> but the bigger problem was the lack of regulation Except that the problem was actually the regulation. Let's look at your examples. > 1. rating agencies to

> but the bigger problem was the lack of regulation Except that the problem was actually the regulation. Let's look at your examples. > 1. rating agencies to lie -- they had an economic incentive to do so The rating agencies had a govt mandated monopoly - that's a creation of regulation. That pretty much guarantees that their failures will cause system failures. Note that the regulation in this case pushed that failure into the core of the banking system. The ratings determined whether something counted as an asset, so when they got it wrong, banks tanked. Note that regulation also said that "insurance" on mortgage-backed securities made them safe. The regulators did this because they wanted banks to hold more MBS, which makes them cheaper, which causes more of them to be created, and so on. > 2. an opaque market in instruments that grew so large the rest of us were on the hook for it. This is the largest transfer of wealth in history and it's still not clear what the hell happened. Sure it is. Politically connected institutions were made whole. (Example - We gave money to AIG to pay its debts to Goldman Sachs.) We're still pissing money into Fannie and Freddie. Regulation is systemic risk. Note that regulators don't have any skin in the game and politicians have even less. (I'm looking at you Barney Frank and Chris Dodd.)