probabilities attached to different states of nature to a world of total uncertainty. such regime changes are " tipping points " for the system as a whole, whose behavior is suddenly transformed. when they occur, agents respond by making decisions using “ worst - case ” scenarios and covering themselves against the possibility of their own demise. doing so, they faced and created a collective action problem since the general rush for protection only aggravates the stress. this is the best way to rationalize and understand the liquidity and market freezes which occurred in august 2007 and, again, in september 2008. facing such unprecedented reactions, policy makers may have wondered, " does the market know something that we don't ". actually, markets participants knew that they could not know. because they were directly involved, they were aware it was impossible for them to fully master the complexity they had themselves created. and they acted accordingly. overall, complexity may have resulted in more fragility, an evolution already foretold by minsky who saw structural changes in financial systems over time as an essential cause of their vulnerability complexity has deep implications for public policy and the future of financial regulation. • first, about transparency. improving transparency is the first item on the g20 international agenda, for financial regulation reform. transparency is normally considered as a prerequisite to the existence of efficient financial markets. more recently, full transparency on aggregate positions and exposures by main financial intermediaries tends to be seen by financial supervisors as necessary to assess potential systemic risk. however, when the system is constantly morphing into new structures, and permanently changing networks, a comprehensive, but static vision may prove inadequate, because it will not eliminate the uncertainty stemming from the potential discontinuities embedded in market dynamics. what is needed, at least, is an overall understanding of the complex dynamics at work, which may be better reached through a permanent reexamination of their structure and constantly testing against very adverse circumstances. • second, robustness. a natural reaction to financial fragility is to strengthen the ability of financial institutions to withstand shocks by increasing their capital and liquidity requirements. while necessary, it is doubtful whether this " buffer " approach will help when uncertainty settles in. then, the net demand for both liquidity and capital becomes infinite, because gross demand is unknown and hoarding creates little or no supply. in sum, in times of stress, " enough " capital or liquidity is never enough. even explicit contra

accounts. indeed, when that is the objective, the removal of capital gains is essential. for analysis of issues related to consumer spending, though, the nipa personal saving rate presents an incomplete picture of the financial state of the household sector in the aggregate, and an adjustment along the lines previously suggested may be informative. in addition to the effect of income - accounting conventions, of course, we must consider the real economy influence of capital gains on the level of consumption. the estimates of the effect of household capital gains on consumer spending of 3 to 5 cents on the dollar suggest that, directly and indirectly, capital gains easily account for the remainder of the measured five - year decline in the saving rate. obviously, this is not to say that had asset prices been flat for an extended period the personal saving rate would have been unchanged, on net, over the past five years. if asset prices had not risen, real incomes would surely have been altered, and the vast array of secondary and tertiary effects of assetprice changes would have been different. nonetheless, this exercise fosters additional important this is not done in the nipa owing, in part, to a desire by the bureau of economic analysis ( bea ) to conform with international standards for national accounts. insights into the dynamics of household behavior and the relationships among asset prices, income, and consumption. the complexity of these relationships underscores the potential usefulness of developing separate sets of accounts to track capital gains. these accounts could supplement the income and product accounts, the flow of funds accounts, and the balance of payments accounts. the last two currently exhibit, in part, the effect of capital gains and can be separated into special accounts. a supplementary set of detailed tables on capital gains exclusions from the national income and product accounts also would be a useful addition to our overall system of economic accounts. * * * this morning i have not endeavored to discuss the effects of capital gains, other than peripherally, on investment in plant and equipment, home improvement, tax revenues, and government surpluses, and their obvious significance in tracking international economic flows. clearly, these also are relevant to any evaluation of macroeconomic events and warrant further study. * * * in closing, accounting systems are not ends in themselves. we construct them because they have a function in aiding our understanding of some particular aspect of a business operation at a company level or for an economy as a whole. as we endeavor to better understand how changes in the level and composition of wealth