[nickff]

I am not sure how regulation will really solve a problem of incentives. I know that locking up corporate executives is very popular, but I don't think it works. You just end up with a bunch of audits that are technically correct, but fail to detect big problems.

I recently read "The Smartest Guys in the Room", and I'm not sure how you regulate that kind of problem out of existence; I don't think Sarbanes–Oxley really fixed it, but I am not sure regulations really can. Look at Theranos and Nikola; these should have been found out earlier, but their deceptions were not covered by auditors.

[maxmax]

Of course there will still be fraud, but enforcement of regulations provides powerful disincentives to cheat. Right now it's wild west, and when systemic risk shows up, the Fed bails everyone out without consequence.

[nickff]

I don't think regulations can get rid of systemic risk, but maybe that's because of how I see systemic risk issues. Most of those huge market corrections seem to be due to massive mistakes made simultaneously by a lot of people. The 2006 crisis is a great example, where investors thought real estate markets in different states were independent of each other, which turned out to be incorrect.

[maxmax]

The real estate bubble and the financial crisis in 2008 that followed was due to oversight failure, pure and simple. Rather than address that failure, the government bailed out everyone.

It wasn't magic.

[nickff]

The regulators were relying on the same assumption (of uncorrelated real estate markets state-by-state) by the credit ratings agencies.

The investors, ratings agencies, and regulators all believed in the same incorrect assumption. If that assumption had been correct, the crisis would never have happened.