Take a look at the following link , it describes a giant mortgage fraud scheme that led to the current financial crisis. Financial market regulators did not notice. The only regulator in the world that took action, to my knowledge, was Banking Supervision Committee which made it more difficult for Polish citizens to borrow in Swiss franks to buy houses, in anticipation of possible troubles-bubbles ahead. This decision definitely helped Poland to become star performer in the current crisis.
So what these failed regulators do these days. They consult with zombie bankers to come up with better regulation, which is likely to lead to a dead end. The best book on the financial crisis that I have read so far was Richard Bookstaber “Demon of our own design”. Richard was one of the key players behind the 1987 Black Tuesday Crash, his team created and made popular portfolio insurance. The book explains why more regulation will create more complex system and crashes will be even more likely.
We need change. In 21st century of internet we need to employ the crowdsourcing technique to prevent crises. The above link shows how the giant Madoff scheme developed in mortgages, that many people knew it was fraud, but there were no mechanisms, no incentives to reveal this information and to prevent from turning into worst crisis in a century.
Instead of new regulation, more complicated one, that is bound to fail again, we need to make sure that inside information about fraud gets to proper people, to regulators, and that there are proper incentives to act on this information.
Take a look around you. There could be Madoff schemes brewing in every country. Those who have such information and fail to act are as guilty, as those who create such schemes.