Buttonwood: Where will the boot land next?

WHEN economists talk of political risk, they usually mean war, terrorism or, at the very least, national elections. And 2014 will be a busy year at the polls, with votes in Brazil, India and Indonesia (among the big emerging markets), plus America’s mid-terms. Countries with a combined population of more than 2 billion will be endorsing or rejecting their current governments.But there is another kind of political risk: the temptation for governments of all political colours to change the rules, whether they relate to tax, the way that companies operate or how markets behave. And that risk has increased significantly since the 2008 crisis.Given the scale of the banking collapse, extra regulation of the financial industry was only to be expected. New rules requiring banks to hold more capital should make future crises less severe, although the immediate effect may be to restrict lending to firms as banks shrink their balance-sheets. Some other regulatory efforts—the European Union’s financial-transactions tax, for example, or its alternative-investment fund managers directive—look rather less useful.A broad threat to investors comes from governments with votes to buy…

Read Original Post from The Economist Finance and Economics

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