The Standing Committee of China’s National People’s Congress imposed a 600 billion yuan limit on the direct debt local governments are allowed to run up this year, the official Xinhua News Agency said late Saturday. That would be on top of 15.4 trillion yuan on debt owed by local governments as of the end of 2014, Xinhua said.

That works out to about $2.5 trillion in total local debt across the country. There’s no word on how the NPC, or any other part of the central government, intends to enforce that limit. No more fudging the economic data by the locals, perhaps? That’s where it would have to begin. But then what? Fire the local government employees—or better, enroll them in one of Xi’s reeducation programs? Terminate local services? Raise taxes? Some more?

But there are loopholes.

The caps don’t include indirect liabilities, which officials said totaled 8.6 trillion yuan (roughly $1.3 trillion), according to Xinhua.

In addition, the central government has expanded a local-debt refinancing program that allows local governments to swap their high-interest debt for low interest central government debt. Don’t ask who sets the central government’s bond rates. Do think, though, about the financial liability being laid off onto Chinese “taxpayers” across the country from those locals.

And

Separately, lawmakers will remove a 75% cap on banks’ loan-to-deposit ratios on Oct 1, Xinhua said on Saturday.

Boy, howdy, are there loopholes.

Many traders reported difficulty buying and selling exchange-traded funds, a popular investment in which baskets of stocks and other assets are packaged to facilitate easy trading. Dozens of ETFs traded at sharp discounts to their net asset value—or their components’ worth—leading to outsize losses for investors who entered sell orders at the depth of the panic.

Products built to provide insurance for investors came up short. As a result of trading halts in futures tied to the S&P 500 index, it was difficult for investors to get consistent prices on contracts linked to them that offer insurance against S&P 500 declines.

That’s how Bradley Hope, Saumya Vaishampayan, and Corrie Driebusch opened their Wall Street Journal piece about Monday’s stock market performance, a piece interestingly titled Stock-Market Tumult Exposes Flaws in Modern Markets.

They also had this:

The giant swings in the market and problems with ETFs pointed to a need to rethink rules governing stock trading, analysts said.

“There needs to be a deeper examination of how the stock-market circuit breakers behaved on Monday,” said Joel Dickson, a senior investment strategist at Vanguard Group of Valley Forge, PA. “There was a major market-structure component to what happened.”

Illustrative of the bleating is this, too:

“Pricing options is almost impossible on the kind of move you had that day,” said Wayne Wu, who trades SPDR S&P 500 ETF options on the NYSE floor for Integral Derivatives.

Yeah, and? If an investor can’t get/doesn’t like the data related to an investment plan, it’s on him to take the risk, or not. It’s not on government to protect him from the outcomes of his decisions.

More government rules, or more layers on existing ones? No. Fewer government rules, and simpler. Tumult is the necessary noise of a free market. The PRC’s failure is illustrative of the outcomes of government “management” of markets and of underlying economies. We’re not where the PRC is, yet, and we don’t need to approach that, either.

But, but–what about guys who already had staked out positions when this happened, when the information breakdown occurred?  Second Rule of Investing (the First Rule is “Never invest anything you can’t afford to lose all of”): “Know where the back door is before you go in through the front door.”

Personal responsibility. Government needs to butt out. Caveat emptor.