The whole issue is so grey, that it'll be hard to find a robust solution to it, without some sort of wholesale change. There is a lot of overall sense in havin

The whole issue is so grey, that it'll be hard to find a robust solution to it, without some sort of wholesale change. There is a lot of overall sense in having retailers focus on retailing, and leave the high finance stuff to underwriters, like insurance. The problems is that the laissez faire market dynamics degenerate at this point, Retailers get too good at retailing, selling people bad deals that could land them in trouble later. Underwriters focus on securitization, which is ultimately a sister to the money-creation process (like "fractional reserve" banking). Pretty much any solution is clunky. You can try to force "originators" to hold risk, but this limits scale. You can regulate underwriting rules (affordability & doc checking standards, for instance). You can regulate underwriting, but the high finance sector is (a) good at influencing regulators and (b) good at finding ways around regulations. |regulating for risk is a tricky business. You end up trying to regulate away risk, which is impossible.