I think it's like doctors arguing about what skin cream to use to treat smallpox. The requirement is to prevent market participants from being able to act like this, and the way to do that is to make the people who trade with them face nasty penalties like sudden liquidation of their businesses. That mechanism would make counterparties very careful about other people's business models.
I'm kinda more of a 'provide regulations and let the courts settle this out with the shareholders' kinda guy.
Also a true free market allows trading strategies that let you bet against something. Yes, they're abused, but in many cases they provide the best form of market regulation.
Yeah I was just remembering this tonight. https://en.wikipedia.org/wiki/Long-Term_Capital_Management
The argument there was that LTCM was "too big to fail". Really they probably weren't, but they had 1.25T derivative positions off-book apparently.
Love or hate Paul Krugman, he argued that TARP could have been better put to use as a social safety net. The banks who took the risky investments can burn to the ground, but the citizens could be just fine.