine Steiner-Dicks Editor, Money Market
The knee jerk reaction on the global markets was no surprise when President Barack Obama threatened tough new restrictions on banks.
The announcement caused a ripple effect in Asia where Japanese shares fell almost 3 percent and resources shares in particular also dived sharply.
The reasoning behind Obama's plan is to restrict banks' ownership and investment in hedge funds for proprietary profits, which go to the banks themselves, not customers. The proposals, and that’s all they are at this point, have the potential to squeeze bank profits on the most lucrative and risky operations.
Any form of regulation puts fears into the hedge funds and traders because regulation usually means constraint, which hurts flexibility. And when the hedge funds don’t have flexibility, that affects how they make their money and therefore the markets which rely on them.
According to Kenichi Hirano, operating officer at Tachibana Securities in Tokyo, any sort of market regulation isn't good for the market, and if you start limiting hedge funds that hurts overall market flexibility.
"I don't think the proposal is very realistic and it's hard to know if it'll ever come to pass, but investors want to wait and see.”
But how do the taxpayers gain faith in a market trading model that limits potential profits? And how can they have faith in a model based on high risk?
You look at the glass half full, not empty. Regulation should cap risk, not profits since profits feed into the greater economy. Funds and investors just need to remember to not bet more than they can lose.
Katherine Steiner-Dicks
Editor, Money Market
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