THE Karachi Stock Exchange, the country's primary stock exchange, should have not expected to remain insulated from the shocks hitting the world financial system in the wake of the American financial crisis, in particular its stock markets. But whereas the falls on Friday in the USA's Dow Jones, the UK's FTSE. Germany's Dax and France's CAC-40 indexes, and more relevant, Japan's Nikkei and Hong Kong's Hang Seng indices, were all in line with the world collapse, the KSE has identified that old favourite, the badla mechanism, now renamed the Continuous Funding System, as the root of the problem, and has demanded a cap of 24 percent for the CFS. The CFS has not only risen to record levels, but the KSE members want the exchange closed. It has been virtually closed, since the placing of a cap on how much a stock would be allowed to fall, but the KSE members want it formally closed until the new CFS cap is imposed. The problem is basically that an economy which is not really developed has been trying to have a stock market, and whenever it has boomed, the government has used it to point to the boom in the economy. This is despite stock markets depending largely on the future of an economy and of companies' earnings. The Pakistani economy is not corporatized enough to sustain this sort of prediction, which is not really prediction. Add to this volatile mixture the possible default of a KSE member, and the market was headed towards the result that is now playing out. With the cap already in place, the market is being driven down by external pressures too strong to withstand. All that the panic-stricken KSE members can come up with are a CFS cap and a market closure. These steps should be accepted, if nothing else because the KSE is supposed to make its own decisions, and so the brokers may see how ineffective their moves are. The government should realize that it cannot claim the stock exchanges as evidence of its policies' success, then remain silent when there are problems, essentially because of external reasons.