Regulation creates systemic risks.
Regulation is why all big US banks took a huge hit when Fannie and Freddie hit the skids. Regulation is also why banks were holding "insured" mortgage pools.
And now we've gone from a situation where the banks were absurdly leveraged to a situation where the government is absurdly leveraged, most likely resulting in massive inflation unless a miracle happens. I can't really see how the public sector is doing any better than the private sector here. Nobody seems willing to exercise prudence anymore.
You missed the largest problem - the Federal Reserve set the price of borrowing money artificially low, almost to the point of being free. Whenever you set the price of borrowing money (interest and fees) lower than the rate of inflation, you're going to get some sort of massive financial problem. It's in everyone's rational interest under that scenario to borrow as much as they can. Of course, that leads to catastrophe.
You're gonna get a bubble somewhere -- that money has to go somewhere.
There were plenty of policies I disagreed with and plenty more that fueled the bubble. But I was talking specifically about the problems that lead to the credit crisis, paralyzed markets and generally gummed things up above and beyond a popped bubble.
There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks.
The only real problem we just suffered, was that certain institutions were allowed to become integral parts of our financial system and were allowed to play fast and loose with their own solvency.
If those banks weren't absurdly leveraged, the housing bubble would have just been another recession.
Lesser problems were the risk ratings that were tantamount to fraud and the short-sighted financial focus of your average corporate entity which lead to the over-leveraging.
But I'm comfortable conceding that ground to caveat emptor and letting the SEC sweep up the most egregious trouble-makers a day late, as usual. Because I honestly have no idea how you could actually _fix_ those problems without breaking something far more important.