Friends, The CEO of all these companies be sacked and recover all the remunerations in shape of bonus paid to them during last three years and let the companies be declared insolvent. Let the owners suffer for the lossess. Their personal assets be impounded and the money of the depositors be protected at all cost. Why the general public should suffer from the ill deeds of these smart CEO and also rating agencies be penalised as they also failed to know the nerve of the economy becuase they were interested in their huge fees and consequently huge bonus amount to CEOs.

That said, given the political nature of politics, it might be best to try to refocus the zeal for short term regulatory reform on establishing simple, workable principles that can then be enacted by the various country specific regulators rather than trying to fight it.

Here are my suggestions for a few simple regulatory principles that would lead to significantly safer global financial system.

Regulatory capital charges should be based on systemic risk, not solely on market risk factors. By definition, an instrument that is traded in the OTC market that is contractually identical to a listed exchange instrument has identical market risk characteristics. But by now, it should be obvious that the lack of transparency, liquidity and credit and risk netting facility that are proved by an exchange make the OTC instruments far more likely to cause systemic damage. Hence capital charges for OTC instruments must reflect this lack of transparency and netting facilities by appropriately higher capital charges.

Consolidate regulators to ensure consistency and eliminate regulatory arbitrage. It seems too much to expect consistent global regulation, but the fragmented regulatory structures especially in the United States are anachronistic at best. Most financial firms sell multiple products in multiple geographies. If they have the same risks they should have the same regulator. The spurious distinction between insurance companies and Investment Banks was clearly exposed by the AIG bailout. The myriad product specific and state specific regulatory structure should be dismantled and replaced by only a few regulatory agencies that are given broad mandates.

Regulatory charges should be based upon company form. Michael Lewis wrote a good piece that can be summarized as Investment Banking went down the wrong path when it abandoned it’s long help partnership form. Perhaps more relevant is a corollary that the systemic risk of firm balance sheet exposures are markedly increased when the incentives are misaligned. We are all aware of the discussion of the pitfalls of the current bonus system where it is often a heads I win, tails the government steps in. Partnership structures are inherently safer because the entire net wealth of the general partners adds a layer of funds that can be called upon before taxpayers are forced to bail out the errant firm. I am philosophically opposed to current proposals to have the government determine the “fair� pay of senior executives. But, at the same time, we all need to understand that general partnerships and perhaps equivalent restricted stock type payment schemes align incentives far better than current systems and provide another layer of at risk capital before calling on public funds.

But really! How fast can the world actually come up with a new regulatory system? How long will it take for disagreeing powers to debate and hammer out a consensus? Can we really expect the entire world to agree on something this complex and obscure before the end of 2009?

I say, get started now because it will take a while before it can be agreed upon and implemented.

And when new regulations are in force, hopefully lenders can be assured that they know what is the financial health of entities they are lending to.

I agree that stimulus plans are the most important tactic at this point. For little progress on that front, we can blame the Bush administration. Bush and his administration could have demonstrated leadership by stating at the G-20 that they were dedicated to working with Congress and the incoming administration to tailor a large stimulus package in the U.S. Even if it could not be completed immediately, at least they could have started working on it. Instead we are losing two precious months, waiting for Obama to take over. The economy will likely degrade precipitously in that time.

If the U.S. had stated its intent to launch a new stimulus package with a ball park figure, it would likely have inspired other nations to do likewise.

Thanks, Dubya. You’ve been a real boon to the world.