THE FTX SCANDAL As bad as it is, it serves as a reminder that our financial regulation does not derive from theory or pure financial wisdom but from financial crisis. A brief history of this scenario is seen from 1930 to 1980. THE 1930S Between 1929 and 1939 it was a period of great economic depression worldwide that became evident after a major fall in stock prices in the United States.[2] The economic contagion began around September and led to the Wall Street stock market crash of October 24 (Black Thursday). The economic shock impacted most countries across the world to varying degrees. It was the longest, deepest, and most widespread depression of the 20th century. THE 1980S CRISIS The 2008 financial crisis caused a complete meltdown of the American economy that showed no positive response to the intervention by the Federal Reserve and the government in general with regulatory innovations. It turned out that the financial crisis and economic collapse of 2007/2008 was a replay of similar events in 1929/1930. Both of these crises were the result of the mark to market accounting rule. In both cases, the government’s effort to solve the problem with regulatory intervention failed and possibly worsened the crisis – and in both cases, simply rescinding the mark-to-market rule (by Franklin Delano Roosevelt in 1938 and by Barney Frank on April 2, 2009) brought about a recovery from the crisis and healthy economic growth immediately followed. The lesson is that free market systems are not operated by the government but by innovators and risk taking investors in new ideas and the financial system that funds these ventures. The government’s job is not to operate the economy but to provide the right kind of regulatory infrastructure where innovators and investors can thrive. FINANCIAL WISDOM CAN BE PROPOSED IN THE ABSENCE OF CRISIS BUT IT WILL HAVE NO IMPACT ON FINANCE BECAUSE OUR FEAR OF FINANCE GONE WRONG RESTRICTS US TO FINANCIAL CRISES AS THE ONLY GATEWAY TO FINANCIAL INNOVTION. IT TAKES A CRISIS TO IMPLEMENT FINANCIAL INNOVATION. AS FOR EXAMPLE: A New Discounting Model for Teaching Finance Date Written: March 27, 2014 Abstract The mathematics of continuous compounding is not limited to the valuation of continuously compounded financial instruments and flow annuities, but rather it is a versatile and robust model that may be used for valuation of all financial contracts normally encountered. It consists of a simple, consistent, coherent and conceptually appealing set of equations that apply without modification to the complete range of applications. The discrete stepwise model of compounding, by contrast, is a redundant innovation that is more complicated than the generalized model and limited in scope. LINK: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2417143