...from what I can tell, that somewhere up the food chain, regulated institutions bought hte MBS paper and the CDS's. Thus, Presto! its regulated!

At best for you, this means its a failure of regulation on that level compounding a failure to regulate on the 3-or-4 (or many, many more) before that (Mortgage orgination, Mortgage brokerage, Securitization and swaps.... etc...).

And I don't think the SEC has the authority to pierce the actual assets of the banks, rather they are limited to making sure that regulated, non investment banks respect the separation from insurance and brokerage activities and follow fractional reserve banking policy correctly. Banks in the US have very few regulations... IE- SEC regulatory authority ends at the books, not the quality of the investments the books tabulate (The IRS, I'm sure, has more...).

In fact, insisting on such a thesis seems to be the root argument for an expansion of regulation... if you're arguing that the SEC should audit the quality of the investments the Banks represent, then sure... I'd be willing to consider that. ;-)

Yeti