TOUGHER FINANCIAL RULES MAY NEVER BE A PANACEA

       US PRESIDENT Barack Obama's recent threat of tougher regulations against Wall Street bankers blamed for the current global economic meltdown may not be the panacea that many of his advisers hope for.
       Globalisation and the ubiquitous, turbo-charged, high-speed Internet-driven information era has created a virtual new-world disorder never before experienced by our current leaders, says Joshua Ramo Cooper in his new bestselling book, "The Age Of The Unthinkable: Why The New World Disorder Constantly Surprises Us And What We Can Do About It".
       In today's globalised world, tougher regulations that control the expected will not protect us from inevitable, unintended external attacks that seem to continuously come out of nowhere.
       We have to wonder how a few bad sub-prime loans to people in the inner cities of the United States could suddenly mutate into toxic instruments that caused the financial world to implode.
       Ecologist C S Holling provides an interesting analogy on why tougher regulations imposed by national governments in countries such as the UK and the USA may not do much to prevent future crises.
       "If we are dealing with a system profoundly affected by changes external to it, and are continually confronted by the unexpected, the constancy of its behaviour becomes less important than the persistence of relationships," Hollis said.
       According to Hollis, "In parts of the world where there isn't a lot of change, its perfectly fine to keep track of the things you can measure; the books in a library, say, or the amount of food you need to get through the day. But in places where there is daily, often explosive, readjustment, such measurements are worse than useless.
       "What you can easily measure in these systems matters much less than what you cannot."
       In today's economies, regulations that ensure bankers in one country follow the rules and regulations are, in themselves, ineffective in preventing global meltdowns. Bankers in Europe who were in careful compliance with their own country's regulations did not understand that they were buying toxic assets generated by US banks and sold as blue-chip, triple A-rated investments.
       By the time Lehman Brothers imploded almost a year ago, it was too late for foreign bankers to adjust. Almost every major financial institution in Europe needed a government bailout to survive the banking crisis induced by the US sub-prime fiasco.
       Earlier, the 1997 Asian financial crisis and political problems in Russia that disrupted these relatively small capital markets, quickly mutated and spread globally, and almost erupted into financial meltdowns elsewhere. These mini-crises portended a much more virulent 2008 global financial crisis and meltdown that, for most of the world, was externally induced.
       Proposed tougher regulations are not a practical solution because few countries today are willing to give up sovereign control over their domestic financial institutions. Even after the current crisis is over, few observers expect that an all-encompassing and effectively global regulatory system will be put place.
       Even with a popular US president such as Obama, and Democrat majorities in both the Senate and Congress, the US government is having great difficulty passing a much-needed universal national healthcare programme for all of its citizens. What are the odds of the US accepting global regulatory control of its financial infrastructure?
       How should countries protect themselves from inevitable future crises, especially if tougher regulations may not be a workable solution.
       Here in Thailand, His Majesty the King's "Sufficiency Economy" initiatives promulgated after the 1997 economic crisis are a good start. The initiatives promote good corporate governance and risk-management techniques that allow us to immunise and protect ourselves from any inevitable internally- or externally-induced crisis.
       Today, most Thai corporations have strong capital bases that will allow them to withstand a prolonged global crisis, and more importantly they have greatly enhanced their corporate governance practices.
       At the same time, our government must also be encouraged to invest only in resilience strategies, such as national healthcare, education and better transportation.
       His Majesty the King's sufficiency initiatives have taught us to construct a resilient society to withstand the vagaries of globalisation. With these initiatives in practice, our companies will be strong enough to withstand any inevitable surprises and absorb any damage that may be inflicted.
       In addition, Joshua Ramo says that the most resilient systems manage to become stronger under stress. "They capture the good from avalanches of change without letting the bad wipe them out," he contends.
       We must all assume that in a globalised world, future crisis-inducing events will be unexpected - and we must be prepared.