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As simple as it will sound there is a fourth requirement for good regulation that we always overlook in the heat of formulating regulation.

The fourth requirement of good regulation is that it needs to facilitate market forces.

This is not as easy to do as it sounds. Take for example currency bands. Once a country set currency band limits, than all a currency investors has to do is buy low and sell high. How quickly you get rich depends on how quickly you can move the currency across the band.

Where does the investor’s profits come from? From the taxpayers of the currency-banded country as their government tries to prevent the currency moving outside the band. Currency bands are wealth pumps siphoning wealth out of a country.

So the lesson here is that good regulation fosters economic forces while reducing the potential for market players to game the system.

Benjamin t Solomon
QuantumRisk LLC

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Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position.
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