The whole problem with the banks now has to do with allowing massively leveraged positions. If you're going to lend someone money, you should be required to assume the risk of a default. It's not OK to lend money and take the interest, but then have us all foot the bill if the loan goes into default. Regulation can decrease allowed leverage multipliers, but it won't restore prudence, because prudence only exists in a world of self-responsibility.
This article does an excellent job explaining how deregulation caused this current economic calamity. In particular, it points out that the potential unregulated insurance payouts were, in all likelihood, more than the combined GDP of the entire world. It's not that these companies decided to jump ship. It's that it was mathematically impossible for them to pay.
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