[tankenmate]

There is the point that the investment arms of these banks were "bankrolling" the retail arms. They in fact provided the capital to take the mortgages off the retail banks hands (typically for more than they were worth). This had the effect of encouraging the retail arms to lend to even riskier clients; a positive feed back loop. I think there is probably a case that even a "chinese wall" between these two arms may have reduced the investment arms inducement of the retail arm to take on board such huge risks. As you state though legislating against this is difficult, many so called experts didn't see, or refused to see, this coming. If you put up new rules people will find new ways to get around them. Maybe a social responsibility requirement of the board in the Corporations Act might help? Who knows...