The U.S. shouldn't protect investors from the free market? That's the free market at work. Investors are not entitled to be paid. All investments carry risk.
it did - some people left holding the bag lost out. The banks were playing the middleman, they weren't the ones taking the risks.
It could be said that the rating agencies were complicit, since their ratings were trusted by various parties by assumption and did not do their own due diligence.
From a US government perspective, the options are either let people invest their money in China or not let people invest their money in China. To let people decide on their own if investing money in Chinese companies is worth the risk seems to me to be the more free market option than our government forbidding it. That China can then pull the rug out from under you is the risk you take due to your choice of investment, if we wanted the government to protect people from that risk it should have been done before investment happened, not after.
free market where if i want to invest into a Chinese company i have to invest into a fake company in the Bahamas? If i want to really invest into China there are crazy rules and in the end they will just take your ip...