Jumps race beats Cup for importance

Investment banks would not be bailed out if they got into trouble, and this would be made explicit in advance. Fund managers might also be split into two groups - simple (with customer assets protected by insurance) and "hedge funds" to which the label "let the buyer beware" would be emphasized by a sign over the door and a prominent note on every bit of paper sent to the hedge fund to its customers.

Henry would not object if investment banks owned hedge funds, so long as the combined entity was not so large that its failure threatened the entire financial system. Some global version of Australia’s ACCC could be given the task of deciding how big was too big, and preventing the mergers or acquisitions that threatened to create an entity "too big to fail".

The changes outlined here would probably include higher required equity ratios even for regulated institutions in normal times. Unregulated institutions would be prudent to operate with even higher ratios, but that of course would be up to their respective managements.

Lest the followers of Ayn Rand, or more modern free market enthusiasts, object to all this as creeping socialism, Henry wishes to point out that the proposal to remove investment banks and hedge funds from any explicit or implicit guarantees, and to limit their size, is a big step in the direction of the perfect market, red in tooth and claw. More cautious types such as Henry are entitled to have whatever proportion of their assets protected, as much as anything can be protected, if they so desire.

Bolder types, Ayan Rand’s followers, and modern free market zealots, can put as much of their assets as they wish to work in the "free market", and Henry will be the last to sympathise if they lose all their wealth, or to feel envious if they become enormously wealthy.

Glenn Stevens and his board have at least two strong reasons to move boldly today. The first is that most measures of inflation are too high (eg "underlying goods and services inflatio"n) and rising (house prices and, with a recent correction, share prices.)  Furthermore, the economy is surprising all the pundits with its strength, and current interest rates are far below a "normal", meaning sustainable, level.

A 50 basis point rate hike today would be appropriately bold. The 25 basis point hike factored in by markets and reportedly supported by Treasury would be timid.

Over to you, Mr Stevens