Yea of course the players have a vested interest in keeping the game going, this has knock on effects in the wider economy e.g. availability of credit to those that have no realistic hope of paying it back, which is what happened in sup prime.
Their interests are not analogous with those of the State. As the State I would not be regulating in hope of the most efficient outcomes, but I would be regulating much more to protect my interests which are not the same as the market.
Australian report on CDOs etc
Just so know one misses it. A hedge finds buys the option on some toxic debt, which is then (over) valued by an "independent" ratings agency, the hedge fund then borrows money using its holding of the toxic waste as collateral.
We know the debt is toxic now, but when the hedge fund was borrowing against its ownership of the debt (Credit default swaps)the independent ratings agencies gave the toxic debt a nice value (the debt had been packaged in such a complex way that real values were totally invisible) so the hedge funds looked much more healthy than they really were.
Is it just me or does this seem like madness to anyone else?