Rising to the occasion, it doesn’t happen often, but some politicians do while most others have fallen by the wayside, reacting haphazerdly and being totally overwhelmed and ruled by events. Some look forward, but these are few. Too few.

Gordon Brown, the UK prime-minister, is on a roll lately. After showing the rest of the world on how to rescue the financial system from the brink of an unprecedented abyss, implementing it on a staggering scale in his own country (more funds available in the UK then in the much bigger US), he again pointing at what needs to be done next.

Brown calls for second wave attack on crisis
Tue Oct 14, 2008 4:23pm BST By Matt Falloon

• LONDON (Reuters) – Prime Minister Gordon Brown will on Wednesday urge Europe to follow up action to revive the banking system with changes to the architecture of the financial system to avoid a repeat of the credit crunch.
• Many countries are following Britain’s lead in pumping taxpayers’ money into banks to restore confidence, alongside big injections of liquidity into markets and underwriting lending between banks.
• But Brown, eager to build on a growing reputation at home and abroad as a policymaker at the frontline of the financial crisis, told reporters on Tuesday that the international community must go further.
• “The stakes are higher than ever before. The coming days will be crucial for the international financial community,” Brown said.
• “We not only need to take what I call the stage one measures which countries are now taking … but we also need to consider the stage two measures which is the assurance to the public that the problems that brought us to this place cannot happen again.”
• Brown will attend a meeting of European Union leaders on Wednesday, with conditions in financial markets likely to dominate the agenda.
• After Britain announced last week it was prepared to invest 50 billion pounds in banks to boost confidence and get them lending again, the United States, Germany and France have followed suit with smaller economies also taking similar steps.
• That has restored some stability to stock markets which fell heavily last week as fears grew about the ability of banks to stay in business.
• While the current upheaval on markets has been abated, many economies now face a tough period of economic stagnation or contraction and leaders are under pressure to act to clean up the financial system and prevent a similar crisis.
• Brown said he would push for more transparency in markets, responsible pay incentives, protection against speculative bubbles and the reform of institutions such as the International Monetary Fund to ensure they are “fit for purpose.”
• He also wants “colleges of supervisors” for the top 30 banks in place by Christmas and properly qualified executives who do not walk away when times get tough.
• “We need to show that we have dealt with the problems that caused the difficulties in the first place,” he said.
• Brown said he had spoken with Chinese Premier Wen Jiabao on Tuesday and had “found a great deal of common ground.”
• “I am hopeful that China will be, like many of the economies that are not part of the G8, be involved in making the decisions to reform the international financial system,” he said.

Not everybody (not even us) will agree with every proposed measure, but he certainly got the broad direction right. Financial makets are inherently unstable and are now the most likely source for recessions (or even worse).

However, having said that, we would warn against over-regulation that could sniff out any financial innovation. Apart from being a potential source of instability, financial innovation also produces wealth creation (economies, on average, grow more rapidly when there is room for financial innovation, despite the periodic financial crisis they provoke).

What we need is balance, to get the regulation right. And although we did argue that to figure out how to stabilize the financial system right now wasn’t rocket science, getting regulation just right is another cattle of fish.