"The answer is that regulators did an abysmal job of understanding the perverse incentives that plagued the industry."
My cynicism kicks in here. They did not fail to understand. They actively ignored, downplayed and dismissed clear evidence and demonized everyone that failed to participate in the fiction. There are powerful pressure groups and special interests that support from the debt driven, government incentivized mortgage system. They have captured the necessary regulators and legislators and expect these people adopt the appropriate blind spots.
Mine too. I am not attempting to let regulators off easy in this comment, merely pointing out that regardless of their specific motivations or their specific level of human integrity, systems that rely upon the good judgment of a small number of people often trend toward corruption... not necessarily through willful graft but due to human nature.
My cynicism kicks in here. They did not fail to understand. They actively ignored, downplayed and dismissed clear evidence and demonized everyone that failed to participate in the fiction. There are powerful pressure groups and special interests that support from the debt driven, government incentivized mortgage system. They have captured the necessary regulators and legislators and expect these people adopt the appropriate blind spots.