Two words: counterparty risk. If you borrow from A (or if A invests in you) and lend to B (or invest in B, or, if B is a bank, deposit money in B), then any ri

Two words: counterparty risk. If you borrow from A (or if A invests in you) and lend to B (or invest in B, or, if B is a bank, deposit money in B), then any risk that B might default translates into a risk that A will have trouble getting its money back too. One could, of course, say that every lender is responsible for not only checking out its debtors but also its debtors’ debtors and debtors’ debtors’ debtors and so on, and if a lender finds itself on the end of a chain of defaults, them’s the breaks. However, the experience of the late nineteenth century—never mind the Great Depression or the recent unpleasantness—teaches us that when this idea is implemented as law (perhaps I should say, as absence-of-law), we have periodic crises where the whole engine of credit seizes up, the economy goes into the toilet, and impoverished workers take to the streets. Securities regulations weren’t passed to save you from the capitalist system. They were passed to save the capitalist system from you.