Just what lies ahead for investors in global markets remains the great unknown. I’m not talking about corporate earnings or the viability of the banking system; rather, what will happen following a global government initiative to reform capital markets?

Ahead of the G-20 summit this week in London, policy-makers will probably begin to set a potentially damaging new course to revamp securities laws affecting the entire gamut of finance, including hedge fund regulations, bank leverage, new capital adequacy ratios and even plans to increase the pressure on offshore tax havens. The latter is a sideshow, aimed at deflecting the real crisis, which has engulfed the banking system.

Of course, the London G-20 summit might also turn out to be an expensive tea party with crumpets since most of these gatherings in the past have done absolutely nothing to improve the financial system or the global exchange rate mechanism.

Yet buying stocks now comes with the risk of not knowing what will emerge in the new post-credit crisis environment. How will shareholders be affected by new securities laws? How will curbs on executive compensation affect company performance? And how will taming hedge fund transparency and leverage affect global markets?

Big government is now here to stay as post-1981 Reaganomics is finally quashed and traded instead for more government intervention amid a widespread and growing credit deflation.

In the 1930s the United States introduced important securities and banking laws that aimed to instill confidence at a time when capitalism was at the brink. These laws did indeed help the stock market rise towards the middle of that decade with the Dow finally bottoming at 41.22 in June 1932.

But many other laws also made capital markets and the business environment much worse, including the infamous Smoot-Hawley Tariff Act in 1930, which raised taxes on imported goods and exacerbated the Depression. Others were more constructive.

For example, the 1940 Investment Company Act set the standard for securities laws in the United States and helped to ferment investor confidence at a time when the Great Depression wiped-out investors, corporations and families alike.

Obviously, the Securities and Exchange Commission (SEC) needs a serious overhaul following a series of embarrassing blunders this decade, including Worldcom/Enron and, of course, the Bernie Madoff scandal, among many others frauds and scams. Just what the SEC was doing or more precisely, not doing over the last several years is arguably the biggest challenge facing regulators.

When all is said and done and finally legislated later this year or in 2010, how will the investment landscape alter global markets and the freedom of capital movement? I’m not exactly sure what sort of legislation is coming our way, but the uncertainty is growing and has not been discounted by global markets because everyone is focused on the banking system. Any significant barriers levied against hedge funds or other investment institutions won’t help markets recover any time soon if more uncertainty is exacted.

Let’s hope this week’s meeting in London doesn’t result in any damaging government intervention and, instead, focuses on how to improve the banking system and the shattered exchange rate mechanism.